How much mental planning and organizing can you, as an entrepreneur, undertake when starting your business? The reality is, your bandwidth is severely limited. For most entrepreneurs, it is impossible to plan everything mentally, and getting strategy into writing is essential. Otherwise, your own mental goals are certain to bog you down and make it impossible to proceed in a planned and cohesive manner to start your business.
Even if you possess exceptional clarity and foresight, it is always advisable to transfer your mental business plan into writing. Even if you have no intention of showing it to others, it will be essential for clarifying your own strategy. Plus, a business plan becomes an indispensable tool that can be referred to regularly to keep your business on course.
The importance of business plan
The importance of writing a business plan has been proven again and again. When you write your business plan, your business is more likely to succeed, says the Panel Study of Entrepreneurial Dynamics II (PSED II) that tracked a representative sample of a thousand potential US entrepreneurs over a six-year period. For this study, the researchers separated these entrepreneurs into two groups: a group that wrote business plans and a group that didn’t.
What this study found was it pays to plan. It showed that entrepreneurs who write business plans are 16 percent more likely to succeed, compared to their non-planning counterparts.
Not only this, writing a business plan…
- clarifies the purpose and direction of your business.
- helps in acquiring future vision and defining the goals to be attained.
- describes the business and its products or services to potential clients and investors.
- helps in pitching investors and attracting funding by showcasing your business as a profitable venture.
- becomes a tool to attract partners and executive level employees by explaining the potential of business.
- helps in managing the company, since it can be referred to regularly to ensure your business remains on track and continues to meet sales target, operational milestones and short-term or long-term goals.
Optimal time to write a business plan for success
So, how long should the entrepreneurs take to write their business plan? The PSED II study found that the optimal time to spend on writing and refining your plan was three months. Finishing a business plan over the course of a few months improves the chances of success for your business by an astounding 12 percent.
Meanwhile, spending more than three months on writing a business plan is found to be less effective, since the plan loses its currency. The business environment shifts continuously and the state of your business will go through natural changes as it evolves. After three months, if your business is moving forward at any pace, it will likely require updates and re-written sections of your business plan. To avoid constant re-work and efforts in futility, writing a business plan in no more than three months will maximize your efforts.
Alternately, spending less than three months on writing your plan is too hasty. It becomes difficult to think out every aspect of the startup within this short duration, and chances of committing mistakes increases manifold. Interestingly, the PSED II study says that it is better not to write a business plan at all, than to write it in a short time span.
Entrepreneurs who are likely to plan
The PSED II study found that certain entrepreneurs are more likely to write a business plan. They are entrepreneurs who:
- seek external funding (19 percent more likely to write a business plan)
- are high-growth oriented (7 percent more likely to write a business plan)
- have innovative ideas (4 percent more likely to write a business plan)
The study concluded that planning holds more benefit when the challenges are the greatest. When a business launch has significant risk, it is critical to leverage a business plan to help increase odds for success.
Understanding a business plan
A business plan is not something that is difficult to understand. It is simply a breakdown of steps that you are required to take to set up your startup. In early stages, a business plan may include the following:
- Time plot: This should answer the questions what is supposed to happen, when and who is responsible.
- Financial: This part provides simple spreadsheet projections for expenses, costs and sales.
- Strategy: This explains the ways to focus a business offering on a key target market.
- Managing cash: This needs to be done from the beginning and involves monthly account of what you spend and what you deposit. This gives a true picture of what is in the bank, as it appears on the books.
- Plan appraisal: It is important to compare on a monthly basis your plan and what is actually happening on the ground to find out whether everything is happening according to the plan.
The importance of writing a business plan cannot be emphasized enough. It helps in pinpointing where things can go wrong and where mistakes can occur, thereby helping you to take pre-emptive action. This also helps in developing accountability for different aspects of your business. For many entrepreneurs, a business plan consultant can prove immensely beneficial in this regard.
In the world of entrepreneurship, any action or asset that increases success is invaluable and essential. When a business plan is written, it becomes one of the first assets in a new company. It is the literal guide and roadmap to success.