Pros and cons of writing a business plan part 1

Pros and cons of the business plan (BP)

There are plenty of people out there that believe you cant start a business without a business plan.

Bank managers, risk averse friends, those not in the know, will demand a business plan. It is what is done.

Well, up to a certain point. Yes.

There are several stages in a business that one needs to know about.

Start up- investment stage
Viability stage
Small Growth stage
Medium stage
End game

What goes into the start up stage will depend on the type of business you want to start. For example a tee shirt company that only designs tees and sells them online has less overheads and is quicker and simpler to set up than a retail shop selling clothes. Similarly, finanically, planning will depend on the type of business you want to start.

I briefly define the start up stage as the stage the time period when one or more people are investing the capital in order to start, and when the business is not profitable on its own. You might argue this to be false, as many social networking sites, most notably facebook, didn't earn for years yet was not a startup. This much is true, but for our purposes a business that is not turning a profit, in general, is considered a start up (or a failing business!).

The next stage is the viability stage. This is when the business cannot rely on the seed capital (money) from the initial investors or bank. The business makes money. Enough money to cover all its costs and has money left over. Great!

From then on, the business can grow!

And grow!

And then, the owners have a general choice of keeping it private, selling it or floating it. Generally.

So where does the planning come in?

Well I'd suggest planning regularly. For each stage. The larger the risk, the more planning. Therefore, if you are needing to invest £500,000 in the start up stage I do not recommend going in without a plan. This is pretty obvious. Indeed, apetite for risk is subjective; based on the individual. You will need to assess that yourself.

So back to the business plan.

I would spend time thinking about your business. Writing it down in a fancy plan is great. But thinking and planning time is very, very important. This needs to be a constant process, especially when things change. When new technology comes out, or external factors change like currencies fluctuate- or anything that affects your business.

I did a business plan for my most recent business and have found that every 4-6 months I need to revisit it, along with the figures, to plan out the next 6 months. That is okay. There are no rules to business- you make them!

I did once do a very detailed plan. The cash flow forecast looked great. It was perfect, it looked and sounded so great. Everyone liked the idea. It never got anywhere. Over planning is not healthy. Analysis paralysis- the idea that too much planning means some people do not make that first move. Make the move.

 Test the market. Use the tools available to you. The internet is a great testing ground. Research (which is normally free). Ask people what they think (if it is not a unique idea- if it is a unique way of doing something or a new invention you might want to patent the idea before telling the world about it!)

So it is not a matter of whether to do it or not. You should write a plan, even if it is very basic and it is only for you. Most importantly though,plan for each stage of your business as and when it happens or is likely to happen. If the company is nearing viability, bringing in new business and nearing profitability, plan for growth. If you are growing think about bigger things, mergers, acquisition, geographic growth or growth in other markets, joint ventures and scaling up.

In summary, do not plan for years and years ahead- especially if you are starting small and this is your first enterprise. Things change. Always be thinking, planning your next move.

Nokia was a paper mill and even produced wellington boots before producing telecommunications.
Google is another example, they are always changing.
Great businesses adapt to change.

Continue to change for the better and you will be in business a long time.

Good luck!

For the part 2 click below:

Pros and Cons of writing a business plan part 2

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