Why You Need a Business Plan

“By failing to prepare, you are preparing to fail.”
— Benjamin Franklin

We’ve all heard romantic notions about the swashbuckling entrepreneur acting only on guts and instinct, casting aside anything mundane or administrative. Take the leap, he (or she) who hesitates is lost, “crush it”, and so forth glorify the “ready, FIRE, aim” entrepreneurial verve and bravado.

I certainly advocate for taking a lot of purpose-driven action as soon as possible to create momentum and traction. And I’ve spoken with many would-be entrepreneurs who have solid ideas and a solid set of skills but never seem to be able to pull the trigger. They certainly could use a megadose of the action bug. 

But to those many new entrepreneurs who just want to jump into business and make things happen, I want to say, “Time out!” 

Because sometimes, to go fast, you first need to slow down enough to plan key areas of your business. Speed and efficiency are great, but not without effectiveness. The father of modern management, Peter Drucker, said, “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”

To be effective in business, we need a business plan. So let’s get started.

Watch the video where I cover this topic in depth:

Importance of Business Planning (Even if You Don’t Have Investors)

If you are looking to fund the business through bank loans, investors, and partnerships, stakeholders will want to see a business plan that demonstrates how your business is different from similar businesses and how you will pay back the loans or get them a return on their investment.

But even if you’re not seeking outside investment, and even if you’re a solopreneur at this point, a business plan will provide many benefits:

• Planning prevents cases of shiny-object syndrome. As you progress in your business, new opportunities will present themselves. A plan will help you decide what you should investigate further, and what you should ignore.
• The business planning process helps clarify your own thoughts. It forces you to consider things you may have only glossed over as you painted a rosy mental picture of your future business. 
  • How will you get clients?
  • Should you pay for advertising?
  • When should you make your first hire (or additional hires)?
• Planning helps you test ideas further, evaluate the market, and reasaonbly assess the business model’s chances to succeed before you potentially lose your life’s savings. After you have vetted your business idea, further planning forces you to take an even more critical look at the many variables that need to come together for your business to succeed. 

Not One-and-Done

And don’t fall into the trap of thinking business planning is a one-and-done thing — something you do in the start-up phase and never do again. To succeed, planning needs to be a part of your business DNA. It’s a never-ending evolution. As your business grows, you’ll reap tremendous benefits if you continue the process of planning, reviewing, and adjusting. 

In my own businesses, we’ve faithfully blocked time for annual planning sessions and quarterly reviews to track our progress, make changes, and re-strategize when necessary.

Should You Write Your Business Plan Yourself or Hire a Professional?

If you’ve never written a plan before, it can seem intimidating at first glance, especially the sections that pertain to areas of business you might have little experience with. But it’s not as daunting as it seems.

Write It Yourself – It Doesn’t Need to Be Perfect

My typical advice to a founder is to start the plan on your own and to not to strive for perfection or comprehensiveness. 

Some business advisors may encourage you to fully document your entire plan before starting the business. I disagree. Maybe it’s just my bias toward action. Kicking off your business with a partial plan provides two important benefits:

• You’re out in the marketplace validating your preliminary assumptions and getting critical feedback.
• You’ll be generating business- and life-sustaining revenue. Making money quickly can help your business progress quickly. As former CEO of Google Eric Schmidt once said, “Revenue solves all problems.” 

A rigid, end-to-end plan at the start can feel restrictive and slow you down. Get started, analyze results against your original plan, and revise and expand your plan as you go. 

Getting Started With the Plan

The plan you write can be fairly simple at first. I can’t stress this enough: It’s important to actually write something — anything — that will help you solidify your thoughts. Talk to established founders, talk to people in your network to get their input, and then at some point soon, just sit down and write it. 

Write with the understanding you might rewrite half of it after you get some real-world experience. But the initial act of writing it down is crucial to giving you the clarity you need to move into action.  As novelist Jodi Picoult said, “You can edit a bad page. You can’t edit a blank page.”

Start with an outline in a notebook or in a Google doc. List out the 6 main elements of the business plan, one at the top of every page, and simply start writing what you know along with what you don’t know yet. The six areas I suggest (included in more detail later) are…

• Vision or executive summary
• Organization and management
• Market analysis
• Product and service
• Financial projections
• Sales and marketing.

Even if your actual business is technical, a rough draft with pencil and paper can be helpful. Last year, I spoke with an entrepreneur in the agricultural-technology (agro tech) space. He simply invested fifty thousand dollars of his own money and got started drafting a simple plan to guide his thinking and actions. 

