The enigma code, The zodiac ciphers, and the business plan… Among some of life’s most uncrackable codes.
All jokes aside–Choosing whether to write a business plan or not can be an extremely confusing puzzle. Don’t worry, the best of us have been down that road and lived to tell the tale.
This blog aims to help you understand whether or not you need a business plan from the perspective of someone who has been there.
You’re Starting a Business–Do You Need a Business Plan?
To those of you about to embark on your entrepreneurial journey–There are two major questions you’ll probably ask yourself…
- “Do I need a business plan?”
- “Where in the heck am I going to get the money to start this business?”
So do you need one? The short answer is no, you do not need a business plan to start a business. But it can be a little more complicated than that depending on your business.
The fact is, unless you plan on banking or investors being your means to funds, there is no entrepreneurial police stopping you from launching without a well-thought-out business plan.
However, if you do want investors, they are going to want to see a well-researched small business plan with an amazing pitch deck before they will even consider investing in your company. But, in most cases and especially in small-scale business or entrepreneurial efforts, most of the time you will not need a business plan.
What is the Purpose of a Business Plan Then?
The purpose of a business plan is to get you to deep think your business, financial, and marketing strategy in a way that helps to map out the long-term success of your business.
I’m sure we can all agree that most things tend to run more smoothly in general if they’re well researched and planned out, right?
However, there is one small matter to consider… It can take months to put together a respectable business plan. Plus, If you don’t know much about things like “financial projections” or “market research” you may have to hire someone to do it for you, and sometimes that can be quite expensive.
Boot Strapping Your Company
There are plenty of guides out there on how to write a business plan. Anyone can fumble through some excel projections or find some simple business plan templates or sample business plan outlines with a quick search on google. The problem is, most small business owners will simply skip this whole process altogether.
Don’t get me wrong, many amazing businesses were started without business plans, but when it comes to navigating the market and projecting financials, these companies are basically left with educated guesses and no hard data to promise success when they eventually do need to consider a business plan.
I personally believe that some people should invest in or create a business plan for themselves, but, If you’re bootstrapping your company and don’t have the patience or money for a complex business plan, there are a few steps I would recommend taking:
- Research your competitors
What are they doing right? More importantly, what can you do even better? What is their pricing model? How are they reaching their audience through marketing funnels? These are all important questions you’ll want to research.
- Play “startup”
Get out a sheet of paper and act like you are starting tomorrow, even if you’ve been in business for longer than that. Go to Loopnet.com and shop for facilities. What’s the average monthly cost? Call the internet, gas, and water companies and ask them to give you a monthly average cost quote to compare. What about phones, insurance, internet? Call all of these services and pretend as if you’re starting tomorrow.
You need to have a good estimation of what your fixed cost will be. Fixed cost, also referred to as monthly net, is the cost that comes no matter how much or how little business you get. Try to find out as much information as possible so you can estimate the fixed cost number.
- Research your product and its supply chain
How many suppliers? What is the cost? Are there fluctuations in the market? This is all very important data to collect.
- Visualize your product or service
Look into processes and draw them out. Build a flow chart that shows the entire process from buying your product all the way to getting it into your customer’s hands. What technology do you need? What other resources will you need to successfully set up shop?
- Look into equipment purchases
Look into what equipment purchases you’ll need to make then add that to the initial start-up items you need beyond the fixed cost. Come up with the total amount of money you need to start your business. Then, add at least a 6-month buffer on top of that.
- Calculate the break-even cost per month.
How much do you need to sell to cover your variable and fixed costs? Does this number of products sold seem reasonable?
If the answer is “no” — then scrap it and start over. Something has got to give. Change your building. Call different suppliers. Change things up. If this number doesn’t make sense in a simulated world it most likely won’t make sense in the real one, either.
New entrepreneurs, especially those interested in small business, may not be required to build a business plan. However, everyone should at least have a well-thought-out plan for business. Through this process, what your business is and if it will survive is usually revealed. This can be the key to being successful.
What does that mean? Well. Does a hair salon cut hair? Is that the business? No, most of them actually rent chairs to licensed stylists–That is the business. Does a landscaper cut lawns? No, they rent labor and allow employees to use their equipment.
When you can start thinking about what a business actually is. You can put your focus on where you can make the most impact.
Best of luck to you, the change-makers of the world!
