Why You Should Write a Business Plan
Why write a business plan? Simple - the business plan is the blueprint for your business. You wouldn't walk over to an empty lot and just start nailing boards together if you wanted to build a house. Starting a business without a business plan is just as risky.
Yet unlike a house, a business isn't static. We often make the mistake of thinking of a business plan as a single document that you just put together when you're first starting out and then set aside. Something to check off the to-do list and be done with.
But in actuality, the business plan for any business will change over time as the business develops, and any particular business may have multiple business plans as its objectives change.
In the growth phase an updated business plan is useful for forecasting or raising additional capital for expansion, and if you decide to sell or close the business the business plan can include strategies and timelines for the transfer to new ownership or dissolution of the company.
Here are five good reasons why you should write a business plan when starting a new business.
To Test the Feasibility of Your Business Idea
Writing a business plan is the best way to test whether or not an idea for starting a business is feasible, other than going out and doing it. In this sense, the business plan is your safety net; writing a business plan can save you a great deal of time and money if working through the business plan reveals that your business idea is untenable.
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.
Unfortunately, many prospective business owners are convinced that their idea for a product or service is a "can't miss" proposition, and don't take the time to do the necessary research and work through a proper business plan. The more you know about your industry, your prospective customers, and the competition the greater the likely hood that your business will succeed.
To Give Your New Business the Best Possible Chance of Success
Writing a business plan will ensure that you pay attention to both the broad operational and financial objectives of your new business and the details, such as budgeting and market planning.
Taking the time to work through the process of writing a business plan will make for a smoother startup period and fewer unforeseen problems as your business becomes established.
The exercise of budgeting and market planning will help you define your Target Market, your Unique Selling Proposition, optimum pricing strategies, and outline how you intend to sell/deliver your products to customers. In addition, developing a budget for implementation will assist with determination of your startup and operating capital requirements.
Most new businesses need both startup and operating capital to get off the ground and without a well-developed business plan there is no chance of getting debt financing from established financial institutions such as banks or equity financing from angel investors (unless they happen to be family members or close friends).
And established businesses often need money, too, to do things such as buy new equipment or property, or because of market downturns. Having an up-to-date business plan gives you a much better chance of getting the money you need to keep operating or to expand.
Investors and financiers are always looking at the risk of non-repayment, and word-of-mouth is no substitute for written facts and figures in a properly-prepared business plan.
To Make Business Planning Manageable and Effective
A business plan is essential if you're thinking of starting a business, 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.
To Attract Investors
Whether you want to shop your business to venture capitalists or attract angel investors, you need to have a solid business plan. A presentation may pique their interest, but they'll need a well-written document they can take away and study before they'll be prepared to make any investment commitment.
Be prepared for your business plan to be scrutinized; both venture capitalists and angel investors will want to conduct extensive background checks and competitive analysis to be certain that what's written in your business plan is indeed the case.
A Business Plan Is Essential
Writing a business plan is time-consuming, but it's essential if you want to have a successful business that's going to survive the startup phase. If your business doesn't have one, maybe it's time to start working on one. The process of writing a business plan can do wonders to clarify where you've been and where you're going.