Do You Really Need a Business Plan?

Even if you aren't planning to borrow money or seek investors right away, there are good reasons to sit down and write a plan

by Karen E. Klein

I plan to open a business this summer. I won't be applying for a bank loan to fund this company, so I don't have a business plan. Do I need one?—I.F., Los Angeles

Every business needs a business plan, whether or not it will be borrowing money or seeking investors. Writing a business plan not only helps you determine whether your business idea is feasible, it also establishes a map for your company's future. Without it, your business is likely to drift along without direction or parameters for measuring progress.

Writing a business plan doesn't have to be a laborious, months-long endeavor, but it will involve taking the time to think out how realistic your business idea is and whether it will make sense financially. "People act like they would rather get their teeth pulled than write a business plan. Even with the software that's available today, it's tough," says Kylon Gustin, president of online firm Business Plan Advice. "You've got all these wonderful ideas floating around in your head and they get better and better the more you think about them. But to sit down and write five paragraphs that have meaning is hard."

Although it can be a difficult process, going through with writing a business plan will force you to think logically about your business strategy and business model. When you're done, you'll have a realistic idea of whether you can make this business idea work and whether you really want to. "Look at it this way," Gustin says. "If an investor or lender requires a business plan before they will loan you money, shouldn't you require the same level of due diligence before you invest your own hard-earned money in a new venture?"

Translating Ideas into Actions

Frank Fiore, author of Write a Business Plan in No Time, lists these reasons for writing a business plan:

• Defining a new business venture
• Determining whether your business will make a profit
• Providing an estimate of your startup costs
• Devising an effective marketing strategy
• Helping you compete in the marketplace
• Measuring your business performance and tracking your growth

"American Express identified a number of ways to achieve business success that are directly connected to writing a business plan. For example, productivity and success are tied to using your mind's creative process to full capacity. A business plan will force you to think in creative ways about a business that you haven't before. A business plan also forces you to set goals and provides the tools to control the outcome. In short, it translates ideas into actions," he says.

Dave Skibinski, president of consulting firm QuantumMethod, suggests you aim for a three- to five-page document that will help you focus on the critical factors that will make your new business a success. "What you need is not a major plan that makes the case for outside investment. What you need is a concise and focused plan to help you chart your course and hold yourself accountable," he says. "Keep in mind knowing your customer: Who are they and what merchandise will they find interesting? What will they pay you? How will you get them into your store?"

Online Resources

You can find myriad Web sites, workshops, and software packages online that will help you structure your business plan. The U.S. Small Business Administration has extensive information on planning for a new business, including writing a business plan.

Gustin recommends that you start with Strategy Insight, a free online tool that walks you through 60 questions about your business idea. "The Q&A process and the results you get are valuable, and the formula is short and easy," he says. You can also find business plan resources and directories at BusinessPlans.org, he says. And you can take a look at BusinessWeek.com's The ABCs of Business Plans special report for more advice.

Karen E. Klein is a business journalist who covers small-business issues for several national publications. She writes her Smart Answers column twice a week.