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Planning a Business
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Noah Parsons10 min. read
Updated September 23,
Imagine youre going on a road trip. You know your final destination, but you havent figured out how to get there.
While it might be fun to start driving and figure things out as you go, your trip will likely take longer than expected and end up costing more. But, if you take the time to look at a map and chart the best way to get to your destinationyoull arrive on time and on budget.
Planning for your business isnt much different, which is why a business plan is so important to your continued success.
The primary purpose of a business plan is to help you figure out where you want to go with your business and how you will get there. Writing a business plan helps you set your direction and determine a winning strategy. A solid business plan will set your business up for success and help you build an unbeatable company.
If you start off without a plan, you may go down some interesting detours, but youre unlikely to grow quickly or stick to your budget.
Creating a road map for my business is all well and good, but do I really need a business plan? Id rather just get started.
If youre still thinking like this and decide to skip writing a business plan, youre making a big mistake and setting yourself up to fail. Even if your business survives, without a plan, youll miss valuable growth opportunities and never truly be in control.
Still not convinced? Here are the critical reasons why a business plan is important for small businesses.
Documenting your business idea makes it more official. It takes rough ideas and turns them into the making of a real business.
According to a study by the Harvard Business Review, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who dont.
Even if its just notes about your potential business, writing things down will make you more likely to proceed with your business. Without a plan, you cant prove to yourself, partners, mentors, or investors that youre serious about starting.
Writing a business plan takes some of the risk out of starting a business. It helps you think through every facet of your business to determine if it can truly be viable.
Does your solution fit the market? Are your startup or operational costs manageable?
Will your proposed business model actually generate sales?
What sort of milestones would you need to hit to achieve profitability?
Your business plan can answer these startup questions.
For those already running a business, writing a plan can help you better manage ongoing risk.
Should you bring on a new employee?
What does cash flow look like for your next month, quarter, or even year?
Will you meet your milestones or do you need to change your focus?
Keep your plan up to date, review it regularly and you can easily answer these growth questions and mitigate risk.
When you have a new business idea, it helps to spend time thinking through all the details.
A business plan will help you think about your:
Target market
Budget
How much money youll need to launch
How your idea will actually work before you spend any real money
A business plan will also help you easily share your idea with other people to get input and feedback before you get started.
Theres no need to create a detailed business plan either.
Instead, I recommend using a one-page business plan to quickly test your ideas and determine if you have a viable business.
No matter how good your idea is, you have to figure out who your ideal customers are and how you will get the word out to them.
Thats where a marketing plan comes in. It can be an indispensable tool to figure out how you get your first customers as well as your thousandth customer. It can start as a simple bulleted list of potential marketing channels that expands in detail as you need it.
Without a business plan, its impossible to know how much money it will cost to start and run a business. You dont just need money for your initial purchases; you need enough cash in the bank to maintain your cash runway and keep your business afloat while you get fully up and running.
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When you plan, youll need to create your expense budget, set sales goals, and identify how much cash is needed to keep your doors open, purchase inventory, and more.
The beauty of incorporating forecasts into your business plan is that you dont need exact numbers to start. You can work with general assumptions and compare against competitive benchmarks to set a baseline for your business.
As you operate and collect financial data, you can revisit your business plan and update your forecasts to generate a more accurate picture of your businesss future.
Sharing your business idea with investors requires a business plan.
Investors may never actually ask for your full business plan, but they will certainly ask you questions that youll only be able to answer if youve taken the time to write a plan.
At the very least, theyll want to see your financial forecasts, so you should be prepared for this. If you pitch your business to investors, having a business plan makes it much easier to translate the right information into a pitch deck.
In short, youll have all of the right information ready and available to show why your business is worth investing in.
Things rarely actually go to plan. The world is always changing, customer tastes change, and new competitors arrive.
Having a plan allows you to experiment with different scenarios to see how changes to your business will impact your forecasts, budgets, profitability, and cash flow.
Without a business plan, youll be reacting blindly with no way to track if your decisions are making a real impact.
Especially if youre a young startup company, attracting employees can be hard. Without a proven track record, why should someone take a risk to work for you?
Having a business plan can help solve that problem. Your plan can help prospective employees understand your business strategy and growth plans so that they can feel confident joining your team. Its also incredibly useful in determining when and if its feasible for you to hire more employees.
