CFI Blog

When Do You Need to Write Your Business Plan

“If it really was a no-brainer to make it on your own in business there’d be millions of no-brained, harebrained, and otherwise dubiously brained individuals quitting their day jobs and hanging out their own shingles. Nobody would be left to round out the workforce and execute the business plan.”
– Bill Rancic

Bill Rancic

There are a ton of “business gurus” out there who will tell you that you need to write a business plan, or even that you must write a business plan before you even get started. It’s not just the “business gurus” who are guilty of offering this bad business advice. Go look at the Small Business Administration’s page for starting a business. What’s #3 after thinking about it and finding a mentor? You don’t even have to click the link to guess. It’s writing a business plan.

The order is ALL WRONG!

The order is ALL WRONG!

Let’s look at the “commonly accepted wisdom” of “business gurus” for how to start your business.

  1. Get an idea
  2. Write a business plan
  3. Go get a business loan
  4. PROFIT!!!!!

Here’s the reality of what happens if you follow that plan.

  1. Get an idea
  2. Write a business plan
  3. Go get a business loan
  4. Open. Listen to crickets chirping
  5. Wonder what the heck went wrong
  6. Eat ramen cakes for months
  7. Finally close up shop and get a job
  8. Slave for years to pay off that debt you accumulated/declare bankruptcy
  9. Wonder what went wrong
  10. Repeat

Don’t believe me? Check out the SBA’s own stats. Half of new firms close within 5 years, and in 2009, nearly 10% of firms that closed had bankruptcies. It’s enough to scare you away from taking a risk in starting your own business!

The untold story is of the crushing debt that these business owners face if they fail. In fact, try to find good data about the average difference in debt load of a failed business owner. I don’t think any reliable information is out there. If you can find some, put it in the comments!

The SBA and “business guru” approach is flipped on its head. They focus on two things which will provide you with an anchor around your foot and an albatross around your neck. They want you to think a lot – and we know that intention is not the same as execution – and they want you to go borrow a bunch of money you might not need and encumber yourself with debt you might not need.

Here are the three most common myths about business plans perpetuated by “business gurus”:

  • “What if you need angel funding or VC funding? You can’t get anyone to invest in you without a business plan!” If I want to invest in a small business, I’m much more concerned about kinetic energy than I am about potential energy. If you can’t show that you already have a customer, and preferably customers who have committed money to you for your product or service, then you’re telling the same story that every other person who was in line before you and who will be in line after you are going to tell. You’re in a much stronger negotiating position when you don’t need the money, but it would be nice to have.
  • “You need to have a business plan to know where you are going!” You should have an idea, a concept on how to execute, and a list of potential customers, and then you should go out and get customers. From that point on, the customers, and then the market are going to tell you where you are going. Having some detailed document written out with detail down to the ¼ second of each day is only going to serve to create some heavy reinforcement for an anchoring bias (“but, it’s in the plan!”) and keep you from serving your customers and providing value for your market.
  • “You’ll never sell your company without a business plan!” Just because you don’t have a 50 page fully detailed fill-in-the-blank business plan written out (with the help of the “business gurus”) doesn’t mean that you don’t have a plan for your business. I never had a written business plan when pitching to potential buyers. I had a 12 page Power Point presentation. Plus, your buyer may come from within your own company. If that buyer doesn’t know your business without the help of a long formal document, then they have no business buying you out in the first place.

So, arguably, the answer to the question I pose in the title is simple. Never. Focus on getting your first customers, then exceeding their expectations while getting more customers, and repeating that process ad infinitum. Time you waste writing down an enormous business plan is time you could spend getting that process started.

Did you write out a full business plan? What are your thoughts about it? Join in the conversation in the comments below!

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John Davis
John Davis is a nationally recognized expert on credit reporting, credit scoring, and identity theft. He has written four books about his expertise in the field and has been featured extensively in numerous media outlets such as The Wall Street Journal, The Washington Post, CNN, CBS News, CNBC, Fox Business, and many more. With over 20 years of experience helping consumers understand their credit and identity protection rights, John is passionate about empowering people to take control of their finances. He works with financial institutions to develop consumer-friendly policies that promote financial literacy and responsible borrowing habits.

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