Do I really need a business plan?

I get asked this question frequently.  At networking events, seminars and classes, coaching sessions.  New and prospective business owners want to shorten the process from great idea to opening the doors.  I can't blame them for wanting to get on with it.  You have what you think is an awesome idea and you're ready to take on the world with it, and right now.  I get it.

The dialogue goes something like this:

Client: "Do I really need a business plan?"

Me: "YES"  

Client: "But I'm not getting a bank loan, why do I need a business plan?"  

Me: "Oh, so you don't mind if your business fails?"

Client:  "Huh?  How does a giant report keep me from going out of business?"

Me:  "It doesn't.  One has nothing to do with the other."

Client: "Then why do I need a business plan?"

Me: "So you won't go out of business."

Client: "Huh?"

Partially I'm exaggerating to make a point and partially it really does go exactly like that.  The question the client is really asking me is do they need a fancy business plan DOCUMENT.  The answer of course is, it all depends.  But before we get to that, let's answer the unasked question first.

Every business needs a business plan.  Period.  Especially a new business.  How do you know exactly what product the market needs and how to market that product, the best distribution channels and pricing?  How do you know if you have enough start-up capital to endure the lean beginning months?  I think most people understand that the process of business planning, thinking through the issues from how to organize your company, to understanding the markets and competitors and customers and the strengths and weaknesses of your company is key to insuring the success of your new venture.  And generally speaking, even the client asking the silly question really understands that most of the time.  What they really want to know is, do I need a fancy document?

Let me expand on "it depends".  First you need to define the purpose of the document.  Is it for your banker or investment partner whom your asking for money?  Is it for your insurance company trying to get you product liability or other insurance coverage?  Is it for your management team to track the start-up progress?  Maybe you'll use the document as a recruiting tool for new employees or a communications tool for existing employees.

I generally recommend one of three options depending on the situation:

Formal Business Plan - This is the biggest and fanciest plan.  It should leave nothing out and give extraordinary details and have complete financial analysis and pro forma statements and a full range of addenda.  This plan is for bankers, investors, insurance companies and so forth.

Informal Business Plan - This document is typically used for your internal purposes.  Your management team will want to use this version of your plan.  You won't need all the details about the company and resumes of principals, I assume everyone knows this stuff already.  The informal plan will have details on industry and markets, competition and customers, your company and its products.  The financial statements will likely not be far out projections, but rather this years budget.  Addenda items are likely not needed either.

Summary Business Plan - This document is for outside, non-confidential viewing.  A summary business plan document can be used as a communication tool for your employees or used for recruitment of new employees.  You can use this version of the plan for general communication purposes and possibly new releases.  It will be only a summary of your plan, more of an expanded executive summary rather than a plan document.  This version should be a summary only and not contain any confidential information and only limited summary financial plans.  Financial information should be more in the form of general company goals and ranges of revenues rather than specific numbers.

Of course, there are as many different business plan document types as there are situations for using them.  Use common sense and the needs of the audience to craft a document that fits the situation.