Writing A Business Plan: 5 Things You Need To Know

About half of new small businesses survive more than five years, according to the Small Business Administration. Or, for the pessimists among us, that means half of all startups fail during that time. Want to increase the odds of success? Start with writing a business plan -- a strategic, structured, analytical (and realistic) vision for success. "It's easier than people think, and more important than they think," says Tim Berry, president of Palo Alto Software and creator of the uber-popular Business Plan Pro software. "It's not a map. It's a map overlaid on a GPS with real-time traffic and weather information." And just like a long road trip, it's risky to start a business without one.

So how can you create a plan that works not just now, but also paves the way for years of future growth? And what are the essential elements of a great business plan? Here are five things you need to know.

1. Chances are, you need a plan.
We've all heard about entrepreneurs who supposedly succeeded without writing a business plan. Wouldn't it be nice if you, too, could just blindly barrel forth and make millions of dollars? Paul Tiffany, senior lecturer at the Haas School of Business at the University of California at Berkeley and co-author of "Business Plans for Dummies," has one thing to say about that: "If the entrepreneur feels that he or she is so lucky that they don't need to waste time on planning, then they should be in Las Vegas!"

So many entrepreneurs get caught up in the idea of producing a technical document that they miss the point -- and the plan's purpose -- entirely. "It's a damn shame that so many business plan writers think of the plan as a document rather than the first step to planning, and that so many people are told that a business plan is a document used to raise money," Berry says. "If they understood how planning is steering the business, that without it you have a lot more trouble controlling your destiny, they'd be more interested." Berry likens the business plan to a car's steering system. Think about it: Without constant course corrections and change, you end up driving in the wrong direction (and perhaps even over a cliff).

2. Business planning should be ongoing.
Give ideas time to percolate in your mind. Jot notes and work through problems as needed. Entrepreneurs know you can do a lot of informal planning in your head and on paper before you actually sit down and organize your ideas within the formal document known as a business plan. According to Tiffany, thinking about business planning forces you to confront important issues, such as who your actual customers and competitors are, where your business is headed, what resources you'll need to succeed and so on. "The final plan itself is not the goal of this quest," he says. "Rather, it is the sharpened strategic thinking that derives from having to confront intellectually the market battle that lies ahead." This "thinking process," as he puts it, "is what planning really consists of, while the final document is just the proverbial icing on the cake."

3. Review your plan on a regular basis.
Great news: Your plan is on paper. But that doesn't mean you're free to go on autopilot once it's written. In the early days of Palo Alto Software, Berry and his wife revisited their business plan during walks after dinner. Eventually, as employees came on board, that changed to the third Thursday of every month. "Today, that still happens, but on the second Thursday of the month," he says. "If your plan is finished, your company is finished."

Neglecting your plan can also lead to "mission creep," Tiffany points out, which affects businesses all the time -- especially those finding short-term success by following every exciting opportunity that comes their way. "The firm wakes up one day and finds that it is stretched beyond belief, its resources scattered about the landscape, with no clear sense of what it is, where it is going or what its priorities should be in resource allocation decision-making," he says. "In short, the firm has become unplanned, a-strategic and, in essence, purely tactical. Organizational decline and failure typically follow."

4. Don't complicate things.
A lot of entrepreneurs put off business planning because the mere idea of it feels daunting, stressful, impossibly complicated and time-consuming. But it doesn't have to be. As with any other large project, start by breaking it down into smaller, manageable pieces -- like strategy, sales forecast and expense budget. "You develop it all the time, but never more than an hour or two at a time," Berry says. "And it's never finished, but always done enough that you can print it out for yourself. You don't do it in any special order. Start wherever you want and work on it as long as it helps you manage." He adds that your first iteration, assuming you've engaged in the all-important thinking and research process, can take as little as two days to complete and comprise just 10-15 pages of text and numbers (including charts and tables illustrating cash flow, growth, investment, projected return on investment and so on). Check out the SBA for some business planning resources to help you get started.

5. Even a good plan doesn't guarantee success.
Following your dream to execute a brilliant business idea will always be an inherently risky move. And, unfortunately, even a detailed and evolving business plan can't always protect against any multitude of unseen risks and events that may come to harm your business. "A plan is a means to an end, but not the end itself," Tiffany says. "The ultimate factor in business success is the execution of the plan, and that in turn is derived from management skill and leadership."

The original version of this article appeared on AOL Small Business on 6/14/10.

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