Episode Overview

One of the most common questions that we get from new entrepreneurs is around business plans, and do they really need one.  It seems logical that if you are starting a business, you would create a business plan.  But these would-be entrepreneurs often have many reasons for not wanting to create a business plan.  Are they valid?

This is the first episode of our 3 podcast mini-series all around business planning.  In this episode, we will be going through some of the common business planning myths, as well as going into some of the benefits of doing business planning.

Episode Key Points

  • The #1 reason that each business mentioned in our previous podcast failed
  • 5 common myths that stop people from creating a plan for their business
  • The difference between a business plan and business planning
  • Research and then organizing the results and your thoughts are critical pieces of business planning
  • Goal planning ins a natural part of business planning and will help focus your efforts
  • Identifying and using your strengths can provide a competitive advantage
  • Identifying and mitigating your weaknesses can help avoid mistakes or losses
  • If you don’t track and understand your finances, your business will likely struggle and miss opportunities for improvement
  • Once completed, your business plan can be used as a roadmap to guide your business

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Episode Transcript

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Ariana:                 This is a Serial Startups Podcast show 19. In the previous episode we reviewed lessons learned from some of our closed businesses. Today we’re going to begin our three-part mini-series around business planning starting with Does Your Business Need a Business Plan.
Tom:                      This episode of the Serial Startups Podcast is brought to you by the business planning mini course.
Ariana:                 Are you dreaming about starting your own business but don’t know how to take the first step? Or maybe you already have a business but are still struggling to get that comfortable income. A solid business planning process will make your ideas come to life and get you on the road to true profitability and we can help you achieve it. Head on over to serialstartups.co/businessplan now to find out more information and get started.
                                Welcome to the Serial Startups Podcast where we bring you the real deal when it comes to masterminding a business, juggling personal relationships and a busy household. We are your hosts and serial entrepreneurs Tom and Ariana Sylvester and this is the podcast for people who want to get more out of life. We want to show you how to build multiple streams of income and get on the fast track to being your own boss. Join us as we talk about our ideas, successes and failures both in business and in life.
Tom:                      All right welcome back to the Serial Startups Podcast and if you guys are listening to this on the day that it’s coming out Happy New Year. We closed out 2015 and let me tell you Ariana and I are so excited for 2016 and we have a lot of good stuff planned not only for this business but for each of our businesses. We just got through closing out the year going through each business, see how they’re doing and planning out the next year. I think 2016 is going to be phenomenal.
Ariana:                 It’s going to be a good year and a leap year.
Tom:                      A leap year.
Ariana:                 It would have been Elena’s four-year birthday on a leap year if we’d have her on her due date. She was supposed to be a leap year baby.
Tom:                      Wow time flies.
Ariana:                 Yes it does.
Tom:                      All right so a couple of changes to the podcast as we get into this year. We’re going to go with a little bit of a new format actually based on you guys’ feedback. We’re 19 shows in and we’ve got a lot of positive feedback on the show but one of the things that people mentioned was that we touch on a topic but we don’t go deep enough to really let you guys take action and implement some of the things that talk about in your business.
                                What we’re going to do this year is focus on what we’re calling these miniseries. Each month we’re going to have three shows that are focused on a specific business topic and we’re going to go deeper into those so that you can actually take action and take some of the concepts that we’re talking about and apply them back into your business.
Ariana:                 Yes, and just for you guys every show is going to have a free download that’s related to the miniseries content that we’re going over.
Tom:                      Yeah and then just you know not to be too serious or have too much business, we’re going to swap in every fourth show with a random episode so this may be an interview. This may be a Q & A based on some questions that you guys have submitted, or it may just be a random topic that’s still going to help you with your business but gets a little bit away from the week to week same format for those who like change up a little bit.
Ariana:                 Yeah and some people they’ve put in some interest on some other topics that we’ve put out there so we want to make sure we’re hitting on everybody not missing anyone.
Tom:                      Yeah, absolutely. Then what we’re going to do in addition to the podcast obviously we’ll give you guys a lot of good content here, but even with three episodes some of these topics are deeper than we can really cover in three podcast episodes. What we’re going to be doing is offering you guys mini courses that really go much deeper and take you step-by-step through how to go through whatever process or whatever concept we’re talking about that month.
