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Reasons Why a Business Plan Is Important for Entrepreneurs
Editor's Note: This post was originally published in September 2018 and has been updated with new content that highlights the importance of proper business planning in 2021's economy.
What is a business plan? For people who are just starting out and forming their own company, whether it's a small freelance business at home or a new venture with an office and a starting pool of employees, there's a lot of importance to a business plan. It is a road map, an outline, a document that explains what your business is, what the goals of the enterprise are, and how exactly it will set about achieving those goals. So beyond being a document that identifies your business, what else does such a plan do for you?
1. Target Your Problems
2. Get Better Advice
The importance of a business plan to entrepreneurship can also be in the way it crystallizes just what kind of help you need. Merely telling a friend or potential business mentor you're aiming to start with ten employees, for example, is not an exceptionally detailed statement. Showing a business plan that outlines the exact duties, salaries, and expectations you have for employees gives far more information for people to provide advice about.
3. Organize Your Resources
A business plan is also essential as the primary guide for how you will structure and allocate your resources. It's here that you will see just how feasible it is to open an office, hire employees, and look at operating costs. The business plan can quickly show you whether you will be making a profit or running at a loss, and it shows how much those losses may be every month.
4. Approach Investors
For some, this may be critical. Investors want to know that you know what you’re doing. A business plan can often be the single most important document you can present to your investors that will provide the structure and confidence that they need to make decisions about funding and supporting your company.
5. Create Milestones
A business plan is also a plan of action. By laying out milestones, you now have targets to shoot for in the short, mid and long term. These goals also mean that you can "course correct" with greater agility if you have targets and realize that you may need to make some changes in order to meet them.
The importance of a business plan can be critical for entrepreneurs. Business may have some artistry to it, but real success comes from having a vision and being organized in the way you strive towards that vision. A business plan will help you immensely and in so many ways!
Template for a Business Plan for Entrepreneurs
To determine whether you have a solid business idea, you will need to do thorough research and create a business plan to see if your idea is feasible. Here is a simple business plan template that is broken into sections that include the key elements for what goes into each step of the process to help get you started.
Section 1: Executive Summary
Write an executive summary. The purpose of the executive summary is to give readers a high-level view of the company and the market before delving into the details. It appears first but is written last and provides a snapshot of your company explaining who you are, what you do, and why. The executive summary provides a short, concise, and optimistic overview of your business to capture the reader's attention and create a need to learn more.
Section 2: Business/Industry Overview
Describe your company and business model by summarizing what your company does, your mission statement, location details, business structure and business owner details, the marketplace needs that your business is trying to meet, and how your products/services meet those needs. Define your business's purpose (mission) and a statement based on your perception of the company's growth potential (vision). Include specific business goals and objectives. Provide background information about the company, including a brief history of the business and a list of fundamental company principles.
Section 3: Market Analysis and Competition
Analyze your market's conditions. The market will ultimately determine how successful your business will be. You will need to demonstrate that you have thoroughly analyzed your target market and have a high-enough demand for your products/services to make your business viable. The competitive analysis should include a comprehensive assessment of your competition and how your business will compete in the sector. Describe the industry within which your business will operate, identify and provide a general profile of your target market, and describe what share of the market you currently have or anticipate. Include both an analysis of research done by others, along with primary research you have collected yourself — whether via customer surveys, interviews, or other methods. Outline the strengths and weaknesses of potential competitors and strategies that will give you a competitive advantage.
Section 4: Sales and Marketing Plan
Design a marketing and sales strategy. Here is where you can plan out your comprehensive marketing and sales strategies to cover how you plan on selling your product. Before working on your marketing and sales plan, you will need to have your market analysis completely fleshed out and choose your target client personas, i.e., your ideal customers. Talk about the competitive landscape. Describe how you intend to entice customers to buy your products or services, including advertising and promotion, sales and distribution, pricing strategy, and post-sales support.
Section 5: Ownership and Management Plan
Outline all operations and management roles. This section describes the ownership, legal structure, and your business's management and staffing requirements. Use this section to outline your company's unique organizational and management structure. Describe how your company is organized, including its legal structure (sole proprietorship, partnership, corporation); identify any special licenses or permits your business operates with; provide a brief bio of key managers within your company; include an organization chart.