Then he crowd-sourced for feedback on the plan with a few mentors and trusted friends. He was open AND grateful for their hole-poking critiques, and now, several months later, the business has grown, he’s collected more data, and filled in the gaps that were merely rough guesses at first. 

When to Hire a Professional to Write Your Business Plan

As your business gets more complicated, let’s say you have several partners, maybe a large inventory, a lot of staff, office equipment, and office space, plus you’re servicing different markets. In that case, I recommend you getting help from business planning professionals.

The complexity of moving parts alone can make the input from professionals valuable. But you should absolutely hire a professional in some degree when you’re …

• Looking for funding from angel investors or venture capitalists (VCs)
• Thinking of bringing on board members and partners
• Creating sophisticated vendor agreements

A firm will have access to databases, researchers, and other tools to help you create more professional-level analyses of markets, competition, and so forth. 

The other reason to consider hiring a professional is when your audience dictates the necessity of having a high level of professionalism. This audience may include loan officers, friend-investors, VCs, etc. For this type of audience, the plan needs to be polished both in content and aesthetics. 

From my experience, the size and effort going into the plan is proportional to the amount of money you’re requesting. However, the key components of the plan remain the same regardless of the amount. But as the requested amount grows, so does the level of complexity, sophistication, and the rigorous data backing it up.  

And remember the agro tech founder I mentioned earlier? He wrote his first plan for his benefit. But now that he’s grown, he has refined the plan with the help of a professional firm. He’s presenting this refined plan to investors and is getting great traction.

The 6 Sections Every Business Plan Must Have 

Whether writing a plan for your own clarity or for sophisticated partners and investors, there are key elements every plan must have. These elements help you think through how the business will operate, how you will manage it, find clients, and generate much needed revenue.

Executive Summary

All businesses start with a vision — your vision. What is it do you want your business to be when it grows up?

You want the executive summary to catch the reader’s attention (or just your imagination if you’re the only reader) and briefly outline the rest of the plan: your target audience, the problem you’re solving, the market, the competitive advantage you bring to the market, your sales and marketing strategies, and finally the financials. 

This is where you write your big vision for the business and summarize as briefly as possible how you’ll get there. 

Organization and Management

In the organization and management section, you’re writing about how you’re going to run the business. Things to include here are whether this will be full-time or part-time business and show who’s responsible for which business function.

This is also where you’ll include your business partners (if any), and listing any initial employees and what each of them is bringing to the business in the way of skills and experience.

This section will also show how you will make business decisions. Make this decision-making structure clear. Who makes the final decision? Are different decisions made by different people? This section is especially important for investors to show how you will decide to spend their money.

And even if you’re not looking for funding, it’s important to outline this section for yourself and your team. Defining responsibilities early can prevent future disputes and headaches. 

Last, I recommend you add a subsection on culture: the policies and procedures of your business, listing the values and the business ethos you and your business partners want to uphold. 

Market Analysis 

You’re starting this business because you had an idea and recognized an unmet need, you’re creative and found inefficiencies in an existing market, or you’re riding the wave of a breakthrough in some business vertical or ecosystem. 

In the market analysis section of your business plan, you’re going to validate even further that your idea has an audience and can compete with alternative solutions.

There are two major sections to include in the market analysis. The first is your target audience (who you intend to sell to), including their demographics (statistical data) and psychographics (psychological data). The second is a competitive analysis, including what other businesses compete in this space, and outlines your understanding of the ins and outs of operating within the market segment you’re targeting.

The market analysis is one of the most important sections to complete. If you’re unsure of how to complete a thorough target market and competitive analyses, I’ll be covering these more fully in an upcoming post.

Product and Service

The product and service section is where you will expand on what you’re offering. Specifically, you want to explain what’s so unique about your offer. Why will your target audience or audiences be excited about it?

If it’s a physical product, include the costs to make and ship (and maintain) a product. Or if you’re in the service space, include the cost associated with delivering your service.

Maybe until the point of writing a plan, this business has been your side hustle. Then this is a great place to mention positive customer feedback and reviews you’ve received. And if there are customer complaints (investors will find these!), then you will want to address how you’ve improved to address those complaints.

Finally, include the delivery cycle for your product or service. A design firm with a branding package that takes 2 weeks to deliver the cycle can be stated simply. But if your delivery cycle is relatively long, ensure that this section mentions all key milestones and phases and what’s needed to achieve each milestone, along with final expected outcomes. 

Financial Projections

In the financial projections section, I find two common scenarios: 

Scenario 1: The Pivot

You’ve been in business for a while, and you are now writing a business plan to grow or maybe pivot. Leverage all the existing data you have, your knowledge about the sales cycle and seasonality, what has worked and what hasn’t in marketing, as well as historical costs of delivery and pricing.

