[Updated February 2019]
You’ve got a great idea for a business and you’re ready to get started. There’s just one question standing in your way: Do you need a business plan?
The answer is: It depends.
Below are a few questions to ask yourself that will help you determine whether or not you need to lay some detailed groundwork down or if you can be more relaxed in your business planning strategies.
How to decide if you need a business plan
First things first, will you be applying for a bank loan or other financing from angel investors or venture capitalists? If yes, then you definitely need a business plan.
Your plan should spell out what your product or service does, what it will cost, how you will sell it, and how much you plan to make each year for the next 3-5 years. Check out our up-to-date and thorough checklist of what you’ll need to include in your business plan.
But what if you don’t need to raise money? What if you’re simply starting a consulting business or selling a product you make yourself? Do you still need a business plan?
At least one study of 116 start-up companies, conducted by Babson College, found that there is no difference in success between companies with a formal plan and companies without a written business plan. So, maybe not.
But even if you don’t need to raise money, a plan of some kind isn’t a waste of time. You probably don’t need a 20-50 page plan with 5-year income statements, marketing plans, and organization charts.
What to do if you don’t need a business plan
Instead of writing a formal business plan, simply spend some time thinking about and writing down answers to the following questions:
• What exactly are you going to do? What product or service will you offer? How will it be different from what others are offering? If you can find an unexplored or underappreciated niche in your industry, latch onto this and become a pioneer and expert in this niche. Whether that’s better customer service, a faster delivery experience, or improved product or software, customers will seek you out for your specialty.
• What is your competition doing? How do they market their services? Are there any holes in the market that you can fill? When we say get to know your competition, we really mean it. Follow them on social media, sign up for the E-mails, opt-in for their flyers, then scrutinize each piece of marketing material and ask yourself how you can do it better. This may require the help of a third party marketing firm or a dedicated in-house marketing guru, but whichever you choose it’s worth the investment.
• How many of your products/services do you expect to sell? What will it cost you to do this? How much can you charge? How much will you make if you sell what you expect? How much will it cost to get started? How long until you break even? These are the most important questions to answer. Better to find this out whether you’ll make money now than four months down the road.
• Where is the money to run your business (at least for the first several months) going to come from? How will you pay it back? According to SmallBizTrends.com, just over 50% of small businesses fail in their first four years, the leading cause of failure (46%) being incompetence to financially run a business. Determine whether you need an angel investor or if you have enough saved up to get you through any hard times. Don’t forget to educate yourself on business finances with the help of online courses or books.
• How will you market your product or service? What does your brand stand for? Do I need a logo, business cards, or a website? What will it cost? Are there marketing opportunities that your competition is missing? How will customers find you? We recommend starting off your branding journey with a logo design that encompasses what you do and what industry you’re in. From there, you can put your logo on just about any promotional products, as well as your social media pages and website.
• Will you need office space or a retail location? How about phones, Internet hosting, and other business services? These fees often sneak up on small business owners and are often difficult to predict the amount of money needed to cover them on a month-to-month basis. If you can, talk to nearby local business owners about how much they pay in rent, what Internet provider they use, and how much they pay for utilities.
• How will you track your performance? How will you grow? Do you need to hire someone to help? What are the next steps? If your business has an online presence, you will want to track your progress using Google Analytics or another reporting software. Quickbooks or any other profit-tracking software will be useful when it comes time to crunch month-end numebrs.
Now take a step back and answer these questions objectively. It’s a good idea to ask them with a trusted friend or business partner who can help you see the holes in your thinking—someone willing to question your thoughts.
Now read through your answers. Can you add any details that might help explain your thinking? Once it looks good to you (and your trusted friend), it’s time to go to work.
Resources for creating a business plan
So do you need a business plan? Maybe, maybe not. Either way, you do need solid thinking around your business idea, how you will make money, and how you will find your customers. Taking the time to figure it all out will help ensure you find success in your new venture.
The SBA has all kinds of information you’ll want to check out when it comes to creating a business plan. BusinessWeek also has a variety of resources to help you with your plan. You can also read more business and startup tips here on our LogoMaker blog.