Businesses That Plan Ahead May Have a Better Chance of Accessing Billions in New Small Business Loans, Study Says

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A recently reissued study reports that business plans can make the difference between getting and not getting a loan or securing investment capital. The small business legislation that President Obama signed into law this week was good news for small businesses looking to access a newly established $30 billion loan fund. It’s even better news for small businesses who took the time to complete a business plan, according to the results of a recently reissued June 2010 study conducted by researchers affiliated with the University of Oregon Department of Economics.

“It is important to remember that business plans are living documents,” Berry said. “Those who take the time to complete a plan, follow it and update it often are most likely to be successful.”

The small business legislation that President Obama signed into law this week was good news for small businesses looking to access a newly established $30 billion loan fund. It’s even better news for small businesses who took the time to complete a business plan, according to the results of a recently reissued June 2010 study conducted by researchers affiliated with the University of Oregon Department of Economics.

The paper found that companies completing business plans were twice as likely to successfully grow their business, get investment capital or land a loan. Researchers 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,” said Tim Berry, founder of Palo Alto Software and author of the business planning software Business Plan Pro.

The news comes at a time when the Small Business Administration estimates more than a half-million businesses fail annually. Despite the tough climate businesses are facing, 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 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 said. “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 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, with the right planning, craft beer brewers or tattoo parlor owners could achieve success as readily as lawyers or medical professionals.

Results suggest that business planning “is highly correlated with subsequent successes for a variety of firms,” the paper states.

About Palo Alto Software

Palo Alto Software Inc. helps people succeed in business. It develops, publishes and markets software products for small businesses and entrepreneurs. Its suite of products includes Business Plan Pro, the best-selling business-planning software in the U.S.; Marketing Plan Pro powered by Duct Tape Marketing; Email Center Pro; and their newest product, Start, Run & Grow Your Business. Email Center Pro is Palo Alto Software’s first SaaS product, an online email management tool for small businesses.

Palo Alto Software also runs a website network, which includes http://www.bplans.com, one of the highest trafficked business plan content sites in the world. Its website network receives approximately 1 million unique visitors per month and offers users unique, valuable content and free business planning tools.

Tim Berry, the founder of Palo Alto Software and a co-founder of the influential software company Borland International, is a recognized expert in business planning. After earning an MBA from Stanford University, he worked with several early Silicon Valley companies, including Apple Computer where he consulted on business planning from 1982 through 1994. Berry is the author of the popular Planning, Startups, Stories blog, as well as the Up and Running blog for Entrepreneur.com. He contributes regularly to Business in General and the Huffington Post and has been interviewed by everyone from The Wall Street Journal to Guy Kawasaki. The New York Times recently named his Palo Alto Software Twitter feed number six in its ranking of the top 11 companies to follow on Twitter.

For more information, visit http://www.paloalto.com or call (800) 229-7526.

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