Section 6: Operating Plan
The operating plan outlines your business's physical requirements, such as office, warehouse, retail space, equipment, inventory and supplies, and labor. For a one-person, home-based consulting firm, the operating plan may be short and straightforward. However, for businesses such as restaurants or manufacturers that require custom facilities, supply chains, multiple employees, and specialized equipment, the operating plan may need to be very detailed.
Section 7: Financial Plan
This section is the most crucial part of the business plan, especially if you need debt financing or want to attract investors. The financial plan must demonstrate your business' growth and profitability potential. To do this, you will need to provide projected income statements, cash flow statements, and balance sheets. For new businesses, these are forecasts. A golden rule of thumb is to underestimate revenues and overestimate expenses. Outline your financial model, including your business costs, revenue projections, and a funding request if you pitch to investors. Your start-up cost refers to the resources you will need to get your business up and running — and an estimate of how much each of those resources will cost.
Section 8: Appendices and Exhibits
Summarize the above with an appendix. The appendices and exhibits section should contain any detailed information needed to support other areas of the plan, including company brochures, resumes of key employees, a list of business equipment, copies of press articles and advertisements, pictures of your business location and products, any applicable information about your industry or products, key business agreements such as lease, and contracts.
Who Needs a Business Plan?
Start-up Businesses : The most classic business planning scenario is for a start-up, for which the plan helps the founders break down uncertainty into meaningful pieces, like the sales projection, expense budget, milestones, and tasks. When you realize you do not know how much money you need or when you need it without first laying out projected sales, costs, expenses, and payment timing, the need becomes apparent. And that is for all start-ups, whether they need to convince investors, banks, or family and friends to part with their money and fund the new venture. Existing Businesses : Established businesses use business plans to manage and steer their business strategies to address changes in their markets and take advantage of new opportunities. They often use plans to reinforce strategy, establish metrics, track results, manage responsibilities and goals, plan and manage critical resources such as cash flow, and set regular review and revision schedules. Business plans can be a powerful driver of growth for existing businesses.
Finding the Right Plan for You
Considering that business plans serve diverse purposes, it is no surprise that they come in various forms. But before you even start writing your business plan, you need to think about who the audience is and your plan's goals. While there are standard components found in almost every business plan, such as sales forecasts and marketing strategy, business plan formats can differ depending on the audience and business type. For example, if you are building a biotech firm plan, your plan will detail government approval processes. If you are writing a restaurant plan, details about location and renovations might be critical factors. The language you would use in the biotech firm's business plan would be much more technical than the language you would use in the restaurant plan. Plans can also differ significantly in length, detail, and presentation. Those that never leave the office and are used only for internal strategic planning and management may often use more casual language and might not have much visual polish. On the other end of the spectrum, a plan destined for a top venture capitalist's desk will have a high polish and focus on the business' high-growth aspects and the experienced team to deliver desirable results.
Elements of a Business Plan
While the plans may vary by type, certain key elements appear in virtually all business plans. These components include the review schedule, strategy summary, milestones, responsibilities, metrics (numerical goals that can be tracked), and basic projections. The projections include sales, costs, expenses, and cash flow. These core elements grow organically for the actual purpose needed for the business.
Developing a High Power Business Plan
The business plan development process described here can provide the guidance entrepreneurs require for developing a business plan best suited for their needs; a high power business plan.
The Stages of Development
There are six stages involved in developing a high-power business plan.
Essential Initial Research
This stage requires you to analyze the environment in which you anticipate operating at each of the societal, market, industry, and firm levels of analysis. In this planning stage, the essential initial research is a necessary first step for better understanding the trends that affect their business and their decisions to lay the groundwork for and improve their potential for success.
Inherent to any business plan is a description of the entrepreneur's chosen business model that will best ensure success. Based upon your essential initial research of the setting in which you anticipate starting your business (your analysis from stage one), you should determine how each element of your business model might fit together to improve the potential success of your business venture. These elements include their revenue streams, cost structure, customer segments, value propositions, key activities, and key partners.
Initial Business Plan Draft
This stage involves taking the knowledge and ideas developed during the first two stages and integrating them into a business plan format. A suggested approach is to create a complete draft of the business plan with all the sections, including the front part with the business description, values, vision, mission, value proposition statement, a preliminary set of goals, table of contents, and lists of tables and figures set up using the software features enabling their automatic generation. Writing all the operations, human resources, marketing, and financial plans as part of the first draft ensures that all these necessary parts can be appropriately integrated. The business plan should tell the story of a planned business start-up in two ways: using primarily words, along with charts and graphs in the operations, human resources, and marketing plans, and through the financial plan. Both approaches must tell the same story.
