Why a business plan is so important, even in a small business?

Andrew JohnsonBusiness PlanLeave a Comment

Why a business plan is so important, even in a small business?

Why a business plan is so important, even in a small business?

Every business starts small. Even Apple was a start-up once upon a time, nothing more than a seed floating around in the mind of Steve Jobs and co.
So it’s hardly a surprise that a great business plan is really important even for a small business.

In fact without a business plan, your small business almost certainly won’t grow. It is highly likely that it may not even be capable of surviving for very long in todays demanding and incredibly competitive marketplaces. It is a question of appropriateness of the business case; the level of detail and rigour is potentially a function of the businesses complexity and size? You must address all the following areas in sufficient detail ‘appropriate’ to the investment or business risk that you feel you are taking. This is a complex decision, over engineering will potentially add too much complexity and stifle the creative essence of a simple ‘elegant’ small business. Under playing the analysis may allow crucial flaws to slip through the net increasing the potential for the business failing.
Benefits of writing an appropriately balanced business plan for a small business

Finance and figures

A well written business plan will expose and allow you to iron out any financial questions that may make or break the business. A great idea on paper can quickly come undone once you commit it to a plan and work out the financials.

Related to this, a business plan is a crucial tool for attracting investors or for getting banks to lend you money. An organisation or individual will only stump up the cash if they trust you and your plans for the business. A well-researched and professionally presented business plan will demonstrate your credentials and show you are serious and have worked out the figures. It’s essential for that all-important business process – cash flow, after all business is all about the return, it is unavoidable.

Avoid mistakes and foresee problems

A business plan lays out your vision for the future; it is the tool that generates excitement and should also give confidence that you have considered any inhibitors or potential problems. The development process forces you to think and question the validity of every idea you have. Even better, testing it with independent outsiders gaining a crucial objective view on what you plan to invest your blood sweat tears and hard earned cash in.

This also means you can avoid mistakes, which is ultimately what we want from our plan – it’s meant to be a plan for success. So whether it’s foreseeing a lack of capital (and remedying before it’s too late), or realising that you have the wrong marketing approach for your target customer base – the business plan will let you plan around the pitfalls.

Prioritise and organise

A business plan also enables the entrepreneur to prioritise their actions. It helps you define objectives, set out long-term strategies and detail where you need to focus your attention at each stage.

For example, the process of working on the plan can help the business owner see that they simply don’t have the capital to sustain the business beyond six months. How many business plans on The Apprentice are rejected by Lord Sugar for this very reason?

Development costs may be high, growth is invariably initially slow – the money to support this development must not run out in half a year (this goes back to the cash flow point). The business plan must address these sorts of challenges in sufficient detail, enabling the business owner to proactively manage any funding needs.

Goals and benchmarks

A good business plan is an appropriately detailed roadmap, a vision for where the business is going to go. It details the practical bits the finance, the marketing, the products it also sets out the vision of what all the effort driving towards, the goals. In small businesses you will by implication be short on resource and therefore need to be highly focused only on things that drive toward that goal. Appropriate levels of understanding of the business goals, as defined in the business plan, are non optional, they are essential to ensuring that all activity is focused in the right areas creating the best possible chance of success and leading to a thriving small business in the long run.

So why a business plan is so important, even in a small business?
Having clarity over what it is you are looking to achieve is universal in business whether big or small. You have to have some sort of objective to give you the ability to make decisions that will achieve your aspirations. The question is how much is enough in terms of detail, this is the judgement call rather than avoiding having anything. There is a delicate balance needed to ensure you don’t overwork and spend too much precious time and energy on documentation rather than getting on with delivering. Ultimately it is a judgement call for you to take, we would suggest that it would be sensible to seek objective advice to either stop you wasting time or provide direction on where a little more focused effort will provide better returns for your business.

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