Writing a business plan is typically one of the most challenging exercises an entrepreneur has to face in their entrepreneurial life. Not so much because the exercise is challenging to handle – it isn’t that difficult if you know where to start. But because it stands in a grey area and requires much digging, thinking, planning, and writing that most entrepreneurs see as a hassle.
The exercise has a fundamental role in developing your business, though, so you should give it some attention. I’m saying ‘some’ attention here because if a business plan is an essential tool you should be using, it isn’t a finality. In fact, it tends to be a trap for entrepreneurs who focus on it so much that they lose track of what’s even more important: their business.
So, in this article, I will clarify a few points. First, why is a business plan important? For your business, of course. But also for you as the entrepreneur in charge, from a financial and message standpoint. And, well, when is a business plan a trap you should be avoiding.
Before we dig into the topic, though, please keep in mind two things!
One, this article is part of a very comprehensive series of blog posts on business plan writing available on Impactified. We’re trying to make your life easier with these, so give them a look!
Two – we have also designed our best-selling Business Plan Builder Module for those who want to stop losing their time and get the thing done, easy as 1, 2, 3.
The module includes:
- a complete business plan template
- two designer-made decks
- a working tool to get you started and tell you what to write (and how)
- the automated financial tables you’ve been dreaming of
- and over two hours of videos designed to take you by the hand!
So if writing a business plan is a topic for you, you have no excuse!
Having said this – let’s get back to our topic: Why is a business plan important to your business? Hint: it’s not what you think!
Why is a business plan important?
A business plan is one of those elements that keep coming up when you build a business and want to scale it. Bankers, potential investors, and potential partners ask for it from the earliest stages to open your bank account, put money on your account, or grant you a line of credit.
But is a business plan necessary to run a successful business? Not necessarily.
Some do everything instinctively and get results, that’s undeniable. Still, they remain a minority and, sooner or later, the absence of planning is the beginning of the end. More on this later…
In reality, the reason why people ask for a business plan is straightforward: while your business idea might be the best, it is usually a lot more evident to you than it is to whoever you are pitching to. Hence, formalizing your thoughts into an agreed and codified framework makes sense.
These potential partners ask for a business plan because a formalized version of your thoughts is the only way they have to grasp the core of what you have in mind. Plus, they also know that unless your idea has been formalized in some way, it simply cannot be clear for you either. And that’s an absolute red flag.
Like it or not, what usually happens is that entrepreneurs have an idea and go for it as fast as they can, to give it a try and see. However, they rarely have a clear ‘big picture’ of their business. Hence, topics like financial planning and cash flow prévision tend to be very foggy, not to say inexistent.
No goals. No target market. No go-to-market strategy. No marketing plans. No financial statements.
Tell me. How does that sound to you?
I know, right?
Also, while ideas might seem innovative to those who have them in the first place, they aren’t necessarily new on the market. Or, said differently, what appears to be a sexy investment for the founder is rarely that sexy for the banker, investor, or potential partner. And that sucks because it means that somewhere, the entrepreneur probably got something wrong.
At the end of the day, the business plan becomes the indicator people look for when they want to know where you stand and how clear you are on where you want to get your business.
Will your business be a safe bait or a lost cause?
Will you make them money, or are you lost on the financial side of things?
Can you deliver on the promises you make?
Are you just living in a fantasy without being aware of it?
You get my point here. The business plan writing exercise is often the first opportunity an entrepreneur has to think about their business from a holistic perspective. And it shows where you stand to those who read it.
Let’s get deeper. What is a business plan? And why is it important for your business beyond making investors feel safe?
Now, we explained why people ask for a business plan, taking an emotional angle. But, let’s be pragmatic, there is a lot more to it than just making people feel safe.
First point – definition – what exactly is a business plan?
We previously discussed the definition of a business plan, the purpose of a business plan, and what they are used for in a dedicated article, so I’m not going to go through everything again.
Long things short, though, we at Impactified usually say that a business plan is a convincing story you need to tell about your business. For that reason, it has to show (i) that the business is going somewhere inspiring and (ii) that you are in control.
Or, said differently, the critical point in business plans is not the pdf you are trying to produce.
Instead, it is your ability to use the drafting work as a simple business planning exercise that’s going to clarify what you are planning to achieve, how you are going to get there, with what g-to-market and marketing strategy, with who, with what money, and with what results down the road – social impact, environmental impact, financial profit, you name it.
All of this, of course, in a way that catches people’s attention and makes them relate to what you have to say.
