3 Reasons Writing a Formal Business Plan Matters

By Reggie Rosignol

How do I formulate a plan for my business? 

Anytime you begin a new initiative, it's best to have a plan. Most people have an idea of what they'd like to achieve in their mind, but in business, getting that plan into a formal document becomes a necessity that's all too often overlooked. Believe it or not, whether or not you have a “business plan” may determine your company's success.

Here's why it matters: 

  1. Identifying holes and goals — When you envision the success of your company, start with the end in mind. Where do you want to go in the first five years? What goals do you have? Then work backward on what you will need to have in place to achieve those things. It's especially important to also identify areas of weakness since they are your biggest risk.

    For example, if you are a great chef and want to open a restaurant — that’s wonderful!  But how are you going to finance supplies, rent, utilities, or staff; how are you as a boss with hiring and firing; will you be able to handle marketing, your website, payroll, health inspections, etc. The sooner that you can identify and answer these questions, the more easily you can rank their priority and address how you might strengthen them.

    The good news is that studies indicate that simply writing your goals down, improve your chances for success.

  2. It will keep you on task — Starting a business isn't easy. Particularly during the 'start-up' phase because you’re doing a lot of extra work handling things yourself and trying to get your name out there. You can get so ‘in the weeds’ of business on the ground level, that you don't realize you've gotten off track. The Small Business Association (SBA) says that a properly executed document will help you run your business by keeping you on target, especially when things get busy. Not only that, it will give you something to measure against down the road. Are you doing what you said you'd like to accomplish?

  3. Verification — A good plan will also clearly identify how you plan to make money. It covers all of the necessary bases, and it allows lenders and investors to see that you are serious and have thought things through. Potential business partners will want to see how you have operated against that plan. If you don’t have a plan or haven't been able to stick to it, they may be concerned about lending you money.

    Even when things look good, and a company is experiencing high growth, an owner may think that's all the proof that’s needed to justify approving a loan. But “growth" doesn't necessarily translate to “profitable.” If a company does not manage expenses and margins appropriately, a company can ‘grow’ right out of business. So, any lender, like Flexent, would need to see where the new business is coming from, how the company is spending, and what the business needs to manage that growth.

All too often, a company doesn’t find a gap in their vision or recognize that they need to borrow until it's too late. The SBA reports that, on average, only 50% of small businesses survive the first five years. The Harvard Business Review suggests that if you create your plan at the right time, it can increase your success rate by as much as 27%.

We can help

At Chesapeake Bank, we love to support small businesses because they are vital to the communities we serve. Not only do we have commercial lenders and business development officers committed to you, but we also have  Flexent that provides alternative financing solutions that leverage your inventory and receivables. Call 855-717-6400 to learn more or complete the form at the bottom of this post for more information.

Tools for the task — in your community

Organizations like SCORE and the SBA offer free templates and worksheets to help you draft this document. Your local Chamber of Commerce, Economic Development Centers, and even local Small Business Development Centers also offer tools like these, in addition to workshops, consultations, networking events, and other valuable resources. Local CPAs can help you put together a customized professional plan if needed.

Don’t forget

A business plan can be written at any time, but it’s usually done at the start of a business, and then reviewed/updated annually. Doing that, in addition to monitoring your financials monthly, make you proactive and not reactive.