Making Business Plan Realistic
The first draft of a business plan will seldom be realistic. As you write the plan, it will naturally change as new information is gathered. Another factor that commonly renders the first draft unrealistic is the difficulty in ensuring that the written section—in the front part of the plan and the operations, human resources, and marketing plans—tells the same story as the financial part does. This working stage involves making the necessary adjustments to the plan to make it as realistic as possible.
Making Plan Appeal to Stakeholders and Desirable to the Entrepreneur
A business plan can be realistic without appealing to potential investors or other external stakeholders, such as suppliers, employees, and needed business partners. It may also be realistic and possibly appealing to stakeholders without necessarily being desirable to the entrepreneur. During this stage, try to keep it as realistic as possible when adjusting the plan to appeal to potential investors and yourself.
Finishing the Business Plan
The final stage involves putting all the essential finishing touches on the business plan so it will present well to potential investors and alike. This step involves ensuring that the math and links between the written and financial sections are accurate. It also involves ensuring that all the needed corrections are made to the formatting, spelling, and grammar. The ultimate set of goals should be written to appeal to targeted readers and reflect what the business plan specifies. An executive summary should be written and included as the final step.
FAQs about Business Plans
What are the 4 types of business plans.
1. Mini-plan : A mini-plan may comprise one to 10 pages and include at least cursory attention to such critical matters as business concepts, financing needs, marketing plans, and financial statements, especially cash flow, balance sheet, and income projections. It is a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It could also serve as a valuable prelude to a full-length plan later on.
2. Working Plan : A working plan is a tool to operate your business. It should be lengthy in detail but may be short on presentation. As with a mini-plan, you can probably afford a somewhat higher degree of candor and informality when preparing a working plan.
3. Presentation Plan : If you take a working plan, with its low stress on cosmetic appeal and impression, and twist the lever to boost the amount of attention paid to its visual appearance, you will end up with a presentation plan. This plan is suitable for showing to financiers, investors, stakeholders, and others outside the company.
4. Electronic Plan : Most business plans are composed on a computer, then printed out and presented in hard copy. However, more and more business information transferred between parties only on paper can now be sent electronically, so you may find it convenient to have an electronic version of your plan available. An electronic plan can be useful for presentations to groups using a computer-driven overhead projector, for instance, or for satisfying the demands of discriminating investors who want to delve deeply into the underpinnings of complex spreadsheets.
What are the 3 main purposes of a business plan?
1. Establish a business focus : The primary purpose of a business plan is to establish your plans for your business's future. These plans should include goals and milestones alongside detailed steps on how the business will reach each step. Creating a roadmap to your goals will help determine your business focus and pursue growth.
2. Secure funding : One of the first things private investors, banks, and other lenders look for before investing in your business is a well-researched business plan. Investors and stakeholders want to know how you operate your business, revenue and expense projections, and how they will receive a return on their investment.
3. Attract executives : As your business grows, you will likely need to add executives to your team. The business plan helps you attract executive talent and determine whether they are a good fit for your company.
What are the 5 elements of a business plan?
1. Business concept : Describes the business, its products/services, and the market it will serve. It should point out exactly what will be sold, to whom, and why your business will hold a competitive advantage.
2. Financial features : Highlights the important financial points of the company, including sales, cash flows, profits, and return on investment.
3. Financial requirements : Clearly state the capital needed to start the business and expand. It should detail how capital will be used and the equity that will be provided for funding. If the loan for initial capital is based on security instead of equity, also specify the source of collateral.
4. Current business position : Furnishes relevant information about the business, its legal form of operation, the principal owners, when it was formed, and key personnel.
5. Major achievements : Details of any developments within the company essential to the business's success. Major achievements include patents, prototypes, location of a facility, any binding contracts that need to be in place for product development, or any test marketing results.
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About The Author
Daniel plays a fundamental role in WSI’s global franchise expansion and development. He has since overseen WSI’s franchise development process, and he is personally associated with the recruitment of 600+ global franchisees.
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Nine reasons why you need a business plan
Building a great business plan helps you plan, strategize and succeed. Presented by Chase for Business .
Making the decision to create a new business is an exciting yet stressful experience. Starting a business involves many tasks and obstacles, so it’s important to focus before you take action. A solid business plan can provide direction, help you attract investors and ensure you maintain momentum.
