Why Won’t You Write a Business Plan?

The first thing budding entrepreneurs should know is that a written plan does not ‘lock you in’. They are for planning and budgeting purposes, not written as operational guidelines. The primary purpose is to be a written outline that includes the evaluation of all aspects of your new venture. If done properly it will include the viability (profitability) of all parts of your proposed venture.

There is no perfect template. They can be as short as one page, be as long as hundreds of pages or somewhere in between..

Writing a plan is something every person considering going into business for themselves should do. It doesn’t matter if you are thinking about opening a small part time business or if you are considering opening something as complex as a manufacturing plant.

If you are hesitant to put it writing, know that you are not alone. The majority of people try to avoid doing this. I have heard lots of reasons/excuses for not having a written plan. I’ve heard “I don’t have time”, “I am not a paperwork kind of guy”, “I’m not going to need investors, so I don’t need one”. None of these are valid. They all point to the person not knowing the importance of a written plan.

I believe some people do not want to be held accountable to their numbers and/or projections. Think of it like a road map and it’s easier to comprehend. If you want need to drive from Texas to Florida, you would use a road map. And if during the trip, if you encountered a detour you would simple adjust your route and continue the journey. Some people tend to look at their business plan as something that can’t be changed. If well written and thought out, it will analyze differing scenarios to accomplish business success. Like a road map, you can get from point “A” to point “B” via lots of different routes. Each with it’s own advantages and disadvantages. They can be an excellent way to show the different routes available to achieve your end goal.

Another misconception is that they are somehow unchangeable. Trust me, when you go into business for yourself there are lots of things that will go better or worse than you expect. That’s how business works. You should occasionally review and make adjustments to the plan as dictated by current market conditions. A periodic review will help keep you on track regardless of changing market conditions.

This will help keep you focused on the end goal. By defining your goals and the methods you will be using to achieve them, it will be easier to stay on track. This will prove especially important during tough times.

A business plan is a great way of presenting your new business idea to lenders. Venture capitalists, banks and other lending institutions will almost always require you to have a written plan. When meeting with potential investors, it can be an excellent sales tool by allowing you to make a very detailed and logical presentation.

You can also use it to solicit ideas and suggestions from others. If you have contacts that you respect, or mentors, or maybe friends and family, then sharing it with them may be a great way to solicit other opinions about your proposed venture. That’s not to say that you should always take the advice of others, quite the contrary. What you should do is listen to them with an open mind and try not to get emotionally attached to an idea just because it happens to be “your” idea. I’ve seen lots of people fail because they got so caught up in doing things ‘their way’. In my business career I have had lots of people come up with great ideas and suggestions that made me a lot of money. Remember, not all good ideas will be your ideas. Your job is not to come up with all the great ideas, it’s to recognize great ideas and incorporate them in your business.

Here is a time saving tip. Do not take the time to write any ‘long term’ goals for your new company. Anything longer than eighteen months is not necessary. Business owners and your potential lenders know that things change and that to remain in business you will have to change too. For those old enough to remember what a pager is, I used to own a ‘pager’ company. This was before the days of cellular phones and I made a lot of money in the pager business. With the introduction of cellular phones I knew the pager industry, and my pager company, were possibly in for some major changes. I re-worked my business plan for the scenarios I believed were possible. One of the scenarios was selling the pager business and concentrating on the new cellular business. Fortunately for me there was a group of people who contacted me with the idea of buying my pager company. It was easy for me to see that they believed increased sales of cellular phones would make more people aware of their need to be in contact 100% of the time. The first cellular phones that came out were not portable, you actually had to have them permanently mounted in a vehicle. So when you were out of the vehicle, you were out of touch. I sold my pager company to them and shifted my emphasis to the cellular part of the business. I felt that even if I was wrong and the pager industry did continue to grow, the potential for cellular was greater. Shortly after I sold the pager company, portable cellular phones were introduced. Those portable phones sealed the fate of the pager industry. They were out of business within 24 months. Had I stubbornly stuck to my original pager business plan, I would have gone out of business too.

I had to make adjustments to reflect the current market conditions. I actually shifted my pager operation into a cellular operation and ended up making a lot more money. As the markets shifted, there were a lot of large publicly traded companies who for whatever reason refused to acknowledge the shifting markets. Those companies all went bankrupt.

Many of them were victims of the “my idea” problem discussed earlier. They believed that they were smarter and had more insight into the pager business than anyone else. Ego is a big reason for business failures and with large publicly traded companies the egos get larger and the losses get larger too. Secondly, they refused to recognize and adjust for the changing market conditions. Either of these reasons can put a company out of business but when you put them both together there is no way a company can remain profitable.

When Henry Ford introduced the car to the American public there were a lot of very large “buggy whip” companies at that time. Some of them stubbornly refused to adjust and merrily kept making ‘buggy whips’. They are all gone now. Making the highest quality product for a ever shrinking market means a slow painful death for a business. Always be prepared to make adjustments and plan accordingly.

The last thing I want to mention about writing a business plan is to not be so damn optimistic. It’s as though most people want others to believe that their idea is fantastic and there is no downside risk. Common sense tells us otherwise but I have seen, and continue to see presentations that are so ‘over the top’ with optimism that they make me question whether the person had a firm gasp on reality. By including how you will change strategies if certain adversities come about, you make lenders much more comfortable knowing you have done a thorough job in your analysis.

Be extremely conservative when it comes to predicting time lines to profitability, sales figures and the resultant profit figures. If anything you should be extremely conservative in your estimates for the amount of money you will need. This means your analysis will show you will need more money than you believe it will. Banks, lenders and venture capitalists all know that very few people going into business for the first time plan correctly anticipate exactly how much time and capital will be required.

Once you get your doors open, it’s a lot easier to go to your partners and tell them that the profits and sales are exceeding projections and you will not be needing as much money as originally budgeted. Contrast that with having to go to your partners and tell them that you under estimated the capital requirements because sales are not as strong as projected. In that scenario you may not get the additional money you need. Or the investors may decide that you really don’t know what you are doing and you will be out of business. And in that situation you will most likely be able to trace the beginning of the end to being overly optimistic in your business plan.

You should always portray a realistic view of all scenarios, good and bad. In a nutshell, business plans should allow you to “under promise and over deliver”.

Source by H. R. Smith

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