When Should You Write a Business Plan?

When’s the right time to write a business plan? My favorite answer is from this proverb:

The best time to plant a tree was 20 years ago. The second best time is now.

Things are changing for business owners at a much faster rate. There’s an increasing level of uncertainty about the future and in order to survive and grow you need to plan now and plan often. The right kind of business planning is something that happens regularly and continues forever.

That’s because business planning is not just about producing a document. Instead, planning is an ongoing, repeating process that helps your business grow healthily. You create a strategy, build budgets, and set goals so that you can measure your progress and make changes when you need to.

Much like the proverb about the tree would imply, planning can be hard to get started. But if you understand the basics of the planning process it can be much easier than you’d think.

When should you write a business plan?

As I said in the introduction, there’s really no wrong time to write a business plan. Whether you have a new business idea or your business has been up and running for years, putting together a plan is beneficial and necessary. 

The real question is, what kind of planning should you do for the stage your business is in? Should a five-year-old business use the same business plan template as a new startup? 

The answer is no. Planning isn’t one-size-fits-all. It’s about finding the right size plan for your business stage and needs.

Here are some common times when you should create a plan for your business along with recommendations on the right kind of plan for each specific situation:

When you have a new idea for a business

Figuring out if you can turn an idea into a business can be challenging. 

Are your potential customers going to want what you are selling? Will you be able to make a profit? How much money will you need to get off the ground? What do you need to turn your side hustle into a full-time gig?

At this stage, the most important thing you can do is write down a quick summary of your business idea using a one-page business plan. This will help you think about who your customers will be and create a rough sketch of what your business numbers look like.

You can use a one-page plan to test your assumptions. 

Are your customers who you think they are? Will they be willing to pay what you want to charge? 

As you gather information, you can quickly revise your plan until you have a business plan and business model that works for turning your idea into a business. This kind of planning will help reduce your risk and get you started the right way, without investing too much time in the planning process.

When you’re starting a business

If you’ve found product-market fit for your business idea, you’re ready to turn it into a business. You have evidence that your business fills a real need for customers and they’re willing to pay for your solution.

This is when a more detailed business plan is useful. You’ll focus on building out revenue forecasts and more detailed expense budgets. This will help you understand what it’s going to take to get your business off the ground and sustain it through the early days.

You’ll also expand your business plan to define your target market, detail your marketing and sales strategies, and solidify your operational plans.

When you’re seeking funding

If you need funding to get your business off the ground, you’ll need a thorough business plan with complete financial forecasts. Whether you’re seeking a loan or looking for investors—you’ll need to understand exactly how much money to ask for and how long that money will last as your business grows. 

This is where having a cash flow forecast in place pays off. With this forecast, you can predict how much money you’ll need and when you’ll need it.

Investors may never ask to see your actual business plan. But, they’ll definitely ask questions that you’ll only be able to answer if you’ve put one together. 

They’ll want to know about your target market and market size, details about your competition, your sales and marketing plans, and more. This is all in addition to your financial forecasts.

If you’re looking for a loan, many lenders require a business plan as part of the loan application process. Having a polished and impressive plan can even help with the loan process, even though loans are most often made based on the collateral you have rather than the quality of your business idea.

When business conditions are changing

We live in a world of uncertainty. Supply chains get disrupted, the labor market changes, and the price of materials is always shifting. If you think your industry or your market is headed for a significant shift, it’s a good idea to make sure you have a plan in place.

This kind of planning focuses on a shift in strategy. Will your marketing and sales strategies change? What expenses will you shift around? How will potential changes in future revenue impact your business and do you have the cash on hand that you need to weather the changes?

Planning for change often involves running different financial scenarios and documenting different strategic directions your business may take. Having an initial business plan to base these adjustments on will make the process easier.

When you’re growing your business

Growth should certainly be celebrated, but it often comes with its own significant challenges. For businesses that make and sell products, managing inventory and handling rapidly increasing orders can create a cash crunch.

That’s where planning for growth comes in, specifically focused on cash flow. The right kind of planning will help you ensure that you can handle fast growth and give you the time to line up any additional funding you need—before you need it.

When you want to run a healthy business

Most people think of business planning only when they’re starting a business or seeking funding. The reality is that it’s a crucial component of running a business. Just like with personal finance, it’s important to have a budget and revenue goals and then track how things are going on a regular basis.