                                To start that off January our them is going to be business planning. It’s appropriate that this is the beginning of the year and if you listen to our last episode which you can find at serialstartups.co/show18 we talked all about the four businesses that really failed or no longer exist for us anymore and one of the things you’ll see if you go back and listen to that episode, is that we really didn’t have business plans in each of those businesses and that was probably the number one reason that those businesses failed.
Ariana:                 Yes, a very common theme. We did not have a business plan so ta-da. Welcome to today.
Tom:                      For today and for the next two weeks after this, we’re going to really be going through the business planning process, what that is and then how you can actually take that, incorporate it into your business and hopefully set your business off on the right foot for this year.
Ariana:                 All right here are the specific things we’re going to go through today with you. Business planning myths. Answer the question does your business need a business plan. Business plan versus business planning what’s the difference? Why do you need a business plan? With that let’s jump into the show Does Your Business Need a Business Plan.
                                All right so number one, business planning myths. I’m going to go through each myth and Tom’s going to throw it back at me and tell us why these are myths.
                                Business planning myth number one. You don’t need one.
Tom:                      Yeah, this is common. We tend to straddle the offline business world which is where some of our initial businesses were and then some of the online business world. In the offline business world we don’t hear this a lot. People realize that you probably need a plan because you’re going to have some sort of financial investment and you’re going to have to understand what is this business and you’re probably going to have to pitch it to other people.
                                What we tend to see a lot is more in the online world it’s so easy to just jump in and get started and a lot of people think, “Well I’ll just go and try this thing out.” The problem is if you don’t have a business plan you haven’t done some of the research to even know is your idea viable, who are the customers that this idea is going to serve? Ultimately what are some of the goals of the financial aspects that you’re hoping to get out of this business? Without doing that and just jumping in, in reality you have a hobby or a very poorly run business not a business that’s most likely going to be successful.
Ariana:                 All right, myth number two. You only need a plan if you want to raise money.
Tom:                      A lot of people fall into this myth and the reality is the number one reason for creating a business plan is to help you do the research and help you guide what you’re going to do in your business. Yes you do definitely need a business plan if you’re going to raise money but even if you’re not going to doing a business plan and going through that process is going to help you understand what is your goal, your business and then how do you actually execute and run your business to achieve some of those goals?
Ariana:                 Next myth. It should be a specific length.
Tom:                      This one’s great. I always think back to the book report that you had to write in high school. The first question was well how long does it have to be? The reality is it could be one page. It could be 100 pages. It’s not the length that’s important it’s the quality of the content within there. If you understand the goals of your business plan which for example are understand your goals, understanding how you’re going to get there, some of your strengths and some of your weaknesses. It may be as short as five pages. It could be as long as 30 pages. A lot of it depends on what is the business plan going to be used for and then how long do you need to accomplish what you’re going after.
Ariana:                 This next myth kind of tags on that. It should be a specific format.
Tom:                      Yeah. This is a challenge I think for people and why a lot of people don’t do business plans is you see so many different formats out there and you see that you have to have an executive summary and all of these sections.
Ariana:                 Most of the ones people see are those really long, complex business plans which is what scares them away.
Tom:                      Yeah, and they’re very wordsmith. It kind of sounds like a legal document. The key is it doesn’t have to be a specific format. What you’ll hear as we go through this is we generally have found some commonalities that are in just about every business plan and you can use these as a guide but really the format once again is going back to what do you need the business plan to do and then as long as you get that you can include sections, exclude sections. It’s not a big deal.
Ariana:                 All right and the last myth, you only need to do it once.
Tom:                      This is probably my favorite. People spend a whole bunch of time creating this business plan and then they put it on the shelf and go and run their business. That business plan is really going to help guide your business and you want to not only create it but then refer to it periodically and then help it guide what you’re doing as well as make pivots based on the reality because a plan is only accurate at the time you do it. Afterwards things are going to change. You’re going to want to update that plan to help guide and grow the business.
                                The topic of this show was really Do You Need a Business Plan and Ariana can you answer that question? 
Ariana:                 If you hadn’t figured it out from our previous conversation, yes you need a business plan.
Tom:                      Absolutely.
Ariana:                 As we said before this is the number one reason that those past businesses in our last episode have failed and you can find out more about that at serialstartups.co/show18 where we talk about those businesses that are no longer with us.
Tom:                      Yeah, please if you guys are listening to this, allocate some time especially since we’re at the beginning of the year if you’re listening to this live. Just take a little bit of time and plan out what is your business going to look like this year. Over the next couple of episodes we’ll guide you and give you more specifics around that but just make sure you take some time and really understand what those goals are of your business.