Second point, a business plan is important to your business beyond making investors and partners feel safe, because it gives you a very unique opportunity (i) to look at what makes your business worth investing in, (ii) to determine how you are going to make ends meet, (iii) to decide how YOU, as the entrepreneur in charge, will manage the whole thing, and (iv) to figure out how to build a message around your business that people will want to listen and remember.
When a business plan is important (and when it’s not)
Now, hold on a minute. Before I get into each of the points I just listed, there’s something I want to clarify right now, because it has cost me a fortune in time, effort, and money when I started my first businesses.
Yeah…
Business plans are important, but they can also be a trap if you don’t focus on them at the right time. Trap, trap, trap!
Here’s the thing: as I said in the article I mentioned previously on what a business plan is for, nobody gives a damn about your business plan if it’s just a pdf document without substance.
Or, said differently, working on a business plan because they ask for it is a loss of time. People want to see that you have a business and a plan for that business. Period.
They want to see that you have a business
One, you have a business. That’s super important because the time when people would pour money in your pocket because you had a damn good idea and a “.com” behind it is over.
Startups are everywhere nowadays, but most fail, so investors are more careful than ever with their investment choices.
More than the idea of the century? They want to see that you have started your activity. They want to know that you are matching a demand, that people are willing to pay for what you do, and that you can create a form of traction around the business.
When I started my second business, I made the mistake of listening to what people said and doing what they asked. They wanted a business plan, so I spent a lot of time making a market analysis and marketing strategies of all sorts. I was trying to write something to match their expectations. Still, in the meantime, the business wasn’t growing. The thing went nowhere because a damn pdf will never be as inspiring as a working business.
They want to see you have a plan for that business
Having a business is a start. Still, whoever asks for a business plan wants to see that you are on top of things.
They know that the typical entrepreneur has their nose to the grindstone and their head under the water, so they want to see that you are different.
They want to see that you will use their money to boost growth, not pay your salary and bills.
They want to see that you are the right person to lead the business somewhere they also want to get.
They want you to have a business and a plan for that business. Period.
The one-million-dollar piece of advice
So? Focus on the right thing. Before you dig into writing a business plan, start things up. Build an MVP, make sure your business model and offering are desirable, feasible, and viable. Create traction, make the business inspiring, and then come up with a plan to get it to the next step. Period.
Just saying.
Key role #1: a business plan is important to show there is a direction
Now. A business plan has a few roles to play.
Top on the list, a business plan is critical to show that your business is going in one particular and deliberate direction.
If you remember what we said earlier, your business plan is a storytelling tool. It must convey an unequivocal message that your business follows is aligned with a vision people can adhere to and that you have a target to achieve down the road.
You can show that direction with words (spoken or written) and storytelling. For instance, we will change the world by ending single-use paper cups. We will finally make electricity eco-friendly. Or to copy a famous apple-branded company, we will put computers in every home.
You can also talk about market targets: we will be the industry number one and present in seven countries.
Or about and financial targets – we will save companies xx million in administrative management fees and make xx millions in profit.
Again, the point of the business plan exercise is not to write a pdf, it is to focus on business planning very seriously, to show that the business exists, has potential, and will reach a destination.
A business that progresses randomly without any end goal, in contrast, won’t be relevant to anyone because it will be haphazard at best and destined to fail at worst. So the question is, where do you stand?
Me? Oh, come on… Not my style.
Key role #2: a business plan is important from a financial perspective
My next point flows from the previous: a business plan is naturally important financially. And there are many reasons for saying that.
Reason number one, anyone seasoned with business plan-reading will expect you to provide them with financial projections. So, building the financial plan part of your business plan seriously is utterly essential. The risk, of course, is to seem disconnected from reality and to miss an opportunity to onboard people.
Reason number two, the financial projections you will make can significantly impact your growth capacity. A client of ours, for example, went to discuss fundraising with a very conservative accountant who told him to raise about USD150.000 tops to start with.
That perspective, however, omitted the fact that such a low amount would force the entrepreneur to raise again in six months, plus it sent the message that the company wasn’t worth much. Hence, the entrepreneur looked at multiplying the target by two to three.
His first investor committed to investing USD 150.000 and offered to bring more investors into the discussion. Can you see the difference?
Reason number three? You, as the entrepreneur in charge, need to know where your business is standing from a financial perspective.
Think about it for a second.
Can you tell exactly what your break-even point is right now? Without thinking? Probably not.
Can you tell exactly what your turnover is for the year? Or what it will be like next year, and the year after?
What is your operational margin on that, by the way? Hmm.
Can you tell what the company is worth now and what it will be worth three to five years from now?
What do you mean, “ahem”?
