Why do you need to write a business plan?

If you run a business, you will have heard a lot of talk about business plans.

Perhaps you’ve been told, “you need to have a business plan”. Perhaps you’ve heard it said, “all successful businesses have a business plan.” Or maybe, “if you want to get an investor, you have to have a business plan.”

There’s a general sense that a business plan, whatever it is, is a good thing to have. But to many people, the term itself is a snippet of corporate jargon. It’s not an unreasonable question to ask, “What exactly is a business plan?”.

What is a business plan?

It’s a written document that sets out the plan for your business for a set period of time. It outlines what your business goals are and explains how you’re going to achieve them.

Writing a business plan is different to undertaking business planning. You should always be planning and strategising for your business, but that doesn’t mean you have to write it all down.

You need to have a good reason to go through your business collate everything in one document – not least of all because it’s going take a lot of time and resources. The usual purpose of a plan is to achieve something. So the next obvious question is …

What is the purpose of a business plan?

There are two primary purposes for a business plan, depending on who the audience is.

1. For internal audiences (business owners and staff, for example), it’s a guide to the actions you’ll take in order to grow your business.

2. For external audiences (investors, banks, funding bodies and so on), it’s a way to communicate the plans you have for your business.

It’s this second one which is the most important and the one that often gets forgotten. A formal business plan is a communications tool.

So what are you communicating and to whom?

Who is the audience?

This is a question that can never be asked enough when writing a business plan.

If your business plan is for your own use, then it’s primary purpose is to guide your activities. It can therefore take any form that best suits this purpose.

It need not be a long detailed document, it simply needs to be enough to keep you on track. It may not be a formal written document at all. It might be a poster or a slide deck or an infographic. If it’s designed to help you, then make it yours, in both design and format.

If your business plan is for sharing with others (such as investors, funding bodies, credit providers and so on), then its primary purpose is to communicate your vision and plans for the company.

In this case, a comprehensive written document is often best, because it communicates all manner of things that are relevant to your business; things that you know well, but that others coming fresh to your business need to understand.

Your plan’s audience and purpose can get very specific. For example, it may be directed at one hand-picked investor to convince them to contribute $500k to your business. Or it may be less focused. For example, it might be to give an initial overview of your company to a range of potential funders who might provide varying amounts of financial support.

There are myriad variations, all of which are fine if you remember what you’re trying to say to whom.

Consider these questions

* Do you need a formal written business plan? Or will your own planning suffice?
* What’s your plan for? What’s its purpose? What’s the outcome you want?
* Who is your intended audience?
* Why is a business plan the best way to communicate your message?
* Only when you’re clear on these things, should you start to write a plan.

Alternatives to writing a business plan

Planning for your business is essential. Writing a business plan may not be.

If you are after a planning process for your own internal purposes, you might find that one of the following solutions suit you better.

* Regular planning sessions with senior staff
* Occasional planning retreats to plot out the coming year
* Ongoing coaching with a business adviser or mentor
* Drawing up a one-page action plan each quarter

Whichever you choose, the starting point is to articulate your business goals. Ask yourself what you really want out of this enterprise and what the best way is to achieve it.

Written by David Sharpe, director of business advisory at Generate. A version of this article was originally posted on their Better Business blog.