Ariana:                 Let’s clarify for everyone. What is the difference between a business plan and business planning?
Tom:                      Okay, the business plan is the actual output that you get from the planning process. This is what most people focus on. It’s the piece of paper. It’s the stack of papers depending on how long your business plan is. Business planning is really the process of creating that business plan. It’s the business planning process that is the most important piece and that’s because when you do business planning you’re having to research and think about your business, think about your customers, think about your products, think about the numbers and how much money is it going to cost to start and then how much money are you going to bring in based on sales.
                                It’s really important to, obviously you’re going to create the plan, but you want to use the plan as a guide and then adjust it with your ongoing planning process. The way we always describe this is a business plan is a way to organize your thoughts and ideas relating to your business goals and how you’re going to achieve them. Business planning is the process of doing that research, setting goals, planning out how you’re going to achieve them and then executing and updating based on what you’re actually seeing in your business. We like to refer to this as like GPS for your business.
Ariana:                 I like that one because then every time you check your business plan you’re recalculating.
Tom:                      Exactly.
Ariana:                 Recalculating.
Tom:                      Yep. If you think about the GPS in your car, it’s where’s your starting point. It’s where you’re at today. Where do you want to get to in your business and that’s your destination. It’s going to map out a plan for you but the power of the GPS is it’s not like you map out that plan once and then put it away right? If you’re supposed to make a turn, your plan tells you to make a turn-
Ariana:                 The GPS looks like a zigzag line to get to the roadmap. If you’re Ariana it’s a nice straight line.
Tom:                      Exactly, but if you’re Tom and you miss that turn the power of the GPS is it says, “Hey, dummy you missed that turn. Go and make this other
turn.” That’s what your business plan can do for you. If you go back and refer to it as time goes on you’ll see when maybe you were supposed to make a shift or in reality maybe the road was closed on what you originally planned on and now you’re going to change it. Going back and using it in that fashion is really going to help you keep on course with your plan and with your business.
Ariana:                 All right, let’s talk about why do you need a business plan. The first reason we want to touch on is this is going to gather your thoughts into an organized format.
Tom:                      Yeah, there’s a lot that goes into starting a business and then running a business. What tends to happen with a lot of people is they get excited and they jump into the business because the just want to create and they want to help people. The reality is if you don’t have a structure and organize all those thoughts and figure out when you’re going to do things and how you’re going to do them, it becomes very difficult to actually execute on that business. Creating that business plan allows you to get those thoughts together in a structured manner and the from there you can kind of figure out now how do I actually run this business.
Ariana:                 All right, and then another reason for a business plan is because this is going to help you research key information needed to make your business successful.
Tom:                      Yeah, there’s a lot of factors that go into having a successful business. Some of it comes down to the industry or the business that you’re in, and some of it comes down to you and what you’re going to contribute to the business or how you’re going to operate. By actually putting a business plan together it forces you to research and identify what are the external factors that you’re going to take into consideration and is your idea even viable and then what are the internal factors that you can control and then how do you make sure you structure your business with the right people, with the right financing to actually have success.
Ariana:                 Another reason which is a big one for us that if you’ve listened to our past podcasts you know this one. We’re big on goal planning so having that business plan is going to help you determine your goals for your business if you weren’t sure what they were.
Tom:                      Yeah, absolutely. If you don’t have a goal you’re just going to be wandering aimlessly. This is the same in business as it is in life. If you identify some of the goals for your business, then your planning process can be all right well once again just like your GPS. Here’s where I’m at now. Here’s where the goal is and then how are we actually executing towards that goal and then if we’re off track do we have to change the goal or do we have to change something in our business to actually get there?
                                A lot of times when people jump in and just run, they may be a year or two into their business and then they go back and look at the numbers and they’re like, “Hey, we’ve been doing this for two years and we’ve lost $50,000.” The reason is they didn’t lay out goals and they were just executing without checking back and saying, “Does this still make sense and is this getting us to what we want to have?”
Ariana:                 All right, another reason is understanding your strengths and weaknesses.
Tom:                      Yeah, this is a big one. We all bring strengths to the business in terms of experience and education and just who we are. We also have weaknesses. I think one of the benefits of us working on our businesses together is hopefully we can-
Ariana:                 Filling in the gaps.
