Have you heard the old proverb, “He who does not plan, plans to fail”? Well, that sentiment has never been truer than when contemplating starting up or acquiring an existing business. According to the Small Business Administration’s Office of Advocacy, approximately 600,000 businesses close or file for bankruptcy each year. The facts speak for themselves

• 85% of all businesses that neglect planning their business will fail.
• Interestingly, of those who take the time to write a business plan, 85% will be successful.
• Additionally, 40% of companies with a strategic plan will double their business within 2 years of writing their plan.
• And with that plan, more than 70% will exceed your expectations within 5 years.

With such overwhelming numbers, why would anyone start a business without having a business plan? Most of the time, people recklessly don’t see the need. And in the end, many entrepreneurs embark on a venture so convinced of its merits that they fail to fully assess the potential of the business. As a result, they are not prepared to deal with the opportunities, costs, difficulties, and requirements necessary to successfully run their business.

How can you avoid the well-trodden path of those damned before you? Here are five (5) reasons for you to tackle this time-consuming, but vitally important strategic planning tool:

Money

This is usually the first (and sometimes the only) reason business executives think of when writing a business plan; many times because they need emergency financing. But some businesses, such as freelancers (ie accountants, lawyers, consultants, etc.) may not have a reason for significant capital injections that would traditionally justify writing a business plan. However, other types of businesses, including technology or manufacturing companies, and particularly start-ups, may need to establish credibility with funding sources by allowing potential investors and/or lenders to understand the viability of their business. . However, that does not necessarily make the need for financing the most important reason for writing a business plan.

Feasibility

The Small Business Administration reports that two-thirds of new employer businesses survive at least two years, and about half survive at least four years. That is a significant amount of time to invest in a company only to discover its lack of viability. But an entrepreneur who takes the time to create a business plan can take a critical and objective look at their business and identify strengths and weaknesses; and, the potential risks and opportunities of the market and the company, before they make costly, perhaps even disastrous, mistakes later on.

Communication

Arguably the most valuable resource any organization has is its people. And as a savvy business executive, you want the smartest and best employees you can find to keep your company on top or maximize its profitability. What better way to communicate your ideas to potential joint venture partners, management and/or key personnel than through a strategic planning document such as a business plan? The fact that you’ve taken the time to write and annually update your business plan may be all you need to set your organization apart from your competitors and persuade a critical employee to join your executive team.

Which brings us to two of the most important reasons to write a business plan:

road map

Writing a business plan is a time consuming process and could take you weeks, maybe even months to prepare. But the real value in creating a business plan is that it’s an excellent reference point for annual review so you can refer to it throughout the life of your business. So don’t just write a business plan when you start your business and put it on a shelf somewhere to never think about it again. Instead, periodically review your plans to determine where you are and what your next steps and/or moves should be.

Focus

How many times have you seen a seemingly viable business close because you added too many products or service lines and simply grew too big? More often than not, they have acquired additional product lines, merged with other businesses, etc., all in an attempt to stay competitive. But that doesn’t necessarily mean they’ll keep their market share, especially if they sacrifice things like customer service, product innovation, etc. But by continually writing and revising a business plan, an organization can stay focused on its vision, operational and financial goals; long-term goals, etc., and not venture into other areas because they “sound good.”

So if you really want to invest your time, energy, and hard-earned money into starting a business, start from scratch. Taking the time to write a business plan, think about your idea, study and research the facts; and, critically reviewing the big picture, may be all you need to build a strong foundation for future business success.