5 reasons why a business plan is essential for your business

A sound, well thought through, business plan is the cornerstone of any business…whether is it a start-up, growth or established business…as well as being a significant tool for monitoring the progress and growth of your company.

Most people would not embark on a long journey to somewhere they have never been without finding out how to get there first.  A business plan is effectively this road-map for your business. 

This article outlines 5 key reasons why you should have a business plan.

1.  To establish if your business idea(s) will work

Writing a business plan is a good way to test whether or not your ideas are feasible, and is, in a sense, your safety net.  Writing a business plan can save you a great deal of time and money, if working through it reveals that your business idea is unsustainable or commercially unviable.

Often, an idea for starting a business is discarded at the marketing analysis or competitive analysis stage, freeing you to move on to a new (and better) idea.

A thorough review of opportunities and threats that may affect the business (competition, the economy, technology, etc) and also its internal strengths and weaknesses (skills, experience, goodwill, etc) will identify the direction and choices that should be taken or avoided.

2.  To give your business the best possible chance of success

Writing a business plan should ensure that you pay attention to both the broad operational and financial objectives of your business and the details, such as budgeting and market planning. Taking time to work through the process of writing a business plan will facilitate a smoother start-up period and fewer unforeseen problems as your business moves through its lifecycle.  A plan will provide an overview of all aspects of the business and you will be able to detail the who, what, where, when, and why of your day-to-day business operations, costs, and projected profitability.

By forecasting where your business will be in six months, one year, or five years, you are not only letting potential investors know your plans, but also setting up realistic milestones for yourself and your employees.

3.  To secure funding/ attract investors

The process of writing a business plan will force you to analyse your business’ financial needs.  You may require both operating and start-up capital to start a new business venture or to finance your growth.  You will significantly reduce the chance of an established financial institution lending you money without a well developed business plan, as it is generally a minimum requirement. 

Established businesses often need money, too, to do things such as buy new equipment or property, or because of market downturns.  Whether you want to approach a bank for a loan or attract financial investors, having a business plan gives you a much better chance of getting the money you need.  An enthusiastic and motivated “sales-pitch” may stimulate some interest, but they’ll need a well-written document they can take away and study before they’ll be prepared to make any financial commitment. 

Be prepared for your business plan to be scrutinised by potential investors – they may want to undertake extensive background checks and competitive analysis to be certain that what’s written in your business plan is indeed the case.

Before investors can decide whether or not to back your business financially, they will need to know as much as possible about how the business will operate and how their investment will be spent.  Your business plan can demonstrate that you have met goals and illustrate the business’ growth and need for additional funding.

4.  To provide a tool to help you manage and monitor your business

A business plan is essential for start-up businesses…but it’s also an important tool for established businesses. Viable businesses are dynamic; they change and grow. The company’s original business plan needs to be revised as new goals are set. Reviewing the business plan can also help you see what goals have been accomplished, what changes need to be made, or what new directions your company’s growth should take.  A business plan should serve as an ongoing business tool that you can use to monitor your progress.

5.  To develop contingency and risk management plans

No matter what business you are in, there will always be exposure to some sort of business risk.  A thorough analysis of the business, via the planning process, may identify areas that should be managed pro-actively rather than waiting for the event to happen.  Examples may include: being over-reliant on one customer, losing key data because your IT systems are not protected properly, etc. 

Knowing that these risks exist will provide an opportunity to address them before it’s too late…prevention is likely to be cheaper than the remedy.

Writing a business plan needn’t be a daunting task.  Taking time to prepare your business plan will significantly enhance it.  Before you leap into developing one, ask yourself why are you preparing it: is it to raise finance or to help you manage and guide your business?  The answer will help you focus your attention and clearly define your audience’s needs.

List your goals and compile a list or library of research materials you will use.  Poor out of date and inaccurate research will not win too many favours with your readers.

Start compiling all of your key financial documents (financial statements, budgets, etc).  Make sure that they are realistic as investors or financial institutions will expect you to support your projections with assumptions.

Consider starting with a contents list…this will enable you to divide activities into smaller, more manageable tasks.  When you’re ready, start your business plan, expecting it to change as you become more confident and you better understand your business.  It should be a work in progress document and may take several drafts before you are happy. 

There is many business planning software available on the internet.  One that I have used in the past can be found here

Finally, good luck, and I am sure that you will find that your investment of your time and effort will be well rewarded.

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