Business plans are like road maps; it’s possible to travel without one, but it will only increase the likelihood of getting lost along the way.
A business plan is a very important strategic tool for entrepreneurs. A good business plan not only helps entrepreneurs to focus on the specific steps necessary for there to make business ideas succeed, but it also helps them to achieve both their short-term and long-term objectives.
A well-written business plan is an important tool because it gives entrepreneurs the ability to lay out their goals and track their progress as their business begins to grow. Formulating a business plan should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business in on the right path and worth putting money into.
The reasons why you need one for your small business.
- To raise money for your business
Potential investors or lenders want a written business plan before they give you money. A mere description of your business concept is not enough. Instead, ensure you have a thorough business and financial plan that demonstrates the likelihood of success and how much you will need for your business to take off.
- To make sound decisions
As an entrepreneur, having a business plan helps you to define and focus on your business ideas and business strategies. You not only concentrate on financial matters, but also on management issues, human resource planning, technology and creating value for your customer.
- To help you identify potential weaknesses
Having a business plan helps you to identify potential pitfalls in your idea. You can also share the plan with others who can give you their opinions and advice. Identify experts and professionals who are at a position to give you invaluable advice, and share your plan with them.
- To avoid the big mistakes
According to the Small Business Administration, only about half of small businesses are still around to celebrate their fifth birthday. While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.
According to data from bizplanhero Insights, some of the most common reasons businesses fail include:
No market need: No one wants what you’re selling.
Lack of capital: Cash flow issues or businesses simply run out of money.
Inadequate team: This underscores the importance of hiring the right people to help you run your business.
Stiff competition: It’s tough to generate a steady profit when you have a lot of competitors in your space.
Pricing: Some entrepreneurs price their products or services too high or too low—both scenarios can be a recipe for disaster.
However, the exercise of creating a business plan can help you avoid these major mistakes. Whether its cash flow forecasts or a product-market fit analysis, every piece of a business plan can help spot some of those potentially critical mistakes before they arise.
Get a jumpstart on your business plan by creating your own cash flow projection
4. To communicate your ideas with stakeholders
A business plan is a communication tool that you can use to secure investment capital from financial institutions or lenders. It can also be used to convince people to work for your enterprise, to secure credit from suppliers, and to attract potential customers.
Creating a business plan involves a lot of thought. You need to consider what you want to do, and use that as a starting point. It doesn’t need to be complicated. At its core, your plan should identify where you are now, where you want your business to go, and how you will get there.
Writing a good business plan, bizplanhero adds, can’t guarantee success, but it can go a long way toward reducing the odds of failure.