Don't Think You Need a Business Plan? Think Again.

In the past few months, I’ve had several discussions with people who are either starting a business or thinking about starting a business. Being a startup myself, I applaud anyone who wants to take on the challenge of business ownership. It requires a lot of hard work, determination, courage, and creativity. It also requires a business plan. Some people are under the impression that a business plan is needed only if financing is going to be sought out, but that impression is far from the truth.

Banks and other lenders review a business plan to determine if there would be an adequate return on their investment, amongst other things. So, if you don’t want or need financing, it’s safe to assume that YOU are the investor and you, too, would like an adequate return on your investment. Compiling a business plan aids in quantifying that number and determining if it’s what you thought or hoped it would be.

Other benefits exist as well. It gives you clarity. It reveals your strengths and weaknesses so you can play up on those strengths and mitigate those weaknesses. You get a better idea of the specific industry you plan on entering like competition, ease of entry into the market, and the best way to reach your target demographic.

A business plan is even more important if you’re going to sell a product versus a service. How will you source your material? What payment arrangements do you have with your vendors? Do you have to pay immediately but won’t sell your product immediately, causing a cash flow issue? How much will it cost to make your product? Will your selling price cover the cost of your product AND give you the gross margin you’re targeting? Will it be enough where you can pay yourself the salary you have in mind?

You have to have a plan in place to maximize your chance of a good outcome. It helps you address all the facets of the business, not just the facets you’re good at. I’ve spoken to many business owners and most of them admit that they’re really good at what they do, but they’re not a “businessperson”. They’re good at plumbing, but know nothing about marketing. They’re good at making jewelry, but know nothing about accounting. They’re good at building custom furniture, but know nothing about supply chain management.

And that’s okay! Once a business plan has been compiled, it provides you a set of high-level instructions on how to market, how to handle the accounting, how to manage the supply chain, and much more. It also minimizes those little “surprises” that arise down the road; the surprises that come about due to lack of planning.

As I said before, I applaud anyone who wants to become a business owner. I also want them to succeed. Increase your chance of success by making a plan…a business plan.