Let’s get right to it: It’s 33%. A recent survey revealed that around 33% of small businesses have a formal business plan.
Are you surprised?
Not every successful business started with a formal business plan, and yours may not have either.
Why You Need a Business Plan
There are bound to be some outliers that succeed despite failing to putting pen to paper (or cursor to spreadsheet, so to speak).
Despite that, those businesses with formal business plans express significantly more promising expectations for the coming years, regarding their estimated success and future growth.
Business plans help local business owners:
- Gain funding via bank loans and individual investors
- Focus in on what you truly want to do, and drop ideas that aren’t a great fit
- Define goals for revenue and profitability
- Set legal boundaries for any partnerships or affiliations
- Protect you against future legal hurdles
- Assess future opportunities
So if businesses with formal plans in place predict brighter futures for themselves, what’s keeping you from creating your own?
Basic Elements of a Formal Business Plan
Not everyone agrees on the perfect elements of a business plan. But in its simplest form, you’ve absolutely got to include:
- An Overview and Table of Contents – sets expectations for what your plan will entail, and how to navigate it
- A “Who We Are” – explains your mindset and background as a business owner, and why you are starting this particular business
- A Historical Overview – details any past ventures, business relationships, name changes and other historical data
- Your Main Products or Services – includes products or service details, even target price points
- A Marketing Strategy – covers your target market and customer, and how you intend to capture their attention and business
- A Financial Summary – includes the three essential financial statements: a balance sheet, profit and loss statement, and cash flow statement
If you’re not sure where to start with any of these elements, there’s no shame in hiring a professional or getting a quick consult. There are also plenty of books and other reading materials on the topics of business management and building a business plan.
Successful Business Plans Have These Things in Common
Again, no two business plans are alike. And that’s OK. What’s important is that the most successful business plans share a few things in common.
They’re easy to read.
This may seem intuitive, but many entrepreneurs think that to be taken seriously by investors, lenders and other stakeholders, their business plans need to be stuffed chock-full of corporate-y business-speak and confusing industry jargon. Not so! Keep things simple, and use words anyone can understand.
They demonstrate business acumen.
That said, it’s important your business plan shows you have a clear understanding that the goal of a business is profitability. Even passion projects and nonprofits have to make money to stay afloat. So while letting your passion for your craft shine through is a good thing, don’t shy away from incorporating a true business model with the numbers to back it up.
They’re well organized.
The best business plans read like a story; they have a beginning, a middle and an end. They start with who you are and why you’re starting a business, detail how you intend to run your business, and end with your desired results.
Risks of Not Having a Business Plan
If you’ve gotten this far without a business plan and feel like things are going pretty smoothly, you’re probably thinking, “No need, I’m good. I’ve gotten this far without one!”
Hold up. Business plans aren’t just for budding new entrepreneurs. They’re also for businesses that would prefer to be in business for the long haul and even have plans for growth.
Not having a long-term business plan could have serious consequences.
You may try to expand too quickly.
It can be easy to mistake success at one store, location, or with one particular service for success on a grander level. Without taking into account market influences like geography and consumer demographics, you could fail to account for factors that could negatively impact your expansion success.
You could find yourself with insufficient funds/capital.
Not all startup costs are created equal. Like the challenges associated with expansion, each new business venture (even if you’ve been successful in the past) should be looked at thru a new lens, with a fresh calculator.
You could find yourself vulnerable to competitive pressures.
If you fail to analyze the competitive environment, your fledgling business could quickly get squashed by the competition. Run a local search for your products or services online, and see who comes up that you could end up competing with. What are their differentiators? Where are they marketing, and how?
Think about how you want to be different, and work these details into your plan. If you miss the mark on these, the competition isn’t likely to miss the mark on taking you out.