Write a Business Plan That Works [Part 1]

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Your startup business does not need a large, fancy business plan. It does need a success roadmap created using the good old fashioned planning process.

It’s rare to hear “startup” without “business plan” in the same conversation. Universities and venture capital firms hold business plan competitions with thousands of dollars in funding available to winners. Venture capital firms receive thousands of business plans and hear hundreds of company presentations every year. It’s tempting to believe you need an elaborate, colorful plan full of figures and charts to even think of starting a business. Well, breathe easy because you do not need a formal business plan to launch your new business. However, you do need a planning process to guide your thinking and reduce the impact of surprises.

Here are four reasons every aspiring entrepreneur needs to write a business plan focused on planning the future of their business.

1. Faster reaction to unforeseen events

One of my favorite quotes from General Dwight Eisenhower summarizes my ideas about business plans very well:

“In preparing for battle, I have found that plans are useless, but planning is indispensable.”

General Eisenhower understood the real reason behind business planning – charting a course for the future. Planning is uncertain by its very nature. We are making our most educated guess about future events, but we know the future will not go exactly according to plan. A strong planning process allows you to change course quickly, because you will understand where you wanted to go. I like using the vacation analogy when discussing planning with my customers. When my family goes on vacation, we plan what we want to do each day. For example, we are planning to visit a water park near my grandparents’ condominium on Friday during our upcoming vacation. However, we know we cannot go to the water park on Friday if it is raining. A good vacation plan allows us to move the water park trip to Saturday and go to the outlet mall or an indoor attraction on Friday.

2. A benchmark to compare what is working

“If you don’t know where you are going, any road will get you there.” – Cheshire Cat, Lewis Carroll’s “Adventures of Alice in Wonderland”

Good business planning will let you see if what you are doing is working. Marketing is a great example to show why business planning is so important. Suppose your monthly revenue goal is $2,000 as you build your company slowly. You must market your business to generate exposure and find people interested in what you are selling. If your planned revenue was $2,000 and you only generated $1,000, you can look at why you didn’t meet your goal. When you find the real reason for your revenue shortfall, then you can make the necessary changes. If you exceeded your revenue goal, then you can see if the increase was because of a special circumstance or if you really did something worth repeating. Planning your expenses works the same way. If you consistently spend more money on software or memberships than what was in your plan, then you have a way to identify what you must do to become successful.

3. A way to look forward instead of backward

I hate to make fun of my accounting background, but accounting is really like driving your car by looking in the rear-view mirror. It’s always important to know what is behind you, especially if an emergency vehicle or police car is racing behind you! However, there is a reason why the rear-view mirror is so small compared to the windshield. It’s much more important to know what’s ahead of you when driving a vehicle, and it’s more important to look forward instead of backward in your business planning. It’s always good to have accurate and reliable accounting numbers to help you make decisions moving forward, but future events and circumstances can make yesterday’s results meaningless. Good business owners are constantly looking for the opportunities and threats in front of them.

4. Earning support from your network

I saved the most important reason for last, because no aspiring entrepreneur can make a business work alone. As I discussed in my initial article for Debt-Free Adventure, I want my family to understand when I expect my business to become a viable, self-sustaining business. I regularly share my planning process with my wife to show her how I foresee future months’ activity. This keeps her involved with the business and bolsters her confidence about my future success. My business planning also becomes a part of our personal financial planning.

In my next article, I will provide several tips to help you create a planning process that balances simplicity, detail, numbers, and story. You will then have the philosophy and tools required to make planning an important and even enjoyable part of your path to entrepreneurial success.

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1 Juan

& another reason that a business plan is great is that it can help one to view the business as a complete entity. When one is working on the day to day aspects of getting a start up running is it very easy to forget the big picture.

2 Dallon Christensen

You are so right, Juan. We all have our strengths and specialties, and having a strong business plan will help us look at the entire business. I’m a finance guy, and it’s easy to only look at the financial statements when preparing a business plan. By creating a plan to look at the whole business, you can take a higher-level view.

Thanks so much for the comment!

3 cashflowmantra

This is some really great information. I never really thought of a business plan as being as important as it sounds. I am looking forward to future parts of this discussion.

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