When Should I Write A Business Plan?

US Small Business Administration

Most of our western governments recognize the importance of small business and attempt to provide support. When small business accounts for more than 40% of total employment, governments take notice. To some extent it seems that this is motivated by an attempt to “take credit” for providing an environment in which small business can flourish.

To some extent governments are motivated by the desire to be seen to help small business.

Most governments repeat the conventional notion that “the first thing to be done is write a business plan”. Of course it’s hard to disagree with the notion that some form of planning should occur, however it’s our experience that most new business owners don’t have the knowledge required and won’t benefit from months spent putting together a detailed plan.

Small Business BC provides consulting services to assist you in preparing a business plan
Testimonial PSPC
Public Services and Procurement Canada

While it is encouraging to see that others have seen the benefit of these consulting services, I have to wonder what an official from Public Services and Procurement Canada really knows about  writing a business plan for a small business…

It isn’t only the government that gets into the act. Entrepreneur Magazine also provides their 2 cents worth in an article by Tim Berry.

The article also contains an ad for business planning

Advertorial in Entrepreneur Magazine

software written by – you guessed it – the same Tim Berry. Presumably this is what is referred to as an “advertorial”.

In my view at least,  it makes more sense to explore your value proposition and your business model first – see Steve Blank WHAT IS A STARTUP? – before beginning your business plan.

Writing a business plan for investors

Before you write your business plan you should have built and tested your business model.

After you’ve tested your business model, you’ll have some customers and what investors might refer to as “traction”. Depending on your business, your company might have some appeal to angel investors.

2015 Study by National Angel Capital Organization (Toronto)

According to a study by the National Angel Capital Organization in Toronto, your company is unlikely to receive funding from angel groups until sometime after the first 3 or 4 years of existence. That is when a startup can hope to have built a MVP (minimum viable product) and developed some traction.

Individual angels may come on board a little earlier. However they tend to be a little more idiosyncratic – and therefore harder to predict.

Writing a business plan for bankers

CANADA SMALL BUSINESS FINANCING PLAN

Government agencies may direct you to the Canada Small Business Financing Plan to assist you with the financing of hard assets like:

  1. Vehicles
  2. Leasehold Improvements
  3. Commercial Real Estate

While bank loans may sound appealing, they are unlikely to be advanced without personal guarantees on the part of the directors or officers of the company.

A personal guarantee is an unsecured written promise from a business owner and or business executive guaranteeing payment on an equipment lease or loan in the event the business does not pay. Since it is unsecured, a personal guarantee is not tied to a specific asset. However, in the event of non-payment a lender can go after the guarantor’s personal assets.

Generally banks will prefer to have you take out a personal credit card or a line of credit secured by real estate.