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Why do You Need a Business Plan?

We meet many entrepreneurs at conferences, industry meetings, Workshops and other events and often we hear the question “why is it necessary to have a business plan”? These entrepreneurs then recite a list of businesses that are successful without a business plan. We then respond by asking them if Google, Dangote, Health Plus, Shoprite e.t.c had a business plan when they started initially and the right answers are ‘maybe or maybe not’. Do they have a business plan now?  Yes they will need them at this stage of growth. Business plans are absolutely critical now due to the large and diversified nature of their operations and ownership.

Running a business is complex and many things can go wrong. The first regret often expressed by even successful business owners  is that they wish they had started out with business plans or feasibility studies at the very beginning (we will explore the exact differences between the business plan and feasibility study in another article). However, such success stories without a business plan are relatively fewer than the failures. We have lost count of the number of consulting “rescue missions” we have done for various clients in the following situations:

  • Wrong equipment that keep breaking down
  • Poorly skilled personnel,
  • Expensive bank loans that wipe out profit,
  • Wrong business location
  • Good sales but there is so much stealing by staff that the sales never translate to any profit or good sales but the cost of sales are so high due to transport issues and all profit is wiped out.
  • The  staff are colluding with raw material suppliers to accept bad quality goods which impact on production and sales.
  • The list is endless and all the problems can be traced to lack of planning.

The fact is business plans help you avoid very expensive mistakes in a lot of areas and from the list above it is obvious that business challenges are never just limited to poor sales. Yes, a business plan might change based on market realities but it is better to start with a plan and then amend as necessary than have no plan at all because:

  • Fund providers insist on a business plan before considering a loan or investment into any business but there are many more reasons to write a business plan:
  • Writing a business plan or putting together an investor deck allows you to think more clearly about what you’re doing and where you are going and communicate this to investors, partners and staff. Remember that the minute that your business plan hits the printer it is already out of date, so don’t depend on it as your to-do list. Use it as a roadmap instead.
  • It helps you gain a deep understanding of the industry you are going into.
  • The biggest reason to write out a business plan regardless of any financing option concerns is that it can help you stay organized and remain on track. Businesses without a plan can easily get off-target, and revenues will suffer as a result. Creating a plan with expense projections, revenue forecasts, and more can help a small business remain committed to its long-term goals.
  • So why are most entrepreneurs reluctant to write a business plan?
  •  Is there a type of business plan that is easy to write within 7 days or less?

We will discuss this in our next post.

Feel free to drop your comments and questions on our Facebook or Twitter pages. We will be glad to talk to you.


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