Don’t Sweat It: Business Plans are Overrated

June 12, 2014

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People are often shocked to hear that I started my business without a formal business plan. Here I am, a Harvard MBA, and advisor to successful small businesses, and I didn’t even put together a business plan?

We live in an entrepreneurial culture that reveres the Business Plan (with a capital B and P). There are classes, websites, downloadable templates, and even apps dedicated to preparing the perfect plan. So when the typical entrepreneur decides to go out on their own, they begin by dutifully sitting down to write a Business Plan.

This is a moment of reckoning for many people. It’s the first time the aspiring entrepreneur realizes that they really don’t know what it takes to run a business. As a now-successful photographer told me, “I downloaded a 30-page template and realized I had no clue how to fill it out.”

I find that the anxiety around business plans continues through many years of success. A general contractor client of mine said, “I have this idea that someday I’ll sit down and update my business plan, and figure out how take my business to the next level. But I’ve been saying that for 15 years.”

Today I want to say: business plans are overrated. While a comprehensive business plan is important for many businesses, for most of the businesses I work with, a full business plan is overkill, and a waste of precious time. Here I will show you how to figure out what amount of plan you need for your business,  which parts are essential and which you can happily skip.

Some businesses need a traditional business plan … and some don’t

I think a lot of the confusion over business plans has come about because most gurus and writers don’t clarify what kind of businesses they’re talking to or about. There is a HUGE range of new businesses, and often they receive one-size-fits-all advice. But the needs of a new biotech startup are very different from those of a massage therapist.

The traditional, full-blown business plan is an essential tool for businesses that are highly complex, trying to do something that’s never been done before, or that are seeking funding. It helps the entrepreneur analyze risks, manage uncertainty, and consider all factors that might affect the business. This is critical if you’re doing something novel, or if you want to convince someone else to give you money.

However, many small businesses don’t need a full-blown business plan. If you’re running a service business in an established industry, and you don’t need funding, there’s a good chance that all you need is a “mini” business plan. Examples of these businesses include freelancers of all sorts, consultants, coaches, trades, lawyers, and creative professionals.

Even though there are many unknowns, these businesses are much simpler than many startups, because you already know there is a market for your services, with an established client-service model. So you can skip the many sections of a business plan that are designed to test the viability of a totally new business concept, and you can skip others that serve as background information for banks and investors.

The mini business plan

Having a plan is essential for two reasons. First, the process of developing the plan is an invaluable tool for thinking through important aspects of your business. Second, the plan gives you a vision and a direction. You’ll achieve your goals much quicker with a plan. But if your business doesn’t need a full-fledged Business Plan, I suggest developing a mini business plan that contains the bare essentials for a successful small business.

If you’re just starting your business, I recommend developing all of the elements below. However, if you have an established business, I recommend you work on just one aspect of the plan at a time: pick the thing most urgently needed.

The 3 key elements of a mini business plan

1. Sales & Marketing Plan

I believe that the most important element in growing a small business is attracting a steady and growing stream of ideal clients. Your marketing plan should precisely identify your ideal client, and clearly articulate your value proposition and differentiation. Make sure to include a plan for systematically finding and attracting new customers.

2.  Financial Plan

Whenever I start working with a client who wants to scale their business faster, I help them put together a financial plan. I recommend a 12-month forecast of revenue and expenses, and possibly a cash flow forecast as well. This will answer questions like, “How much money will I make next month?”  And, “When can I afford to hire my next employee?” Don’t get bogged down by all of the other spreadsheets suggested in a typical business plan template.

3.  Exit Strategy

Often overlooked, or left for “someday,” having a clear exit strategy enables you to start building toward an eventual exit. I worked with a design firm whose owner knew he eventually wanted to sell, but had never figured out what his business would need to look like to sell for the price he wanted. Once we figured that out, it gave him a long-term path to follow with regard to revenue goals and building his team.

Taking action

Determine the type of business plan you want for your business. If you’re just starting out, be sure to include the three components above, and anything else relevant for your industry. If have an established business, choose one aspect of the business to strengthen, and make a plan around that.

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about the author

FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.