Why Write a Business Plan? The Benefits of a Good Business Plan
Before you start your small business, start your business plan. Just as you wouldn't build a home without a blueprint, you shouldn't build a business without creating a business plan to guide growth. Your business plan is your foundation for success.
This article will discuss the purpose, goals, and benefits of a business plan in the context of U.S. businesses. And it will answer the question many people have when they contemplate the task of writing a good business plan: Is it worth my time to write a plan?
(The answer is yes!)
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Why You Need a Business Plan
There are several types of business plans for different stages of a company's lifecycle, and for different purposes and audiences. But each of these plans can help map out where you want the business to go and how you expect to get there.
Your plan needs to be inspirational. You are creating the vision and defining the path toward an exciting future. When you share your business plan with potential investors, bankers, and business partners you want them to be as excited as you are.
Yes, a business plan includes research, data, and financial projections. But they are there to help others understand how you will bring your vision to reality. Taking the time now to craft a business plan will help you attract the support you need.
A Business Plan Helps You Look at Your Business Objectively
It's easy for prospective business owners to get caught up in their great idea. Writing a business plan forces you to be objective rather than overly optimistic about your business. When you sit down and honestly look at the components of your business plan — objectives, competitors, market conditions, market projections, financials — you are better able to make rational decisions.
Perhaps your great idea doesn't stand up under scrutiny or the numbers just don't add up. A business plan should tell you the viability of your proposed new business venture. You want to know your chances of success BEFORE you sink time and money (or other people's money) into the business.
On the other hand, the planning process may give you a big green light. Now you have concrete goals, measurable objectives, market research, and financial forecasts. Your business plan not only tells you where you are going, it tells you how to get there.
9 Ways a Business Plan Can Help
A good business plan projects your company's growth for the next five years. It will help you:
- Define your business idea in detail
- Identify your potential customers and understand their demographics so you can create an effective marketing plan
- Determine if your business is likely to be profitable and when you might break even
- Estimate startup costs (including how much you'll need to invest or how much financing you'll need)
- Attract financing with a solid business proposal you can show investors
- Devise a marketing strategy for reaching your target market
- Understand your market niche by conducting a market analysis of your competition
- Anticipate potential market challenges
- Explain the business' objectives and methods to employees and guide the hiring of new employees
Business plans bring every element of the business into sharper focus.
Write the Right Type of Business Plan
There are different types of business plans for different business situations. You may be drafting a:
- Startup plan
- Acquisition plan for an existing business
- Repositioning plan for new products or marketing
- Expansion plan for new locations
Your business goals and the audiences for your business plan may (or may not) be somewhat different. You may be using your business plan to attract investors or seek funding. You may be using it to convince a board of directors to approve an acquisition. You may be using it as a roadmap to set financial milestones or product development goals. Your business plan may be a form of strategic planning, helping you stay on track for business growth.
A Business Plan Can Help You Seek Investors, Attract Capital
If you need capital from investors to help fund your business, a written business plan is absolutely essential. No serious investor will give your company money without a solid business plan that outlines the company's present and future financial health. Without that, the investor might as well play the lottery.
You have to show investors that you are an expert in your field, have a solid grasp of the industry, and can excel in the current business climate. Think of your business plan as a resume for your company. You want to accentuate the positive while remaining honest about your abilities and experience.
The plan you present to angel investors and venture capitalists should highlight the value proposition of your business concept. You will need to do research to present a competitive analysis and financial statements/financial projections.
When seeking investment capital, your investment plan must look professional. You should have the plan bound in binders or folders, with charts and graphs for ease of reference. At the very least have another person read it over for typos or grammatical errors.
Be sure to include a strong, inspirational Executive Summary. Investors and lenders read many business pitches in a year. They don't have time to read lengthy documents. They tend to read the Executive Summary and the financials, and then may dig into the rest of the text.
Whether or not one of your objectives is to find financing to fund your business, you'll need an accurate analysis of financial figures for the success of your business. You'll need a breakdown of startup costs, a profit and loss forecast, and cash flow projections (at a bare minimum). You need revenue projections, breakeven points, and potential for profit. Numbers should be double-checked by someone with professional experience.
When writing a business plan, be completely honest with yourself. The planning stage is no time to be overly optimistic about financial projections. Right now, you need to determine whether it's fiscally feasible and at what pricing structure. All business is a calculated risk. The best way to minimize that risk is to emphasize the calculations.
No matter how you use your business plan, the simple act of starting a business plan acts as insurance against the risk that the business will fail.
Other Audiences for Your Business Plan
Investors are just one audience that may need to see your written business plan.
The management and operations part of your plan needs to present an attractive partnership opportunity to draw in business partners, a talented management team, and skilled team members in key positions.
You may already be looking for potential customers or clients, or suppliers. Explaining the nature of your new business provide you with customers when you open the door.
If you need a bank loan or business credit, you can present your business plan with solid financials to a business loan officer at the bank.
Get Professional Legal Help When Writing a Successful Business Plan
As you start writing your business plan, you may identify areas where you need legal insights, such as contractual terms and regulatory matters. Business lawyers regularly work with start-up entrepreneurs. An attorney can help you fill in the gaps. Contact a business and commercial law attorney in your state for sound legal advice.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.