Scenario 2: New Business

In this scenario, you’re starting fresh and writing the plan before you start or as you are starting. As mentioned previously, you’re going to make a lot of assumptions. The important thing is to start projecting a baseline expectation for revenue, expenses, and margin over the next 12 months.

What to Include in the Financial Projection Section

For revenue, include your pricing strategy, tiered pricing, recurring revenue potential, and client retention targets. You’ll also want to show how you plan to scale your sales. But be sure to capture expected expenses associated with supporting that sales growth, such as hiring your first salesperson, or speeding up your marketing efforts.  

Another thing to consider in revenue projections is the lead-time to close a deal, and when your customers will pay in alignment with your accounting model.

You will also have to make a lot of assumptions with expected expenses. Think about expenses for:

• Rent
• Insurance
• Legal fees
• And eventual salaries, benefits, and bonuses. 

Make sure the revenue matches with the expected expenses. And, by the way, no need to invest in pricey financial software. You can do most of this planning in a simple spreadsheet like Google Sheets or Microsoft Excel. 

And if you are seeking funding, explicitly state in your business plan how and when the funds will be used and treated. Write whether it’s being treated as debt or equity or maybe a mix.

You should also include your exit strategy in the financial projections. This can be as simple as planning to run the business until you can’t, at which point the business transfers to your designees, or you plan to sell in 3, 5, or 20 years. 

Finally, be thorough, transparent, err on the side of being conservative, and be realistic with ALL of your assumptions. It’s better to hit a four-month financial target in three months than vice-versa! 

Sales and Marketing

The end of your plan is where you cover sales and marketing. These two areas can be combined into one section, or treated separately. 

Here you will identify both the marketing strategy and tactics you’ll deploy to promote your business. The basics of marketing include a thorough market analysis, which we covered thoroughly in the market analysis section.

This section can recap those findings but should also include: 

• Estimates for your marketing spend for things like paid media, advertisements, joint venture or affiliate marketing, and low- or no-cost options like organic search engine optimization (SEO), and guerrilla marketing efforts [include link to Guerrilla Mktg post/vid]. 
• The various marketing channels you’ll employ and their associated efforts and costs. These are activities like networking or cold calling, events, meetups, and conferences.
• For online businesses, list the strategy for generating website and/or mobile app traffic and how you’ll convert website visitors into leads and customers.
• Content marketing strategies. Show if you will be producing the content yourself or will hire someone. Define which formats and platforms you will utilize in content marketing such as blog posts, videos, podcasts, email campaigns, and/or social media posts.

Besides documenting your marketing and lead generation efforts, also include what it will take to close deals. What will your sales cycle look like? Who will follow up on leads? Describe the sales assets you need, such as price lists, discount programs, pitches, sales slides decks, proposal templates, references, brochures, conference booths, etc.

You may also want to think about what marketing technology (or martech)  you’ll use for capturing and nurturing leads, delivering content, as well as Customer Relationship Management software (CRM).

If that weren’t already a lot to think about, you will also want to create a solid sales operations processes to manage all of those leads, opportunities, and deals. 

And lastly, include how you plan to measure the effectiveness of your various marketing and sales efforts. Metrics matter!

Exhibits

The last section of the business plan is exhibits. This is where you’ll back up your claims, provide additional details, certifications, patents, detailed research documents and detailed financial modeling, whatever applies to you, your team, and your service/product. If the plan is the argument for funding, the exhibits are the evidence to close the case.

Phew! That’s a lot.

But going through all this effort will help you clarify what you need for yourself and also increase confidence in investors.

Conclusion

There you have it, the essential items you need to make your business plan complete, demonstrate your competence, and clarify your thinking around all the little details you need in place to make your business successful.

We’ve covered why a plan is essential, as well as the sections needed and the information to include.

Again, if you are only going through this effort for yourself, the process will help you focus on the actions you’ll take and assets you’ll need to develop to grow. And, if (or when) you need additional funding, the plan provides the details potential investors will want to see before contributing (even if the investor’s been your best friend since kindergarten).

Key Takeaways and Actions

• Creating a business plan is extraordinarily important even if you’re a solopreneur with no need for funding.
• If you don’t have a plan, create one as soon as possible.
• Write it yourself if it is for you and a small team and the level of complexity is low.
• Get help from professionals if you are looking for funding or if your business is especially complex.
• Block at least one day at the end of every quarter to review the plan, fill in some of the initial gaps, and refine the strategies and tactics for the next quarter.
• Block a few days to a week at the end of every year to create a plan for the next year.