A great business strategy can only be successful if your team understands it. By documenting your strategy with a business plan, you can easily get everyone on the same page and working towards the same goals.
Its even better if you regularly review your plan with members of your team. Have everyone revisit your core strategy, analyze it, and explore how it impacts individual and team goals.
A business plan is all about setting goals for your company both financial goals and milestones you hope to accomplish.
When you use your business plan to manage your business, youll see which parts of your strategy are working and which arent.
For example, you may have invested in new marketing efforts to sell one of your products, but that strategy just isnt working out. With a business plan in hand, youll be able to see whats going to plan and where you need to adjust your strategy, pivoting to new opportunities that will drive profitability.
Regular business plan reviews, ideally monthly, will help you build a strong, resilient business.
Having a business plan not only helps you create a roadmap for your business but also helps you navigate unforeseen events. Large-scale economic downturns, supply shortages, payment delays, cash flow problems, and any number of other issues are bound to pop up. But by leveraging your business plan, you can be prepared to face each crisis head-on.
A plan helps you assess your current situation, determine how the crisis will alter your plan, and explore what it will take to recover.
With a little planning, you can even prepare your business for future downturns with this same process. Having the right plan and processes in place will make crisis planning easier and, ideally, recession-proof your business.
You might decide to sell your business or position yourself for acquisition down the road. Having a solid business plan helps make the case for a higher valuation.
Your business is likely worth more to a buyer if its easy for them to understand your business model, your target market, and your overall potential to grow and scale.
Remember, if you were buying a business, youd likely want to see their business plan and any previous documentation. So, the more organized and professional your plan is, the easier it will be for a buyer to say yes.
You may be procrastinating in writing a business plan because it sounds like a lot of work. The truth is that planning is much less complicated than you think.
Start small by writing a simple business plan you can complete in about half an hour. With the emergence of AI business plan generators, getting stuck with a blank page is a thing of the past. Just be sure that you dont just let AI write your plan for you and keep yourself involved in the planning process.
From there, refine your plan until your idea is solid. At that point, you can invest more time in a more detailed business plan. Just start with the basics and expand from there.
When you have a plan for your business, you have peace of mind. You know that youve invested the time to figure out a business model that works, and youve considered different financial scenarios so you can handle the unexpected.
Plus, you have a management tool to run your business better than your competitors.
A Journal of Management Studies study found that businesses that take the time to plan grow 30% faster than those that dont.
Our own small business research study found that 58% of small business owners who have or are working on a plan feel confident in their business, even amidst a crisis.
A study in Small Business Economics found that entrepreneurs who write business plans for their ideas are 152% more likely to actually start their businesses.
Theres plenty of additional research linking business planning with success, so its a proven fact that you wont waste time when you write your plan.
There are plenty of reasons to write a business plan, but they all relate to one thingincreasing the likelihood of success for you and your business.
Taking the time to plan is an investment in yourself and your business that will pay dividends, whether youre starting a new business or taking your existing business to the next level.
If youve been putting off writing a business plan, now is the time to do it. Start by downloading one of the many free business plan templates out there, or for additional guidance, invest in an online business plan builder.
No matter what business planning tool you choose, just deciding to write a business plan will set you up to build, run, and grow your business. So, dont waitstart planning today.
A business plan is a structured document that outlines the goals, strategies, target market, and financial forecasts of a business. It serves as a roadmap for the business, detailing the steps necessary to achieve success.
Business planning is essential because it helps businesses set clear goals, allocate resources efficiently, identify potential challenges, and develop strategies to overcome them. It also provides a framework for decision-making and helps attract investors by demonstrating the viability of the business.
Without planning, a business may lack direction and clarity, leading to inefficient use of resources, missed opportunities, and an inability to respond effectively to market changes. This can result in financial difficulties, operational challenges, and ultimately, business failure.
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Before joining Palo Alto Software, Noah Parsons was an early Internet marketing and product expert in the Silicon Valley. He joined Yahoo! in as one of its first 101 employees and become Producer of the Yahoo! Employment property as part of the Yahoo! Classifieds team before leaving to serve as Director of Production at Epinions.com. He is a graduate of Princeton University. Noah devotes most of his free time to his three young sons. In the winter you'll find him giving them lessons on the ski slopes, and in summer they're usually involved in a variety of outdoor pursuits. Noah is currently the COO at Palo Alto Software, makers of the online business plan app LivePlan.
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