At some point in your entrepreneurial life, you’ve probably wondered to yourself, “Do I really need a business plan? Like for real for real?” Because let’s be honest, writing a business plan sounds like the equivalent of being forced to listen to Nickelback during a 13-hour road trip: not fun.
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So do you? The short answer is yes. The long answer is, maybe not in the way that you think.
When most people think of a business plan they think of a 20-page document with bar graphs, charts, and complex cash flow projections. That’s what’s considered a traditional business plan. And, usually, it’s what scares entrepreneurs away from writing one. Maybe I’ll take the Nickelback, after all.
But a business plan is not one specific thing. Rather, it’s the idea of making a plan for your business. Do you need 20 pages of flow charts? Maybe not. Do you need to know how your business is going to make money? That’s probably a good idea.
Not everyone needs a traditional business plan, BUT not everyone can skip a business plan either. So, how do you know if you need to go all in with a traditional business plan?
By reflecting on the broad vision of your business. Knowing your vision helps you assess if a full-on business plan is necessary—or if you can redirect your energy into something simpler.
Here’s a quick guide to when, and why, you might need a business plan:
When you need a traditional business plan
There are a few situations that require a traditional business plan, which includes the following:
- Executive summary
- Business and industry overview
- Market analysis
- Competitive analysis
- Sales and marketing strategy
- Ownership and management plan
- Operating plan
- Financial plan
When reflecting on your vision for your business, see if any of these situations apply to you. If so, then congratulations, you’ve got flow charts in your future!
1. When you apply for a bank loan
When you borrow money from a bank there are a few things they want to know before they agree to give you a loan:
- Will you stick around to pay them back (How sound is the operational side of your business?)
- How you’ll make money to pay them back (Is the sales and marketing side of your business strong?)
- Can you afford to pay them back (How are you doing on the financial and cash flow side of your business?)
Since most business loans are for a sizable amount, the bank wants to see details that show them that your business is financially sound and trustworthy. By their nature, traditional business plans are detailed (that’s why they’re so daunting!), and having one prepared when you apply for a loan will increase your chances of being accepted.
Just like banks want to be sure that you’re going to pay them back, investors want to know that they’ll be making back their money and then some. This means that you need to show them that:
- You’ve thoroughly thought through and validated your business idea
- You’re able to execute your business idea
- You know exactly how you’ll use their investment
Once again, a traditional business plan is going to hit on each of these points, in detail. Just by having a traditional business plan you show investors that you take your business seriously and that you’ve already invested time and energy into validating your business idea.
3. When you’re bringing on partners or other highly skilled people
If you’re looking to bring on a partner or other skilled professionals in the early stages of your business, then you’ll definitely need a business plan.
Asking someone to commit to your business before they’ve gotten to know the ins and outs is like having a shotgun wedding in Vegas. It’s all fun and games when Elvis is around, but things can go from Burning Love to Heartbreak Hotel real quick the morning after.
Just like getting married, starting a business with someone is a big-time legal commitment. You BOTH want to be 100% on board, and that’s impossible unless your potential partner knows the vision, strategy, and financial considerations.
And beyond helping your potential partners make an informed decision about joining your business, your business plan protects you from working with people who aren’t a good fit. After they’ve read through your plan, you can discuss the details and see if they align with your values and goals.
When you need an untraditional business plan
An untraditional business plan is a shorter, more simplified version of a traditional business plan. These can range from a one-page mini plan to several pages focusing on just one part of a traditional business plan.
Here’s when an untraditional business plan can come in handy:
1. When you’re still testing your business idea
If you’ve got a grand vision, but still have to work out the kinks, an untraditional business plan can help you organize your goals while giving you room to finesse the details.
Making sure your business is viable and has a market BEFORE starting a traditional business plan saves you time and money. Plus it’ll make writing a traditional business plan easier because you’ll have real-life experiences to refer to.
2. When you’re struggling in one area of your business
If your business is feeling lopsided in terms of what’s working and what’s not, an untraditional business plan may be for you. Instead of writing a full-fledged business plan, you can focus on one section that solves the problem you’re facing.
Got a great product but struggling to get the word out there? Focus on writing a marketing strategy. Meeting your revenue goals but struggling to manage your cash flow? Try creating a financial analysis.
Getting laser focused on one area of your business helps you overcome your current challenges and gives you a head start if you do decide to write a traditional business plan down the road.
You can also use this approach when there’s an area of your business that needs slight improvement or more attention. You may not be outright struggling, but there’s always a few areas of our business that could benefit from a bit more care.
It’s like having a dog. Even if you have the most well-behaved dog on Earth (who doesn’t eat a pound of bacon off the counter like some people’s dogs), you still need to give them pets and cuddles if you want them to stay that way.
3. When you want room to experiment
For some folks, the problem with a business plan is the assumption that you’ll have to execute the plan flawlessly. If you’re the type that likes to experiment and allow things to evolve organically then a traditional business plan can feel constricting and like it’s suffocating your creative side.
Rather than approaching a business plan as a plan, you can use an untraditional business plan as a place to record your experiments. Consider creating a mini-plan before you try something new in your business and then keep track of the results. You’ll still get valuable insights about your business while leaving yourself plenty of room to play.
While business plans can be totally intimidating for new entrepreneurs, keep in mind that there’s no right way to be a business owner. Regardless of if you go all in with a traditional plan, or keep things chill with something untraditional, how you run your business is up to YOU.
And if that includes belting out some Nickelback along the way, then by all means, you do you.