No Business Plan? New Study Reports that Success May Depend On It
Planning early and planning often can help business owners thrive in a challenging business climate, say researchers.
In an era in which the Small Business Administration estimates that more than a half-million businesses fail annually, a new study finds that companies that had prepared business plans were twice as likely to successfully grow their business, get investment capital, or land a loan.†
The study, conducted by researchers affiliated with the University of Oregon Department of Economics, examined data on nearly 3,000 users of business plan software.
“The bottom line is that completing a plan correlated with increased success in every one of the business objectives that came up in the study,” says Tim Berry, founder of Palo Alto Software and author of the business planning software Business Plan Pro.
This news comes at a time when fewer and fewer small businesses are getting loans. According to the†National Association of Government Guaranteed Lenders†(NAGGL), there was a more than 36 percent drop in the amount of 7(a) loans given from the 2008 fiscal year to the 2009 fiscal year. There was also a more than 26 percent decrease in the amount of those loans.
Although lending has still not caught up to pre-recession levels, there are loans available for small business owners—many of them at†record low interest rates.†But with less capital available, more companies are fighting for a smaller piece of the pie, and smart businesses are finding that it pays to be prepared with a plan. With talk of a double dip recession, small business legislation pending in Congress and other uncertainty clouding the air, business planning has become less a one-time event and more an ongoing process, business experts say.
“It is important to remember that business plans are living documents,” Berry says. “Those who take the time to complete a plan, follow it, and update it often are most likely to be successful.”
Patricia Schaefer of BusinessKnowHow.com cites lack of planning as one of her†top seven reasons why small businesses fail. And in a challenging business environment, completing a plan properly is just as important as having a plan in the first place.
“[A plan] must be realistic and based on accurate, current information and educated projections for the future,” she writes. “Many small businesses fail because of fundamental shortcomings in their business planning.”
THE STUDY
The Oregon study looked specifically at planning completed using business plan software. Researchers Eason Ding and Tim Hursey—who prepared and presented the paper as part of the requirements for their honors degrees, under the supervision of professor Joe Stone—looked at a questionnaire answered by 2,877 respondents. Of those people, 995 had completed a plan and:
- 297 of them (36 percent) secured a loan
- 280 of them (36 percent) secured investment capital
- 499 of them (64 percent) had grown their business.
The study found that, among firms of varying ages, the amount of business planning was related to success.†Ding and Hursey also found that Web-based firms had “a significant correlation of success with business planning.” The study did not examine differing rates of success between individual firms.
Across the board, businesses completing plans scored higher, suggesting that business planning “is highly correlated with subsequent successes for a variety of firms,” the paper states.
