Starting your own business? Why you should write a business plan.

Whether you’re buying an existing business or beginning a startup, there are always many tasks to do and issues to deal with. Eventually you will ask yourself whether you should write a business plan. Most startup founders in my network are against writing one. They argue that it will end up in a drawer collecting dust because it is inflexible to changing conditions and thus unusable after three months. Research has shown that successful businesses are more likely to use plans than their unsuccessful counterparts, but yet the level of business planning remains stubbornly low.

I propose that a business plan fulfils three main roles:

1. It reinforces your collective goals

A well thought-out plan allows management and employees to work towards a set of clearly defined goals, giving your startup a greater likelihood of the goals being reached. The goals allow everyone in the startup to take the initiative in determining their fate, instead of just reacting to events that occur in the outside environment. It also helps to improve coordination and internal communication.

2. Business plans help explain your vision

Business models help to capture, visualise, communicate and share the business logic of your startup. It can be hard communicating your business in a clear way to investors, especially under pressure. Elevator pitches are succinct but lack detail. People will use different mental models to conceptualise your business, so you can’t automatically assume that people will understand your business in the same way. Using a plan to capture your business logic means that with little additional effort you can graphically present your ideas to stakeholders.

3. Business plans help you to objectively analyse your performance

Once you establish your startup, business plans help to analyse and improve the business logic of the company, allowing you to observe and compare your actual results against your forecast. Different quantifiable targets such as sales or revenue can be compared with the actual results at the end of the plan period. Entrepreneurs need to assess the reasons for any discrepancies between the forecast and the actual results, and initiate action to overcome the gaps. The business plan becomes a new unit of analysis which can ameliorate the design, planning, and implementation of your business model. You can organise your business to react faster to a changing business environment by constantly comparing your results to changing market conditions.

Yes, it will take you more than 10 gruelling hours to pore over details that may at this point seem unimportant – but it is imperative that you map out a strategy to bridge any potential gaps between your short-term and long-term goals.

Although business plans are not a guarantee of success, collecting information, analysing it and integrating it into a written document can help your prospects of success. It will help you to develop your skills and knowledge of your industry, especially if you are a less-experienced entrepreneur and starting a business from scratch.

Chris Chong
Chris Chong
Entrepreneur & TwoSpace member

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