I Don't Need a Business Plan...Do I?
I get asked that question a lot. In fact, after "how do I start
a business?" it's probably the most asked question by new
clients. I decided the best way to describe why you might decide
to write a business plan is to tell you a few stories about a
client of mine. The name and business are fictional. We're going
to call him David and he's going to have a mechanic shop. The
stories I'm going to tell you over the next few months are a
combination of things that have happened to me and to some of my
clients.
David's smart. He's got a memory like a steel trap. And he's
ambitious. He wants to start a small mechanic shop with the
inheritance his dad left him, and he's been very busy trying to
get it started. But he's also young and in a bit of a hurry. The
way he sees it, he doesn't need a business plan and anytime he's
asked about it he just taps his head and says, "I don't need
one. I've got it all up here." Besides, he likes freedom. He's a
fly-by-the-seat-of-your-pants kind of guy. He doesn't want to be
tied to what some piece of paper says.
His mother-in-law, Ellen just shakes her head. She's owned a
bookkeeping service for the last twenty years, which she started
because she wanted to be able to stay home when her kids were
small. But David thinks, of course she'd see it that way. She's
a bean counter and everyone knows how they are about details.
Besides, he's already let her talk him into incorporating his
business. The way he saw it, he didn't need to waste his money
on it, but it was done. No way was he going to waste any more
money on getting a business plan.
A few weeks later, David opened his shop for business. What a
day that was. He'd been too excited to sleep the night before,
and it ended up being an awfully long day because he didn't have
any customers. Not a single one. He'd spent the day cleaning the
shop and organizing his tools and sometimes just staring at the
phone, trying to will it to ring. Oh well, he thought, what can
I expect? The shop's brand new and nobody knows about it.
Someone will call tomorrow.
By the end of the week, with no calls except from friends and
family (who he was beginning to suspect his mother-in-law had
told to call), he was starting to worry. He was also starting to
run out of cash. He barely scraped together the cash for his
lease at the end of the sixth month. He didn't think owning a
business would be this expensive. Besides, he'd figured he'd
have lots of customers by now, but the truth of it was he didn't
have enough to keep him busy for even half a day. David decided
he'd better go see his banker. It shouldn't be too be much of a
problem to get the money, he figured. He had a good credit
rating.
When the usual "how are you, I'm fine" was over, David got right
down to business. He didn't need much money. He figured $10,000
should do it. "Sounds good," Shaun said when he was done
talking. "Let's take a look at your business plan." And when he
said, "Oh I don't have one. I've got it all up here," she smiled
and said, "We need to have one before we can proceed with a
loan. Come back and see me when you do."
As much as he hated to do it, he knew he had to borrow some
money from someone. When none of his friends could help him
beyond a few hundred dollars, he approached his mother-in-law.
"Well," she said, "I can do that for you, but I have one
condition. I want to give me half an hour of your time to listen
to why I think you need a business plan." David agreed. He was
getting desperate.
Here's what she said:
* Almost half of small business startups fail in the first year.
* The main reasons they fail is because they lack management,
lack planning, have insufficient financing and lack marketing.
You can address all those reasons with a business plan:
* Business plans help with lack of management with financial
analysis, guide your decision-making, and outlining specific
goals. * Business plans help with lack of planning by outlining
the means to meet specific goals.
* Business plans help with insufficient financing because
financial institutions and private investors won't lend you any
money without one.
* Complete business plans include a marketing plan addressing
lack of marketing.
There are other reasons for writing a business plan:
* Business plans help you monitor your progress. * Business
plans give you something to compare your end of period results
against.
* Business plans help identify weak areas where you can improve.
* Business plans help you avoid making the same mistake over
and over again.
* Business plans help keep you on track.
* A good business plan includes a feasibility study, so you
should know before you start whether your business has a
possibility of success.
* Many self-help books proclaim goals are more easily met if
they're written so business plans help you identify and reach
your goals.
David was convinced. He accepted his mother-in-law's offer to
help him write his business plan. After it was done, he went
back to the bank and got his loan. So, how is David's business
doing? I'm not going to tell you anything today beyond that he's
still in business, but I will tell you more, I promise. We're
going to use David's business as a case study with more articles
about him every month. Stay tuned for more stories about David's
business and find out how he's doing.