Tips and trapsWhy do you want a business plan? You already know the obvious reasons, but there are so many other good reasons to create a business plan that many business owners don’t know about. So, just for a change, let’s take a look at a longer-than-usual list of the most important reasons you need a business plan.

1. Grow your existing business. Establish strategy and allocate resources according to strategic priority. You can find more information about growing your business with a business plan by reading my article “Existing Companies Need Planning, Too” at bplans.com

2.Create a new business. Use a plan to establish the right steps to starting a new business, including what you need to do, what resources will be required, and what you expect to happen.

3. Set specific objectives for managers. Good management requires setting specific objectives and then tracking and following up. I’m surprised how many existing businesses manage without a plan. How do they establish what’s supposed to happen? In truth, most of the people who think they don’t plan are really just taking a shortcut and planning in their head–and good for them if they can do it–but as your business grows, you want to organize and plan better and communicate the priorities better. Be strategic. Develop a plan; don’t just wing it.

4. Deal with displacement. Displacement is probably by far the most important practical business concept you’ve never heard of. It goes like this: “Whatever you do rules out something else you don’t do.” Displacement lives at the heart of all small-business strategy. And most people have never heard of it.

5. Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.

6. Share your strategy, priorities and specific action points with your spouse, partner or significant other. Your business life goes by so quickly: a rush of answering phone calls, putting out fires, and so on. Don’t the  people in your personal life need to know what’s supposed to be happening? Don’t you want them to know?

7. Hire new people. This is another new obligation (a fixed cost) that increases your risk. How will new people help your business grow and prosper? What exactly are they supposed to be doing? The rationale for hiring should be in your business plan.

8. Decide whether or not to rent new space. Rent is another new obligation, usually a fixed cost. Do your growth prospects and plans justify taking on this increased fixed cost? Shouldn’t that be in your business plan?

9. Seek investment for a business, whether it’s a startup or not. Investors need to see a business plan before they decide whether or not to invest. They’ll expect the plan to cover all the main points.

10. Back up a business loan application. Like investors, lenders want to see the plan and will expect the plan to cover the main points.

11. Develop new business alliances. Use your plan to set targets for new alliances, and use selected portions of your plan to communicate with partners.

12. Decide whether you need new assets, how many, and whether to buy or lease them. Use your business plan to help decide what’s going to happen in the long term, which should be an important input to the classic make vs. buy decision. How long will this important purchase last in your plan?

13. Deal with professionals. Share selected highlights of your plans with your attorneys and accountants, and, if this is relevant to you, consultants.

14. Sell your business. Usually the business plan is a very important part of selling the business. Help buyers understand what you have, what it’s worth and why they want it.

15. Valuation of the business for formal transactions related to divorce, inheritance, estate planning, or tax issues. Valuation is the term for establishing how much your business is worth. Usually that takes a business plan, as well as a professional with experience. The plan tells the valuation expert what your business is doing, when, and why as well as how much that will cost and how much it will produce.

Adapted from a column for entrepreneur.com

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Tim BerryTim Berry
Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.