No matter what industry you plan on going into, a business plan is the first step for any successful enterprise. Building your business plan helps you figure out where you want your business to go and identify the necessary steps to get you there. This is a key document for your company to both guide your actions and track your progress.
What is the purpose of a business plan?
Think of a business plan like a roadmap. It enables you to solve problems and make key business decisions, such as marketing and competitive analysis, customer and market analysis and logistics and operations plans.
It can also help you organize your thoughts and goals, as well as give you a better idea of how your company will work. Good planning is often the difference between success and failure.
Here are nine reasons your company needs a business plan.
1. Prove your idea is viable
Through the process of writing a business plan, you can assess whether your company will be successful. Understanding market dynamics, as well as competitors, will help determine if your idea is viable.
This is also the time to develop financial projections for your business plan, like estimated startup costs, a profit and loss forecast, a break-even analysis and a cash flow statement . By taking time to investigate the viability of your idea, you can build goals and strategies to support your path to success.
A proper business plan proves to all interested parties—including potential investors, customers, employees, partners and most importantly yourself — that you are serious about your business.
2. Set important goals
As a business owner, the bulk of your time will mostly likely be spent managing day-to-day tasks. As a result, it might be hard to find time after you launch your business to set goals and milestones. Writing a business plan allows you to lay out significant goals for yourself ahead of time for three or even five years down the road. Create both short- and long-term business goals.
3. Reduce potential risks
Prevent your business from falling victim to unexpected dangers by researching before you break ground. A business plan opens your eyes to potential risks that your business could face. Don’t be afraid to ask yourself the hard questions that may need research and analysis to answer. This is also good practice in how your business would actually manage issues when they arise. Incorporate a contingency plan that identifies risks and how you would respond to them effectively.
The most common reasons businesses fail include:
- Lack of capital
- Lack of market impact or need
- Unresearched pricing (too high or low)
- Explosive growth that drains all your capital
- Stiff competition
Lack of capital is the most prevalent reason why businesses fail. To best alleviate this problem, take time to determine how your business will generate revenue. Build a comprehensive model to help mitigate future risks and long-term pain points. This can be turned into a tool to manage growth and expansion.
4. Secure investments
Whether you’re planning to apply for an SBA loan , build a relationship with angel investors or seek venture capital funding, you need more than just an elevator pitch to get funding. All credible investors will want to review your business plan. Although investors will focus on the financial aspects of the plan, they will also want to see if you’ve spent time researching your industry, developed a viable product or service and created a strong marketing strategy.
While building your business plan, think about how much raised capital you need to get your idea off the ground. Determine exactly how much funding you’ll need and what you will use it for. This is essential for raising and employing capital.
5. Allot resources and plan purchases
You will have many investments to make at the launch of your business, such as product and services development, new technology, hiring, operations, sales and marketing. Resource planning is an important part of your business plan. It gives you an idea of how much you’ll need to spend on resources and it ensures your business will manage those resources effectively.
A business plan provides clarity about necessary assets and investment for each item. A good business plan can also determine when it is feasible to expand to a larger store or workspace.
In your plan, include research on new products and services, where you can buy reliable equipment and what technologies you may need. Allocate capital and plan how you’ll fund major purchases, such as with a Chase small business checking account or business credit card .
6. Build your team
From seasoned executives to skilled labor, a compelling business plan can help you attract top-tier talent, ideally inspiring management and employees long after hiring. Business plans include an overview of your executive team as well as the different roles you need filled immediately and further down the line.
Small businesses often employ specialized consultants, contractors and freelancers for individual tasks such as marketing, accounting and legal assistance. Sharing a business plan helps the larger team work collectively in the same direction.
This will also come into play when you begin working with any new partners. As a new business, a potential partner may ask to see your business plan. Building partnerships takes time and money, and with a solid business plan you have the opportunity to attract and work with the type of partners your new business needs.
7. Share your vision
When you start a business, it's easy to assume you'll be available to guide your team. A business plan helps your team and investors understand your vision for the company. Your plan will outline your goals and can help your team make decisions or take action on your behalf. Share your business plan with employees to align your full staff toward a collective goal or objective for the company. Consider employee and stakeholder ownership as a compelling and motivating force.
8. Develop a marketing strategy
A marketing strategy details how you will reach your customers and build brand awareness. The clearer your brand positioning is to investors, customers, partners and employees, the more successful your business will be.
Important questions to consider as you build your marketing strategy include:
- What industry segments are we pursuing?