This kind of ongoing planning—where you build a financial forecast and budget and then track your progress as you go—helps you spot problems before they happen and find opportunities for growth that you might have missed. This planning is called growth planning and helps you run your business better.

When you’re buying or selling a business

If you’re buying a business, you’ll want to get a good look at the books before you make a purchase decision. You can use the business’s accounting data and historical performance to create forecasts for future profits and cash. And, if you plan on investing more into the business, you’ll need a plan to know when you’ll be able to recoup your investment.

If you’re selling a business, a strong business plan is a valuable sales tool. The business plan explains to prospective buyers how the business works and what the buyer can expect regarding revenue, profits, and cash flow. The more clearly laid out your business operations and performance are for the buyer, the smoother your exit will be.

Is there a best time to write a business plan?

As an entrepreneur, you have a vision for your business and the drive to turn that vision into a reality. A business plan can certainly help with that. But when is the best time to write one? The answer, like so many things in business, is that it depends.

A recent Harvard Business Review study found that business planning had the most positive impact on businesses when the business plan was written between 6 and 12 months after deciding to start a business. In fact, planning at this stage increased the chances of success by 8%. 

I’ll add a caveat to this study, though. The study did not look at the types of business plans that were written at the different stages of business. 

If all of the business plans were in-depth, comprehensive, and detailed, they certainly wouldn’t have as much impact at the idea stage as they have later on in the startup process. Doing detailed planning a bit later in the game makes sense. Detailed planning early on is really a waste of time.

That’s why we recommend a different approach: start with a simple one-page business plan in the beginning, and then expand to a more detailed plan only as you need it. 

After you’ve validated your business idea and are in startup mode, a more detailed plan makes sense. You need to explore and understand your operational plan, detailed marketing plan, budgets, and financial forecast.

When you’re fully up and running with a business model that works and a few years of experience under your belt, your planning may simplify again. Planning for established businesses tends to focus mostly on financial management and less on documenting target markets and operations. 

This type of flexible and right-sized planning is most likely to have a positive impact throughout the lifecycle of your business. So, instead of waiting for the exact right time to start planning, start with the right kind of planning based on your business stage.

When can you skip writing a business plan?

There are some situations where writing a business plan may be unnecessary. For example, if you’re starting a very small, simple business that doesn’t require any kind of significant investment, you might be able to get by without a formal plan. 

However, even in these cases, it’s still a good idea to take the time to think through your business and write down your goals and strategies. A one-page plan is perfect for these situations and won’t take long to write.

How long should you spend writing your plan?

The amount of time you should spend writing a business plan depends on several factors—including the size and complexity of your business, and how much detail you need in your plan. On average, it can take anywhere from several weeks to several months to write a comprehensive business plan.

That said, planning doesn’t have to take that long and shouldn’t for most businesses. In fact, a useful one-page plan can be put together in under an hour. You can then add more detail in as little as a day. Then plan to expand your plan as you go, based on what you’ve learned from actually building your business.

Just don’t get too bogged down in the details of planning. The goal of a business plan is to help you focus on what’s important and give you a roadmap for success, not to create a document that will sit on a shelf and collect dust. 

So, spend enough time to create a useful plan. Don’t get so caught up in the process that you lose sight of your ultimate goal: building a successful business.

A final word of warning: don’t fall into the trap of letting planning go on for months. 

Any time spent planning beyond 3 months is generally a waste of time because your information gets stale. You also miss out on building your business and learning what does and doesn’t work. You’re just stuck in a planning cycle without any results to review and build upon.

The ideal time to write a business plan is now

Writing a business plan can be a valuable tool for entrepreneurs at any stage of their journey. The key is to write the kind of plan that your business needs for the stage your business is in.

Planning should always start small: What problem are you solving? Who are you solving it for? Can you make money doing it?

If you can start to answer these questions, you have a business that can work. From there, flesh out the details as needed. If you’re raising money, you’ll need a more detailed plan. If not, focus on a plan that has the details you need to help you achieve your goals. 

Whether you write your plan before opening your doors or after you’ve been in business for a while, the important thing is to have a plan that you use to guide your business to success. A good business plan is all about good management—and that’s what all long-lasting businesses need.

If you need additional guidance, check out our roundup of the best free business plan templates.