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Why should you write a business plan?

A sensible man never embarks on an enterprise until he can see his way to the end of it.
- Aesop

Writing a business plan, if you’ve never written one, can be a daunting thought. Perhaps you’ve never even seen one. Perhaps you haven’t enjoyed writing or don’t know where to begin. Maybe you have some experience in business and know about business plans, but just want some additional ideas. Or, perhaps you don’t see the need.

Many businesspeople apparently do not write or use business plans. Do you suppose that the guy running the local TV repair shop wrote one? Do you think your beautician wrote one? Well, if they got an SBA loan, then they did. Sure, you can do business without a plan, but consider the benefits of having one, such as obtaining funding from someone outside your family. Most of the businesses that fail have never written a business plan, while many stud¬ies have shown that companies with business plans have a higher probability of success.

People write business plans for a number of reasons. Perhaps the one most important, but one usually left unstated, is to be taken seriously. Whatever the ultimate purpose of your business plan, if your business is not taken seriously, you won’t achieve your purpose.

That having been said, perhaps the most common stated reason for writing a business plan is to obtain funding. This handbook focuses on funding. Funding, of course, is money that someone loans, invests in, or gives you because they believe you are going to be successful, and they want to share in that success. If you thought that funding only comes from banks, well, that is but one of probably several hundred sources of funding. Chapter 2: Targeting Your Audience, and Appendix B: 65 Ways to Finance Your Business, provide more background information on this topic. With these points in mind, here are some of the major reasons and benefits of writing a business plan:

Obtaining funding as the basis for…

• Attracting key employees into your company
• Convincing key suppliers to give you credit
• Creating a brochure for a business broker to use in selling your company
• Presenting live presentations to investors and key suppliers and dealers
• Designing a prospectus to sell stock in your company
• Attracting business partners
• Forming strategic alliances

To support the good management of your business…

• Ensuring that everyone in your company is working towards the same goals
• Convincing others in your company to allocate resources
• Collecting your thoughts about how to run the business — which helps you monitor its progress and make course corrections
• Managing your growth
• Obtaining input from employees and investors

What Is a Business Plan?

A business plan is a written document used to describe your business. The sections of a business plan are fairly standard, though. Therefore, you have lots of help and precedents from those who have gone before you.

Each section in a typical plan has a specific purpose, for example, an overview of your company or of your products. A plan for a small, simple business can be quite short, perhaps as few as 8-10 pages. Certain sections can be as short as one page. Be reassured that each step of this process can be relatively painless and ultimately quite rewarding.

What investors want to know...

Building a business requires more than just an idea and a plan. For a moment (and you may need to refer to this moment often), put yourself in an investor's position... What would YOU want to know about a business before you invested in it? We often recommend investing an amount of money in a friend's business just to get the mental, physical, emotional, and spiritual experience of investing precious CASH in someone else's business. Now, more than ever, you must be convincing to the bone. And, expect that intelligent people with money will want to feel comfortable with you and your answers. You will find that, no matter who you are and what you are doing, you’re going to need answers to these basic questions:

• Who are you?
• Why are you in business?
• What is the opportunity here?
• What is the current situation in the world?
• How big is the market?
• What will you sell?
• How is your business structured?
• How will you make money?
• Who else is doing the same thing?
• How do you compare?
• Who are your most important customers?
• How will you reach and inspire them to buy from you?
• Do you have any strategic partners who will help?
• Who are the people running your business?
• What experience do you/they have?
• Who else are you working with?
• Who are your advisors? Who is on your board?
• Where are you today?
• What have you accomplished?
• How much money do you need to start / grow?
• What will you do with the money? What’s the deal?
• How much money will investors make?
• When & how will investors make their money back?

Your Executive Summary will either inspire an investor emotionally or not (that's how most of us make decisions). This will only open the door to further discussion and exploration. The rest of your plan must provide the whole story with proof, logic, and the introduction to the people who will be "response-able" to build and run the business. Investors likely have many interests. When you approach them with a complete plan...
A) you will have the above answers firmly in your head and you will be able to speak them with certainty
B) your plan will provide written documentation that adds believe-ability
C) having done the math, you will feel great about your prospects for personal wealth, as well as a huge payoff for your investor(s)(who may get richer then you do from your deal).

Warning: Some entrepreneurs, deep in their psyche somewhere, may resent investors, who seem like they don't do much work, making a lot of money on your deal. Someday, you too may be in a position where an entrepreneur will approach you for investment. Who will you be in that place? How should they FEEL about you? How would you feel about them?