Business Planning: Who Needs It?

In 1993, AT&T commissioned a study of small businesses. The survey found that companies that had a business plan were far more likely to succeed than those that did not. Commenting on the study, Ian MacMillan, the director of the Sol C. Snider Entrepreneurial Center at the University of Pennsylvania’s Wharton School said, “A comprehensive and complete business plan is crucial to the success of any business.”

Interestingly, only 42 percent of the businesses surveyed in the AT&T study had a formal business plan &#151 a statistic that hasn’t changed much in the past 10 years. Yet according to more recent studies, companies with strategic plans enjoy greater revenue and profit growth than companies that don’t have one, and their failure rate is much lower.

So why don’t more small businesses have plans? “Fear and procrastination,” says Tim Berry, the president of Palo Alto Software, the maker of Business Plan Pro. “People think it’s more time consuming than it is. Or they say, ‘I can’t do it.'”

But with most small businesses failing within two-to-five years of start up, and failure rates higher among businesses without a formal plan, can you afford not to have one? Luckily, thanks to the proliferation of business planning Web sites, software packages and expert advisers, writing a business plan has never been easier.

Who Needs a Business Plan?
While some consultants and experts say “everyone,” the reality is that if you’re just starting out, you can probably get by without a formal business plan &#151 at least until you need outside funding.

Many (if not most) small office/home office (SOHO) businesses do just fine with a mission statement and accounting software during their first year of operation. But if you want to secure a bank or small-business loan, be taken seriously by investors or improve your chances of long-term success, a business plan is a must.

“People don’t realize that a business plan can save them time,” says Palo Alto’s Berry. “They think about it like people think of a term paper, so they put it off. And in the meantime, they’re losing the potential to do better.”

Put another way, a good business plan not only helps you secure funding, it can serve as a road map, a diagnostic tool, an employee motivator and/or a reality check.

When Do You Need a Business Plan?
The most common reason for writing a business plan is to secure funding, from a bank, the SBA (Small Business Administration) or an investor.

“Banks use business plans as a screening process,” says Daniel McGilvery, president of The Business Planning Institutein West Palm Beach, Florida. “They want to see how serious a person is.”

Indeed, most banks and investors will not even consider making a loan or an investment unless the business has a formal plan.

Although there is no single formula for writing a successful business plan, all plans should include:

  • a description of the business, including an executive summary
  • a marketing plan, including a description of what makes your product or service different or unique and a summary of the competition
  • financial data, including a balance sheet, breakeven analysis, pro-forma income projections (profit and loss statements) for three years out and pro-forma cash flow
  • a section on management, including executive bios

Tools to Help You Write or Hone a Business Plan
A good business plan “doesn’t just present information, it convinces and sells the individual reading it that this is an opportunity worth investing in,” says McGilvery.

And to really sell your idea, the business owner needs to be a decent writer and have some marketing and financial wherewithal. That’s where business planning software, online research and the help of an expert comes in.

Business Plan Pro Premiere
Outside Help &#151 Business planning software, such as Business Plan Pro, can help small business owners develop a formal business plan &#151 a necessity for securing a bank loan or attracting investors.

As Joe Wilcox, senior analyst for JupiterResearch, explains, “There are so many ways that a small business can plan these days. There is a place for business plan software, but it doesn’t mean that all businesses need it &#151 just like not every business needs a server. It all depends on the kind of business, its goals and its markets. If I’m running a SOHO office, and I’m looking for funding, I might want business plan software. If I’m starting from scratch and don’t know anything, I might want business plan software.”

Indeed, designed largely for the do-it-yourselfer, business plan software &#151 with its step-by-step wizards, financial guidance, built-in market research, and hundreds of sample plans &#151 can empower the small business owner for the small price tag of $100. And there are many good options currently on the market, including Palo Alto’s Business Plan Pro, Business Resource Software’s PlanWrite for Business and Jian’sBizPlan Builder, all of which provide guidance for crafting a professional-looking planning document with financials and marketing information.

Additionally, there are many good, free online resources, including associations for your particular industry, which can help you jumpstart the business planning process or hone what you’ve got. Some of the best are Bplans, sponsored by Palo Alto Software; The Center for Business Planning, sponsored by BRS; and the Small Business Administration’s business planning site. All three sites contain sample business plans and FAQs. The first two can also point you to experts and consultants.

Expert Advice
Speaking of experts, having a trusted advisor or even a paid business consultant vet or help you write your business plan is universally considered a good idea.

“Very often people come to us after having tried to write it themselves,” explains McGilvery, who has written or helped to write over 300 business plans. “They bought the business plan software and they realize, ‘This is just over my head. I don’t have the skills or the experience.'”

“Getting funding is very difficult,” he adds. “And a business plan does make a difference. It’s a direct reflection on the business. If it’s incomplete or poorly done, it’s probably not going to be successful in getting funding. These are people who have typically invested a lot of time, a lot of effort, a lot of sweat equity. And to not go that extra step and have a good, professional, compelling business plan is really very short sighted.”

McGilvery’s company, The Business Planning Institute, typically charges $1800 for a basic 10-to-15-page plan, which includes graphics, photos and three-year financial projections aimed at securing a relatively small bank loan, say $10,000. For a business looking to reel in $500,000 to $2 million in private equity or venture capital, the number of pages and price tag goes up. For those intrepid business owners who already have a plan &#151 or parts of a plan &#151 and just want expert writing, financial or marketing advice, BPI charges $100 for a half-hour discussion (not including the time spent reading the plan), which is pretty standard pricing.

No matter which path you take, remember that a business plan is not just a way to secure funding, it’s reflection of your hopes and dreams for your business, a way to help you manage your business more effectively and efficiently and a tool to help you minimize risk.

Jennifer Lonoff Schiff writes about business and technology.

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