There are numerous issues and obstacles that come with starting a new business. One vital step in preparing for these issues and challenges is to put together a well-detailed business plan. Writing a business plan helps you get an understanding of what you need to do to attain your goals. It’s genuinely a vital tool that can help keep you on track.
According to experts, business planning should be the first thing to do when looking to start a new business. While a business plan is vital to entrepreneurship, a good number of modern entrepreneurs still do not see the need for one. Although having a good business plan does not guarantee success, getting your thoughts down on paper will prove invaluable for getting start-up funding.
Important Purposes of a Business Plan
There are numerous purposes of a business plan, but the most important ones to note include:
To successfully start and manage any business you need adequate funding. Unless you have an extremely cash generative business model, you will need working capital. To remedy this situation, you may have to approach potential sources of finance like private investors, banks, or other lenders.
Note that they want to understand how you operate your business, what your revenue and expense projections are, and, most critically, how they will get a return on their investment.
To convince them, you will need thoroughly researched profit and cash flow projections. Good forecasting and planning are seen as a way of understanding income and expenditure. This is useful as a means to prevent payment-related problems over things like suppliers and staff wages.
To Help You With Critical Decisions
Being a business owner involves an endless cycle of decision-making and crisis management. Taking time to extensively analyze the ramifications of any given decision is a luxury a good number of small businesses barely have. That is where a thoroughly researched business plan comes in.
Putting together a thoroughly researched business plan gives you answers to some of the most critical business decisions ahead of time. To put together a comprehensive plan, you are forced to extensively analyze most of the major components of your business.
You will want to consider things like your marketing strategy and the products or services you intend to offer. It ensures you know the answers to many tough questions before they even arise. It also helps you understand how those decisions will impact your broader strategy.
To Prove the Viability of the Business
Most often, businesses are born out of passion, and although passion can be a viable motivator, it doesn’t make the business idea itself viable. Taking your time to plan how you are going to turn that vision into a successful business is the most vital step between concept and reality.
A very important aspect of every business plan is the market research section. In this section, you will be expected to provide a deep insight into your customers, your competitors, and your chosen industry. Aside from helping to enlighten entrepreneurs who are starting up a new business, this section can also help existing businesses plan activities such as marketing, advertising, and releasing new products or services.
Help you Identify any Potential Weaknesses
According to experts, approximately 20% of new businesses fail within the first two years of opening, 45% within the first five years, and 65% within the first 10 years. Note that only about 25% of new businesses make it to 15 years or more. Although there are numerous reasons why small businesses fail, many of the most common are purposefully addressed in business plans. Some of the most common reasons businesses fail include:
- No market need: There is no demand for the product and no one wants what you’re selling.
- Lack of capital: Cash flow issues or businesses simply run out of money.
- Inadequate team: This highlights the importance of hiring the right people to help run your business.
- Intense competition: It is very challenging to generate a steady profit when you have to contend with a whole lot of competitors in your space.
- Pricing: A good number of new entrepreneurs price their products or services too high or too low, and both scenarios can be detrimental to the health of a business.
The process of putting together a thorough business plan can help you avoid some of these business mistakes. Whether it’s feasibility market research or a cash flow forecast, every inch of a business plan can help you identify some of those business-wrecking mistakes before they arise.
Serves as a Roadmap
A thoroughly researched business plan will help you as the owner to effectively manage your business and attain all your business goals. Putting together a well-detailed plan and illustrating both your ideas and tactics will less help you design a path and course of action, akin to a road map.
Note that this will provide you with something concrete or a yardstick to monitor and measure the progress you make. It also gives you clarity as to the resources you may have to invest at each stage of the business lifecycle.
While designing a path or crafting a potential course of action you may find your business is faced with multiple potential paths. It would also provide you with the platform to plot the most likely scenarios and strategies for these circumstances.
For instance, if your business is heavily dependent on exporting then you may have to take into consideration potential global and political events, and how they may impact currencies in your chosen markets. It will also help to focus your mind to understand the resources you need and when to achieve each of your goals.
To Communicate Objectives and Benchmarks
Regardless of the size of your business and the number of employees you have, have in mind that you won’t always be there to make every decision yourself. Owing to that, your business plan can act as a substitute teacher, ready to answer questions and provide directions any time there’s an absence.
When you have a viable business plan, your staff can always consult the business plan when in doubt. A good number of modern businesses are known to employ contractors, freelancers, and other professionals to help them with things like accounting, marketing, legal assistance, and consulting.
Note that having an easy to relate business plan allows you to easily share relevant sections with these experts. Sharing your business plan with team members also guarantees that all members are aligned with what you are doing.