- What is the value proposition of the products or services we plan to offer?
- Who are our customers?
- How will we retain our customers and keep them engaged with our products or services and marketing?
- What is our advertising budget?
- What price will we charge?
- What is the overall look and feel of our brand? What are our brand guidelines?
- Will we need to hire marketing experts to help us create our brand?
- Who are our competitors? What marketing strategies have worked (or not worked) for them?
With a thoughtful marketing strategy integrated into your business plan, your company goals are significantly more in reach.
9. Focus your energy
Your business plan determines which areas of your business to focus on while also avoiding possible distractions. It provides a roadmap for critical tradeoffs and resource allocation.
As a business owner, you will feel the urge to solve all of your internal and customers’ problems, but it is important to maintain focus. Keep your priorities at the top of your mind as you set off to build your company.
As a small business owner, writing a business plan should be one of your first priorities. Read our checklist for starting a business, and learn how to take your business from a plan to reality. When you’re ready to get started, talk with a Chase business banker to open a Chase business checking or savings account today.
For Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.
JPMorgan Chase Bank, N.A. Member FDIC. Equal Opportunity Lender, ©2023 JPMorgan Chase & Co
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The importance of a business plan
Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.
Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.
What is a business plan?
A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.
Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success.
Why is a business plan important?
A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning 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 is on the right path and worth putting money into.
Business plans typically include detailed information that can help improve your business’s chances of success, like:
- A market analysis : gathering information about factors and conditions that affect your industry
- Competitive analysis : evaluating the strengths and weaknesses of your competitors
- Customer segmentation : divide your customers into different groups based on specific characteristics to improve your marketing
- Marketing: using your research to advertise your business
- Logistics and operations plans : planning and executing the most efficient production process
- Cash flow projection : being prepared for how much money is going into and out of your business
- An overall path to long-term growth
10 reasons why you need a business plan
I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.
The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.
To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.
1. To help you with critical decisions
The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.
Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.
Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.
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2. To iron out the kinks
Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.
3. To avoid the big mistakes
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 CB 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.
The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s 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. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!
Get a jumpstart on your business plan by creating your own cash flow projection .
4. To prove the viability of the business
Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.
Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.
A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.
Want to prove there’s a market gap? Here’s how you can get started with market research.
5. To set better objectives and benchmarks
Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.
6. To communicate objectives and benchmarks
Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.
Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.
7. To provide a guide for service providers
Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.
8. To secure financing
Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.
Learn what you need to get a small business loan.
9. To better understand the broader landscape
No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.
10. To reduce risk
Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.
Understanding the importance of a business plan
Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.
Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.
Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.
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Why should an entrepreneur develop a business plan?
Do you dream of becoming an entrepreneur and starting your own business? While it’s an exciting prospect and you might be eager to get going with your ideas, before you dive in, it’s wise to build solid foundations that will set you up for success.
According to the U.S. Small Business Administration (SBA), only two-thirds of new businesses will last two years , which means one in three new ventures won’t make it. Ensuring you have a well-thought-out business plan in place is one of the best ways to make sure you give your business idea every chance of succeeding.
Let’s take a look at what a business plan is, why writing a business plan is important and why it’s a critical step in helping you realize your dreams of running your own business.
What is a business plan?
A business plan is a detailed document that sets out a company’s purpose, vision, marketing objectives, financial plans, resource needs and how it will achieve its goals. It essentially works as a roadmap or a guide to how the company will function and can be a valuable tool for attracting potential investors too.
A business plan should be a living document and should develop as your business grows and plans change. You won’t simply create a business plan and then file it away, never to be seen again. Think of your business plan as a tool for continually monitoring and analyzing how well you’re achieving your business goals. Refer back to it when you’re making key decisions and adapt it depending on what’s working and not working.
Aside from being a useful business tool, making sure to build in regular reviews and updates to your business plan is great for potential investors too. You’ll show potential lenders, business partners or investors that you’re on top of the business and a sound investment.
What is a business plan for entrepreneurs?
Any business plan should broadly cover the same aspects, but as an entrepreneur, you’ll want to make sure you’re addressing the needs of potential funders and investors for your new venture.
Great entrepreneur business plans should cover the following:
- An executive summary that summarizes your idea and acts as a business pitch.
- A company description that describes your purpose and objectives.
- An outline of your market research and potential so that you and your investors understand your target customers and potential market size.
- Competitive analysis that identifies other competitors in the marketplace and what your unique selling point is.
