If you’re just planning on picking up some freelance work to supplement your income, you can skip the business plan. But, if you’re embarking on a more significant endeavor that’s likely to consume a significant amount of time, money, and resources, then you need a business plan.
If you’re serious about business, taking planning seriously is critical to your success.
Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But business plans are also vital for running a business—strategic planning—whether or not it needs new loans or new investments. Existing businesses should have business plans that they maintain and update as market conditions change and as new opportunities arise.
Every business has long-term and short-term goals, sales targets, and expense budgets—a business plan encompasses all of those things and is as useful to a startup trying to raise funds as it is to a 10-year-old business that’s looking to grow.
1. Startup businesses
The most classic business planning scenario is for a startup, for which the plan helps the founders break uncertainty down into meaningful pieces, like the sales projection, expense budget, milestones, and tasks.
The need becomes obvious as soon as you recognize that you don’t know how much money you need, and when you need it, without laying out projected sales, costs, expenses, and timing of payments. And that’s for all startups, whether or not they need to convince investors, banks, or friends and family to part with their money and fund the new venture.
In this case, the business plan is focused on explaining what the new company is going to do, how it is going to accomplish its goals, and—most importantly—why the founders are the right people to do the job. A startup business plan also details the amount of money needed to get the business off the ground, and through the initial growth phases that will lead (hopefully!) to profitability.
2. Existing businesses
Not all business plans are for startups that are launching the next big thing. Existing businesses use business plans to strategically manage and steer the business, not just to address changes in their markets and to take advantage of new opportunities. They use a plan to reinforce strategy, establish metrics, manage responsibilities and goals, track results, and manage and plan resources including critical cash flow. And of course they use a plan to set the schedule for regular review and revision.
Business plans can be a critical driver of growth for existing businesses. Did you know that businesses that write plans and use them to manage their business grow 30 percent faster than businesses that take a “seat of the pants” approach? A study by Professor Andrew Burke, the founding Director of the Bettany Centre for Entrepreneurial Performance and Economics at Cranfield School of Management, discovered exactly this.
For existing businesses, a robust business planning process can be a competitive advantage that drives faster growth and greater innovation. Instead of a static document, business plans in existing businesses become dynamic tools that are used to track growth and spot potential problems before they derail the business.
Considering that business plans serve many different purposes, it’s no surprise that they come in many different forms.
Before you even start writing your business plan, you need to think about who the audience is and what the goals of your plan are. While there are common components that are found in almost every business plan, such as sales forecasts and marketing strategy, business plan formats can be very different depending on the audience and the type of business.
For example, if you’re building a plan for a biotech firm, your plan will go into details about government approval processes. If you are writing a plan for a restaurant, details about location and renovations might be critical factors. And, the language you’d use in the biotech firm’s business plan would be much more technical than the language you’d use in the plan for the restaurant.
Plans can also differ greatly in length, detail, and presentation. Plans that never leave the office and are used exclusively for internal strategic planning and management might use more casual language and might not have much visual polish.
On the other end of the spectrum, a plan that is destined for the desk of a top venture capitalist will have a high degree of polish and will focus on the high-growth aspects of the business and the experienced team that is going to deliver stunning results.