It can take dozens, even hundreds of hours to put together a well-done business plan. Should you invest the time? The purpose might start with funding, but there are other impressive benefits, too. It can define those with a great idea from those deeply serious and committed to making their business work.
1. It’s easier to get a good loan with a business plan in hand.
While not all business loans require a formal business plan, SBA start-up and growth loans do. Even if it doesn’t, however, having that business plan makes it far easier to get a business loan because of the information it provides the bank.
Most small businesses fail in less than three years, and banks are looking for more than just the next great idea – they want to lend money to those with favorable odds of succeeding, so they can pay that loan back.
Banks look to a business plan for more than just copies of past financials and projections of income for the next few years. They’re looking for a glimpse into the marketing and operations experience of the founder, his/her industry knowledge, and how they plan to make that business a success. The abilities an entrepreneur brings to the table are far more important than the potential financial viability of their business idea.
If the business plan doesn’t showcase an adequate amount of experience or planning, it sends up a red flag to the lender.
Getting turned down for a loan signifies bigger issues might be a barrier to your success. It can be incredibly beneficial to discuss them with your banker in detail!
When you are putting your business plan together, be sure to think about what is in your plan from the bank’s perspective, so that it reflects more than just your business idea. It should demonstrate a well-thought-out launch and growth plan, and a deep understanding of the industry and the gap their business fills. After all, every founder of the 90% of small businesses that fail go into it thinking their idea is going to succeed.
2. They force you to think ahead and be strategic.
Every seasoned entrepreneur knows just few hours there are in a day to accomplish what must be done. They’re used to wearing dozens of hats and jumping from one critical task to another. Every detail competes for their attention. However, new small business owners can be caught unaware, putting in long days at a frenetic pace without ever getting to the bottom of their endless task list. They quickly become reactive, instead of proactive.
A business plan can be far more than just a resume for your business.
Because it includes a competitive analysis, industry data, operational strategy and a marketing plan, writing up a business plan helps you slow down long enough to put important planning details in place. It moves them from your head to paper, giving them structure and substance. Creating your business plan is an opportunity to map out a strategy and tactics to guide your actions for the next year, assess staffing strength and weaknesses, and prioritize where you’ll invest your time.
It gives you a plan of strategies, priorities, action items, objectives and metrics to follow when you’re too busy to think straight.
It’s impossible to be successful if you’re flying by the seat of your pants, and banks aren’t the only ones that realize this. Having a business plan signifies you are serious.
A business plan also helps you feel less overwhelmed, since you’re following a path that you’ve already defined.
3. It’s a lie detector test.
Everyone is good at rationalizing and making excuses… especially when we’re extremely passionate about an idea. We’re blind to perspectives and opinions that might kick us off that wave of enthusiasm we’re riding. We’re so sure THIS IS IT.
But is it?
If the passion is set aside and the idea reviewed with a logical head and cold, hard facts – is it still viable?
The process of creating a business plan puts your ideas to the test, almost like a lie detector test. As it walks you through a process of creating strategies and plans, and taking a close look at what the competition is doing and how your business fits into the industry, your business plan forces honesty. It includes a basic SWOT analysis of strengths, weaknesses, opportunities and threats. If you struggle to move past the original idea, unable to complete the SWOT analysis or compile realistic thoughts around how you will make the business profitable, it can reveal the amount of risk involved, and how realistic your idea might be to actually implement.
Successful businesses need more than passion to thrive, and not every brilliant idea should be pursued. A business plan can identify what’s worth pursuing.
Are you an entrepreneur that generates great ideas, or do you have the seed of something successful? Your business plan will reflect one or the other.
4. It helps your bank define ways to help you
It’s very helpful to create your business plan in partnership with your banker. They bring a perspective and expertise to the process that most business owners don’t have. They also can become a much stronger financial partner when they have a clear understanding of your financial standing and future plans, because it helps them form a clear picture of how they can help you achieve your goals.
Your success is in their best interests, too.
Even if you don’t need a business plan for immediate lending needs, their experience can be invaluable for cash management, allocating assets, building capital, understanding how to obtain and use credit effectively, even transforming your big picture idea into step-by-step goals.
If you have questions about how to write a business plan or use it to seek an SBA loan or credit, contact us today. We’re here to help.