Why Business Plans are Overrated, but Business Planning Is Not

Guest Post by Dallon Christensen

According to Small Business Trends and CNNMoney.com, small business lending suffered mightily during 2009.  The decreased level of lending could be expected as the Small Business Administration’s loan failure rate increased to 12% in 2009.

General Dwight Eisenhower once said, “Plans are nothing; planning is everything.”  No business has created a great business plan without a detailed planning process complete with financial analysis and careful review of assumptions.  Your goal should never be to create a business plan.  Your objective should be to develop a great planning process that results in a professional business plan.

You should remember three key points about about a business plan to make it reasonable and realistic.

• Business planning forces you to write your assumptions and calculations on paper – Veteran Inc. magazine columnist and entrepreneur Norm Brodsky counsels fellow entrepreneurs to write out their projected numbers with pencil and paper first.  While you may not need to start that way, it is important to develop your calculations somewhere than in your head.  You must review the numbers to see if they make as much sense on paper as they did in your thoughts.
• Business plans demonstrate the level of thought related to your business goals – Business plans need not be small books.  In 2009, I helped a client create a detailed startup business plan of less than 40 pages, including all spreadsheets and graphs. Bankers and other investors want to see that you understand your market and how you will make money.  A well-prepared business plan naturally comes from a well-done planning process.
• Business plans help you tie your business results to your overall financial situation – No banker will cover 100% of your funding needs.   Just as you make a down payment on your house, you also need to provide a portion of your funding to align your interests with risk.  The business planning process helps you identify where your business and personal financial goals align or do not work.

Business plans may not be the difference between business success and failure, but business planning may be a key factor.  The attached graph from Palo Alto Software founder and business planning expert Tim Berry shows three examples of how business planning creates stronger, more profitable businesses.

Dallon Christensen is a business coach and contract finance executive based in Bettendorf, Iowa.  Dallon helps entrepreneurs and small businesses see around the corners of their businesses and turn financial numbers into plans of action.  You can find Dallon at his blog, www.dallonc.com, or on Facebook, Twitter, LinkedIn, and YouTube.