In early-stage businesses we often hear about business plans; however, it is difficult and time consuming to build excellent business plans, as many entrepreneurs avoid them. Is this, however, an error? Most people are aware of the “soft” arguments for and against the development of a corporate plan. In this article, the data-driven approach to debate is taken by a Finance Expert. It shows that writing a business plan is time well spent. He finds strong evidence to support this.
There is strong, data-driven proof that corporate plans produce positive returns on time and money invested in creating a business plan.
The world of business has long discussed the importance of business plans and the “soft” arguments are understood by most. This article examines the data to conclude, however, that writing an excellent business plan has been a good time.
During more than 20 years of financial work, I have developed a similar view, analyzing well over 10,000 different types of business. I’ve noticed that while a business plan may not be necessary for an enterprise to succeed, the likelihood of success is significantly improved for business plan.
People who write business plans are 2.5x more susceptible to enterprises
Over the course of their careers many people have business ideas but often these ideas are never fulfilled, or they become lost through our daily duties. Interestingly enough, studies support the idea that those who draw up business plans will start their companies much more likely. Data from the Entrepreneurial Dynamism Panel study in fact shows that 2.5x are likely to be entered into business by business planners. The study, which examined over 800 people in the U.S. who were starting businesses, concluded that “writing a plan would greatly enhance the chances of a person doing their business.”
A similar conclusion came with William Bygrave, an emeritus professor at Babson College, although he had already shown “that entrepreneurs who initiated formal plans had no more success than those who started on their own.” However, Bygrave admits, “40 per cent of Babson students who took the Business Plan course start up business once they graduate, double the rate of people who did not study creating a business plan.”
Enhanced corporate executive satisfaction with business planning
Another important way for Business Plans to provide tangible support is to align all of them with a vision and strategy. In turn, this has significant implications for corporate satisfaction. The finding is confirmed by a McKinsey & Corporation study that examined nearly 800 managers in a wide range of industries. McKinsey found in this report that “formal strategic planning processes contribute significantly to improve overall satisfaction with the development of the strategy.
The 79% who claimed that the formal planning process had an important role to play in developing policies and were satisfied with their businesses’ approach, compared with only 21% of those who felt that the process had no role to play. In other words, 51% of those whose companies were not formally satisfied with their approach to strategy-development, compared with only 20% of those with a formal process.”
A chart of the role of the company’s formal planning process in a chart showing the percentage of respondents who are dissatisfied with the strategy of their company
Their financial models and business plans are worthy of business and entrepreneurship capitalists
Eventually, many entrepreneurs will need to raise capital outside their businesses to grow and develop. In my experience, a business plan is a vital tool for maximizing the opportunity for external investors to raise money. In addition to helping investors understand your company and vision, a well-written plan shows them that you have taken the time to assess and discuss your questions carefully.