At the end of the day, storytelling is super important. But, your business plan should also be a matter of financial planning. And that part is crucial for your business.
It will tell you what you can hope to achieve and what you can afford to put into place with what you have. It will also tell you what money your need to raise with investors, and what money you need to find from banks to make things happen. In sum? Everything you should think of!
Key role #3: a business plan is important for you, as the entrepreneur in charge
Again, my next point will flow naturally from the previous ones – a business plan is important because it helps turn you into the entrepreneur in charge. Instead of being the business owner who runs and struggle, I mean.
I’m a bit direct here, I know. But I’m not sorry because I know exactly what I’m talking about.
Look. My job as an entrepreneur is simple. Sort of. I work on building a brand. That brand sells business coaching services for entrepreneurs who need a push. And that brand develops self-coaching products for the entrepreneurs who want to work on their business on their own. That takes a lot of time, but we (with the team) do it because we have to do it.
As business coaches, though, we also know that routines and time-consuming tasks are a problem. We know that managing emergencies is a permanent worry. And we know that having your head under the water is complicated and typical.
We also know that most entrepreneurs who call us for help do it because their head is under the water. And because, somehow, doing everything they can isn’t sufficient to structure their business, plan their growth, raise funding, and scale the activity.
Said differently? Entrepreneurs and business owners struggle because they don’t focus on business planning and strategic thinking enough. They work into their business, not ON their business. And they deal with the company by “running” after time instead of “building” something that can work increasingly by itself.
Or, in a more illustrated way:
See my point? Great. So here is the thing.
Your business plan is essential for you because it forces you to be the entrepreneur in charge and because it gives you the priorities you need to work on as soon as your planning work has been done.
That implies that you need to work on business planning – beyond your business plan – yourself (or internally with your team) instead of letting an expensive external consultant do the work. But, considering that most entrepreneurs run instead of planning and building, can you see the unfair advantage that gives you?
Oh yeah.
Key role #4: a business plan is important from a message standpoint
The last major point on our list is that having a business plan is essential from a message standpoint.
It forces you to clarify many things that can then be structured and distilled in a clear and intelligible way. And it allows you to build a story people will want to listen to, understand, and remember.
If you have followed everything we’ve said so far, this point should once again be logical!
Business planning gives you a vision. It gives you a financial perspective and a set of priorities you will have to work on to develop the business – that makes a story investors will understand and listen to.
For them to understand it, though, you’ll want to make sure that the business plan story you tell them follows a rather specific code and structure. I am talking about this in another article on business plan outlines and in The Business Plan Builder videos . You will find them on our Self-Coaching toolbox. Please give them a look!
Oh, and there’s also an article to read on the role and efficiency of one-page business plans. Again I’m not getting into the details here. Just follow the link if the topic is relevant to you.
4 reasons why a business plan is important.
- It clarifies what makes your business worth it
- It clarifies how you will make ends meet
- It clarifies how *you* will make things happen
- It builds a message people want to listen to & remember
Wrap up: what is a business plan and why is it important?
All right! Time to wrap up.
Writing a business plan is a big thing, and the answer to the question “why is a business plan important to your business” is both straightforward and tricky.
It’s straightforward because a business plan helps in many aspects.
It gives you a unique opportunity to turn a business you ‘run’ into a business you are ‘building’ to reach a destination. It gives you a perspective from a financial standpoint. It gives you some priorities you’ll be able to focus on as the entrepreneur in charge. And it gives you a clear and intelligible message people around you will understand and listen to.
It is tricky because the point of a business plan is not to come up with a pdf nobody gives a damn about. It is to do some serious business planning to have a plan for a company that already has a market and, hopefully, traction.
If you can recognize yourself in this description, you should definitely start your own business planning. Small business, large business, who cares? Just do it!
Our articles and resources on how to write a business plan will certainly give you some basics, but if you want to save some time, our Business Plan Builder is a best-selling and entrepreneur-proof tool you can’t afford to ignore!
The Business Plan Builder: 2 hours of tutorial videos and the tools you need to get started
If you are looking for a push to get started with your business plan, we – at Impactified – have built The Business Plan Builder – THE tool you have been dreaming of.
The Builder comes very handily, in the shape of a Module built around over 2 hours of explanatory videos and a package you’ll be able to use to
- Figure out what you need to figure out – powerful, uh?
- Understand the business plan code
- Write your business plan – with just the right amount of words and pages
- Build your financial estimates – with an automated table
- Create a visually appealing (designer-made!) document, and deck people will want to read
If you want to stop wasting your time, this is THE most simple business plan template, and you can’t afford to miss it!
