The Business Resource for Financing
Site Overview | Free Stuff | Contact Us | About Us
Do Entrepreneurs Really Need A Business Plan?
Improve your Business Plan. Have it professionally reviewed.
By Brian Hill Copyright 1999
• More than four out of five entrepreneurs have a written
Business Plan for their company
• Entrepreneurs believe that a Business Plan is an important
tool for raising capital
• A majority also use their Business Plan to help them manage
and grow their business
• A Business Plan must be continually updated as the company
• Entrepreneurs struggle with the financial projections
• It is difficult for them to decide when the Business Plan
These were the major conclusions from a survey of entrepreneurs conducted by Profit Dynamics Inc., a management consulting firm based in Phoenix, Arizona. The survey was done through the firm's web site, www.capital-connection.com. The respondents were both established companies and start-up businesses.
More than 83% of those surveyed said they had a Business Plan. Of the percentage who did not have a Plan, the most frequently cited reason was that they did not have the time to write it. Only 3% of the respondents said they did not think they needed to have a Business Plan.
The Business Plan is often viewed as a document prepared when seeking venture capital, and the survey confirmed this, with 63% saying they prepared their plan to show investors. But they clearly also viewed the plan as important as a management tool (53%). In fact, more than one-fourth of those surveyed said they prepared their Plan for both reasons. Forty-four percent said they wrote the Plan to help get their business started, while 15% said they prepared it to obtain a bank loan.
Entrepreneurs were enthusiastic about the process of writing the plan (once they were finished). One said, "I wish I had known before its importance in helping me clarify the many elements of one's business." "Writing my Business Plan forced me to look at my business analytically to determine the drivers of my business," added another respondent. "Not only does it allow us to present the idea in a more informed way when raising capital, but it serves as a guide for all upper management to understand the business' direction."
Nearly 30% of the entrepreneurs who responded used a software program to help them complete portions of the plan. When asked how useful the software was, opinions varied widely from being not helpful at all to being a tremendous help. Overall, the respondents said the software was somewhat useful, the average response being 3.4 on a scale from 1-5 (5 indicating the software was very helpful).
Comments varied widely, too. "Most of the spreadsheet tools were inadequate because they used only one method at a time for projecting revenues and expenses. I have created my own spreadsheets that I can manipulate better as various areas of future growth change."
One entrepreneur was even more emphatic that software is no substitute for thinking. "Software assistance? Most people have become too lazy to write anything; all they want to do is click on a predefined answer. Write it, write it, write it, and think it through each time."
When asked what the most difficult part of completing a Plan was, doing the financial projections and deciding when the Plan is finished were the most popular responses. Interestingly, among those who used business plan software, the projections were still cited as the most difficult part of the Plan, even though most of these programs include spreadsheet formats to simplify building the financial models. The software users also said that analyzing their competition was a difficult part of writing a Business Plan; this requires research specific to their industry that cannot be provided in a software program.
Whether the entrepreneurs used software or not, the Plan is clearly a challenging document to write. As one put it, "Our business plan took over 120 man hours and an additional 40 hours to do the projections (for the first draft only)." Another said, "I have been working on my business plan for the past 2 years, refining it to reflect the impact of new technology."
One entrepreneur cautioned against taking shortcuts, and advised taking the time to write a thorough Plan. "I received lots of advice that venture capitalists now want only the 'one-page' Business Plan. Don't believe it. You need the full-blown, fully edited version."
Among all respondents, the most difficult parts were:
• 38% Coming up with the projections
Profit Dynamics Inc. was founded by Brian E. Hill and Dee Power in 1987. The company provides advisory services to businesses of all stages of development and many different industries.
All Text Copyright 1998-2000, Profit Dynamics, Inc,.
Dee Power & Brian E. Hill
All Rights Reserved Worldwide