Tom:                      Exactly, but even if you’re not working with a spouse or if you’re not working with a partner, it’s so important to understand what are your strengths and weaknesses and then figuring out a plan for how you leverage your strengths and then how do you minimize your weaknesses or hire people in or fill the gaps so that your weaknesses don’t drag your business down.
Ariana:                 Yeah, that’s a big one for sure. Next reason, understanding your staffing and hiring needs. That’s a big one. 
Tom:                      This is a big one. A lot of people especially if they’re starting out their business it may just be them but going back to the last point you may have some weaknesses and one of the challenges of business is that there’s so many things that you have to be an expert in or that you have to cover. From HR to payroll to accounting to sales to marketing to technology. The reality is you only have so much time in a day so even if you’re not planning to hire someone day one you’re going to have to hopefully hire out some of those tasks that you can focus on your core competencies and your strengths. If you are hiring from day one, you really have to understand what are the key roles that you’re going to need in your business and then what’s the criteria of people that you’re going to have to hire in and then how does that tie in to the finances and the startup costs of your business?
Ariana:                 Yeah, especially for the small business owners. I feel like a lot of people they try to do it all when they’re first starting and that’s why they get overwhelmed and they don’t realize you have to hire some people for some of that stuff.
Tom:                      Yeah and to be honest with our real estate business we did everything ourselves when we first started but then as a result of having this plan we actually every time we got a new property we hired out more and more of the stuff so that now we had people in place to take care of that. With our retail wine and liquor store, we actually knew we had to hire people from day one because we weren’t going to be able to work there all the time.
Ariana:                 No.
Tom:                      Whether you’re going to start out just doing it yourself and then add on the future or whether you’re going to start out with employees you’re really going to understand who do you need to have involved in your business.
Ariana:                 Next reason for having that business plan is to create your roadmap for execution.
Tom:                      There’s a lot of stuff that you could potentially do in business and one of the big things that causes people to struggle is they don’t have a clear path of how they’re actually going to get to some of their goals. What a business plan will allow you to do is pick a time frame, figure out the goals for that time frame and then you can create that map and say, “Here’s the goal. If I work backwards and break it down, here’s some of the things that I have to do this month in order to achieve that and even this week here today here’s what I have to do.”
                                In your business plan you’re not going to go down to what do I have to do today but you may have monthly goals or milestones that you want to hit and that way when you’re doing your planning on top of creating your business plan you can figure out what are the things I have to do in order to hit that goal. Let me tell you the number one thing that I think people struggle with is they don’t have clarity on what they need to do next. As a result they spend a lot of time being unproductive trying to figure that out whereas if you lay this out it’s very clear on what you have to do next because you already identified what the goals are and then some of the things you got to do to get there.
Ariana:                 This next reason for needing a business plan is a big one for a lot of people I know have trouble with the understanding the finances and your projected finances.
Tom:                      Oh, yeah.
Ariana:                 This is a tough one for most people.
Tom:                      I think this scares people away and as a result most people don’t ever look at the numbers. They just figure if I keep working in the business, it’ll
all take care of itself. The reality is ignorance is not bliss when it comes to the financials of your business. To be completely honest when we first started our businesses we did not look at the finances the way that we needed to.
Ariana:                 Yeah, we forgot about that little thing called sales tax when we started started [inaudible 00:18:16] Wine and Spirits and then we had an moment when we realized we had to pay said sales tax.
Tom:                      Yeah, in reality what a lot of small business owners do is they manage their business out of their bank account so they look at how much money is in the bank account and then they try to estimate well what are their costs and well it seems like I’ve got enough money to cover all my expenses. The reality is there’s so much more that goes into this like you have startup costs so you have to understand how long is it going to take to break even. You have to understand are there different seasons where you’re going to get more money or less money and then what do you have to pay down. How much money is coming in? Are there trends where you’re either increasing the amount of sales you have or decreasing it and why is that happening?
                                Understanding your numbers and looking at them often is going to tell you that but if you don’t ever look at those numbers, you’re just running blind and whether you’re making money or losing money you may never know and it may take a really long time to figure that out.
                                We had some examples with our real estate business where we kind of ball parked what it was going to take to buy and renovate and how much we’d get in rent but then when we look back afterwards what we realized was we were like twenty grand off.
Ariana:                 Yeah, that’s a little bit off.
