Small Business Plans

Small business owners who start their businesses without bank loans or outside investors often have some unique-to-small-business questions about the business planning process. I'm going to try and answer these questions here.

Must I do business planning before I start a small business?

No. There are prerequisites that you are required by law to complete—such as getting a business license or setting up an accounting system.

There are other near prerequisites that you must also complete—such as having your product or service ready to sell and having customers. But writing a business plan isn’t a hard requirement like these tasks.

All that said, business planning purely for your own analysis and thinking is a pretty good idea. In a nutshell, the planning process amounts to you thinking carefully and in detail about your product or service, your clients or customers, the profitability of the capital (both money and sweat) that you invest in the venture, and the people who will either make your business a rip-roaring success or a terrible way to spend the few years.

Is business planning the same thing as strategic planning?

No. As noted on the "How to Write a Business Plan" pages, business planning either supplies a bunch of information to your bank so it'll loan your business money. Or business planning answers the five critical questions that outside investors need to have answered before they'll passively invest in your new venture.

In comparison, a strategic plan identifies a firm's strategy and the ways the strategy will be used to take customers from competitors. Strategic planning, then, is the process that professional managers use for making a firm more competitive.

A related, hopefully interesting point: In one sense, for small businesses, only two basic strategies exist: a low cost strategy and a differentiated product/service strategy. In other words, a small business either uses low cost to compete or it uses a differentiated product or service to compete.

Will business planning help me raise capital?

Unless you're getting money from one of the three "F"s (family, friends, or fools), you need to write a business plan in order to raise money. The How to Write a Business Plan for a Bank and How to Write a Business Plan for Investors pages provides more information on this subject.

How long should the business planning document be?

Typically, business plans for outside investors are between 20 and 30 pages. Business plans for a bank are longer because the supporting documents (like previous years' tax returns) typically go into the "business planning" binder.

Can you outsource business planning to consultants?

Sure. And many accountants and consultants provide a business planning service--even to small businesses.

In my opinion, however, the small business owner is the one who best understands the planning issues. And he or she should be the one writing the document.

All that said, where you might get some outside help with this is on the financial forecasts. There's quite a bit of accounting and tax calculation that goes on inside a good forecast. And many business owners can safely and prudently offload this "numbers-work" onto their accountant.