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What is a Business Plan and Why Do You Need One?

 

What is a business plan and why you need one
 

What is a Business Plan?

According to Investopedia, ‘a business plan is a written document that describes in detail how a business—usually a startup—defines its objectives and how it is to go about achieving its goals. A business plan lays out a written roadmap for the firm from marketing, financial, and operational standpoints’.

More often than not in smaller operations, business plans are only prepared when outside funding is being sought. This results in a very detailed, lengthy document that usually requires an outside consultant to facilitate. Unfortunately, in many cases they also get filed away and are not used in running the business.

A business plan does not need to be lengthy and complicated. I have seen a number of shorter, even one page business plans, that have been very effective in helping the business owner achieve their goals.

Why Do You Need a Business Plan?

Having been involved in the self-employed micro-small business world most of my life, I have seen successes and failures firsthand.

Department of Labor statistics highlighted in a November 20, 2020 article by Georgia McIntyre published on Fundera.com, state that 20% of small businesses fail in their first year, 30% in their second year, and 50% of small businesses fail after 5 years in business.

In asking the question, “why is this so?”, I have found a number of reasons, but one that jumps out at me is that the successes generally have a working business plan, and the failures often don’t.

The truth is somewhat like the old saying, “Failing to plan is planning to fail”. It sounds like a cliché. But it is the truth.

As a self-employed small business owner, you need to be aware that the same rules of success used by “fortune 500” companies also pertain to your business.

All businesses, large or small, must be built on 4 Pillars: Leadership, Sales and Marketing, Product Fulfillment and Finance and Administration.

A Business Plan spans all 4 pillars, although creating a Business Plan falls under the Leadership pillar and is vital to your ongoing success.

Imagine just how successful your attempts to construct a building would be without a blueprint to follow? You may say “no worries, I am handy with a hammer” and that may be true, but are you able to remember all the widths and depths and heights of every room, where every power outlet is to go, along with every door and window as well?

I highly doubt it. Even with a blueprint there are inspectors that must come and approve every project.

It is no different in business. You simply cannot fly by the seat of your pants and hope to maximize your success. That is why a business plan is a success requirement for any entrepreneurial adventure.

Here are a few reasons to think about when you look at why a self-employed business owner should have a business plan.

Funding.

I have listed this first as it is the most common reason for a business plan and where you will need a more complex document that outlines your vision, your expertise, your plans, and your belief in why they will succeed.

Side Stepping the Big Failure Issues.

The reasons for the staggering failure rates we referred to earlier can be any one or more of several issues:

  • Not researching the market to see if there is a need for your product,
  • Shortfall of cash flow,
  • Too many competitors in your space,
  • Pricing that is too high or too low,
  • Poor marketing,
  • Poor customer service,
  • Not having the right team.

Developing your business plan will help you focus on these issues and avoid them.

Ongoing Decision Making.

When you are in the early development of your business, it is somewhat like being on the front lines of a battlefield. There is a constant barrage of issues that require critical decision making almost immediately.

Having the luxury of time to make these decisions is not something that avails itself to the budding entrepreneur.

Self-employed people often find themselves to be time poor when it comes to managing the business. A business plan allows you to stay on track and handle these issues with the knowledge and confidence that you have looked at all the ramifications of the decisions to be made, in advance.

Achieving Your Goals.

Successful entrepreneurs regularly set aside time to create and review both their business goals and action plans to achieve those goals. In my mind, this is the major objective when creating a plan for the purpose of running your business.

The very reason why we are focussing on business planning throughout the month of December, is that it is a good time to reflect on the past year and plan for the year ahead.

The Key Components of your Business Plan!

We will cover off on some of these in other articles this month, but let’s quickly look at the key components of a business plan for running your business, rather than for seeking funding:

1. Description of your target market and business model.

At the Self-Employed Business Academy, we focus a lot on the importance of identifying your target market. You cannot be all things to all people, and you need to focus on your target market. A business model is the way an organization sells products and services to its customers. For example, you may make and sell your own products or services, be a reseller of others’ products and services, have an advertising income site or a membership site, be an affiliate marketer and so on.

2. Unique Value Proposition.

What makes you and what you have to offer, different from everyone else? Why should people buy from you instead of your competitors?

3. Business goals.

What are the specific, measurable, actionable, realistic, time-based goals that you want to achieve in your business and when do you want to achieve them by?

4. Marketing Plan.

We have already mentioned the importance of identifying your target market. What marketing strategies and tactics will you undertake and what is their timeline?

5. Action Plan.

What are the projects and tasks you need to complete and when? When you implement and follow detailed action plans for your business and marketing plans you will be on the road to success.

6. Financial forecast and budget.

  • What are your expected costs on a monthly basis, and how much revenue do you expect?
  • How much income do you need to cover your expenses (breakeven point)?
  • What is your expected profit and expected cash flow? (These can be different when you sell to customers on credit, and/or your vendors allow you to buy on credit.)
  • What is your return on Investment (ROI)? This gives you an estimate of profit you expect to make for all the time and money you are investing.

(This part may sound a little daunting and for many small business owners and may require some assistance from your accountant, but it is important.)

My goal in this article has been to convince you to develop a business plan for your business. Next week we will explore more on the subject of goals and action plans.
 

Free One Page Business Plan Template

"THE ACADEMY GETS IT!"

“I started my own business in 1995. The Self Employed Business Academy gets it. Clear, concise, and actionable information. You may be in business for yourself, but with the self Employed Business Academy at your fingertips, you won't be by yourself"

Ed Carey

Ed Carey, AMG, LLC

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