Tom:                      Yeah, we ended up tipping down and actually losing some money at some point until we really started looking at the numbers and looking at them often and saying, “Well how much is coming in? How much is going out and what do we have to shift?” If you don’t ever look at that you’re just going to be maybe you’re losing $1,000 a month and you don’t know that so then next month you lose another $1,000 and then maybe the next month you lose $2,000. If you never look at that, it could be the end of the year and you thought you made $50,000 but you ended up losing $50,000.
Ariana:                 Yeah, we don’t want to see you hit that point.
Tom:                      Absolutely not.
Ariana:                 All right, our last reason for needing that business plan is getting others involved. This may not apply to everyone but we want to touch on it either way.
Tom:                      There’s three primary reasons for creating a business plan. The first one is for you and really just to guide your business. The second one is if you need to pull in partners or if you’re trying to get other people to buy in or have equity or work with you on the business. Then the third one is if you need funding. If you need to go to a bank or if you want to get investors, they’re going to need to see a business plan and when we define business plans we primarily first focus on you and creating the business plan for you. Then there’s also these additional sections and tweaks that you’ll make for other people.
                                Even if this is just for you, it’s good to have that plan and then have for example your attorney review that to make sure that you set up the right legal structure. To have your accountant review that and make sure that you’re taking the right deductions and you’re doing things right from a financial perspective.
Ariana:                 If you pick the right type of business, LLC, S Corp, whatever. You want to make sure that they know what you’re doing so they can give you the best advice on how to move forward.
Tom:                      Exactly. Once you have that plan, you can share that with other entrepreneurs, other business owners and just get feedback from an outside perspective to say here’s the plan that I laid out. Does that seem reasonable?  Can you punch any holes in this? That’s going to help you avoid a lot of failures a long the way.
Ariana:                 Let’s go back and recap the show for everyone. The business planning myths. We went through those. You don’t need one.  You only need one if you want to raise money.  Your business plan should be a specific length. Your business plan should be a specific format or you only need to do it once. None of those are true. Tom, do you need a business plan?
Tom:                      If people don’t know it by now, yes. You absolutely need a business plan. Going back to the myths. The format, the length and some of that stuff could be different but you need to spend some time thinking about researching and planning out your business.
Ariana:                 All right and then business plan versus business planning what’s the difference?
Tom:                      Business plan is really the output of the business planning process and business planning is really just the ongoing research and adjusting of your business as time goes on.
Ariana:                 Remember, it’s the recalculating of your business GPS.
Tom:                      Beautiful.
Ariana:                 Then why do you need a business plan? To gather your thoughts into an organized format.
Tom:                      Yep, you need to research the key information that you need for your business to be successful.
Ariana:                 You want to determine the goals of your business.
Tom:                      You want to understand your strengths and weaknesses and how you take advantage of those.
Ariana:                 You want to understand your staffing and your hiring needs.
Tom:                      You want to create a roadmap that’s going to allow you to actually execute and do the things you need to do in your business.
Ariana:                 You want to understand your finances and then your projected finances.
Tom:                      Then finally you want to get others involved to help support, guide and grow your business.
Ariana:                 All right guys, that brings us to our tip of the week. Do not try to start a business without first going through the planning process. There are far,
far too many businesses out there that fail because everyone gets excited and they jump in without really doing the research and understanding if there’s a need for their business as well as what needs to be done to make that business successful.
Tom:                      That’s so critical. One of the things that like we said we’re going to do is have a free download for every show. You can get the show notes and lengths and everything else for this show at serialstartups.co/show19 and for you guys our free download is actually going to be a template for creating your business plan. Now this is a template that we use for all of our businesses. It’s pretty light weight. There’s only seven sections that we call essential that you need as part of this business plan. Head on over to the show notes page. You’ll be able to download that and it’ll really lay out what you need to do give you a format for creating your own business plan.
Ariana:                 That actually brings us into our next episode for next week. We’re going to go through each of those seven essential elements of creating that business plan.
Tom:                      Yeah, download it. Take a look at it this week and then we’ll see you guys back next week and we’ll go through each of those sections in case you have any questions on them.
Ariana:                 Yeah, that’s our show for this week. Bye guys.
Tom:                      All right, bye guys.
Ariana:                 Do you want a free copy of the template that we use when we create our business plans? Head on over to serialstartups.co/bptemplate to download your free copy. If you want a step-by-step guidance for creating your business plan and how to use it to grow your business, head on over to serialstartups.co/businessplan for access to our business planning mini course.