Going through the exercises of creating and regularly updating a business plan as either a start-up entrepreneur or long time business ownder is an extremely important process.The facts and figures and the story you create to, hopefully, validate your business proposition are important. Rather than discuss how to do a business plan or what goes into a typical business plan format I want to take a deeper examination of the importance of a business plan.So, in this article and the one to follow I'll offer some thoughts about what a business plan should really accomplish for its two primary audiences – you as the writer of the plan and entrepreneur, or the "internal audience" and for external audiences, such as lenders or investors, that you will rely upon to help fund your business propositions.
Doing a business plan serves 3 not-very-often discussed purposes for the entrepreneur herself:
1.Provides a Reality Check
Perhaps the most important outcome of doing a business plan is that it gives the prospective entrepreneur, especially, a better understanding of the business you want to start. Most people start with an idea and automatically assume it will work. It's not until they do the research and put pen to paper that they truly get a full understanding for that particular business proposition and everything that's involved
In fact, development of a business plan is often a process of weeding out those that really want to do the work, invest the time and energy – before investing money - and build the foundation necessary to even start thinking about the business from those that just thought they had a good idea. If an entrepreneur can't put in the time and energy into the research and planning stage that is integral to the business planning process then it's not likely that individual will put in the necessary time to actually operate the business. Doing a business plan provides a reality check into whether or not you are really suited to pursuing your business idea.
2.Builds Skills & Technical Awareness
Most entrepreneurs are experts or have a passion for their particular market ideas and activities – whether it be retail fashion, landscaping, renovations, business consulting, etc. However, being an expert in your own field without at least knowing the hills of neighbouring terrain will cause you to fall into "The Technician's Trap" The Technician's Trap is doing a great job at your core business activities while, basically, not minding the store.
There's lots of great businesses that ultimately fail because the owners are too busy doing what they enjoy most (and they should be busy doing this) but they have their blinders on to proper record keeping, ensuring bills, staff and suppliers are paid or not looking ahead at ensuring they continue to reach their customer base and new markets.
It's not necessary to be an expert in accounting, marketing, human resources, supply chain management, etc, to be a successful business person but it is important to want to learn about these areas. It is important to have an understanding of all aspects related to business management. Working through a business plan exposes you to learning about those various fields and helps provide a basic foundation of understanding. Building your basic understanding or, at least familiarity with all aspects of business is especially critical when you do go to seek specialized advice from professionals.It helps to be familiar with their language, their terminology, their jargon. It will also help you to not only have a better understanding of the answers they give you but, more importantly, will help you ask better questions so they can give you better help!
3.Create and Expand Your Network
Doing a comprehensive, reliable business plan requires a lot of research and communication with business professionals, potential suppliers, customers, supporters, advertising media, and even potential competitors. All these groups are people that can ultimately help your business once it begins operating. Your business promotions and marketing efforts start the day you decide to investigate the contents of your business plan. At least, the smart entrepreneurs think this way!
Take advantage of every opportunity to get feedback from different people. Take advantage of every opportunity to start convincing people of your own credibility and that of your proposed business.People are generally very excited to learn about potential new businesses in their communities – take advantage of that. Build and expand your network as you research your business plan.Start thinking as if you were actually operating your business from the time you begin to investigate operating it. Every contact is a potential customer. Every contact is potentially someone who can help you succeed. It's often this network that is the difference between success and failure.
Part II of this article will expand on the importance of doing a business plan from the perspective of external readers: lenders and investors.