- Your product or service description outlining the benefits and lifecycle of what you’re selling.
- A marketing strategy that sets out how you’ll launch, attract new business and grow your customer base.
- Your business financials, setting out your budget, financial plan and financial projections.
- The business structure you plan to adopt, the management team you’ll need and the staff you’ll need to employ.
- Realistic funding requests and how any financial partnerships will work – what’s in it for your investors?
- An appendix of official documents that your employees or potential investors might request, like deeds, permits, professional licenses, industry memberships, and key customer contracts.
Why a business plan is important for entrepreneurs
Although business plans can be time-consuming and at times tricky to navigate, they are worth the effort. It helps you as a business owner clearly define your goals, avoid costly mistakes, mitigate risks, define your target market and define a pathway to execute your vision. It also helps others – employees, strategic partners, lenders, or investors – understand your business and how they can add value and benefit from being a part of it.
A good indicator of whether a business plan is beneficial is always to ask others who’ve been there. A recent QuickBooks survey outlined that nearly 70% of business owners, with the benefit of experience and hindsight, recommended writing a business plan before starting out.
But more than the shared wisdom of those who’ve been there, the statistics also back up the benefits of business planning for entrepreneurs:
- Entrepreneurs who create business plans are more likely to create a viable new business.
- Companies with a business plan see growth 30% faster than those without one.
- 71% of fast-growing companies – meaning those with more than 92% growth in annual sales – have business plans.
When is the best time to write a business plan?
So you’ve got your idea for the beginning of an exciting hospitality career , and you know you want to write a business plan, but is there a right time to do it? Writing your plan before you start your business is of course essential, but statistically speaking, there is an optimal time to create a business plan.
According to Harvard Business Review , entrepreneurs who create a business plan within six to twelve months after deciding to start a business increase the probability of a viable venture by 8%. Business owners who spend around three months writing a business plan also increase their chances of having a viable venture by 12%. Any less time spent means there is usually not enough information or attention to detail, and any more time spent usually means the content loses its relevance.
Learn everything you need to know about starting your own hospitality business with Les Roches.
Business plans in entrepreneurship example
Entrepreneurs’ business plans can take different forms and should be tailored to the specific industry you hope to work in, as well as your business concept. To help, we’ve outlined some examples of how you might tackle different aspects of a business plan in diverse hospitality industries:
- Example of hotel business description:
Our mission is to revolutionize the boutique hotel market for budget travelers. Founded in 2022, we have over 20 years of international hotel management experience. Our objectives for the next two years are:
- Solidify our reputation as a customer-first, quality boutique hotel provider.
- Increase revenue from $100,000 in FY2022 to $500,000 in FY2024 based on performance in the last year.
- Example of restaurant market research and potential:
Our ideal customer is an affluent Boomer or Millennial with disposable income, typically aged 35 to 65.
Market research shows the potential for the restaurant industry internationally, in Georgia and Atlanta has never been better:
- According to the National Restaurant Association , the restaurant industry accounts for $800 billion in sales nationwide.
- According to the Georgia Restaurant Association , Georgia restaurants brought in a total of $19.6 billion in 2017.
- Almost 60% of the Georgia restaurant industry is in the Atlanta region.
- The serviceable available market (SAM) is estimated to be approximately $360 million.
- Example of events management service description:
Our events management service has three unique selling points:
- Throughout our careers, we have worked at high-end luxury events management companies for high-profile events and clients. This gives us unique access to world-class vendors.
- We’re the only management company with green, sustainable credentials certified by industry bodies.
- We have a 100% success rate and have been rated 5 out of 5 stars on Google by all of our clients to date.
- Example marketing strategy for a luxury brand:
Reputation is the top influencer in high-end luxury brand marketing. Our marketing plan and strategy will leverage, in order of importance:
- Word of mouth
- Social media
- Direct mail
Our social media strategy will involve using high-caliber brand ambassadors, as well as multiple accounts across Instagram, TikTok, Pinterest and YouTube.
Whether you’re looking to start your entrepreneurial journey in sports, hotel management , events, hospitality consultancy , finance, or any other hospitality management business, putting in place a business plan is a critical first step. Make sure you have an effective business plan, addresses investor needs and is used as an ongoing business tool.
To set yourself up for business success it’s a good idea to invest in a hospitality degree that teaches you all the transferable skills you’ll need to run any business, including finance, leadership styles , problem-solving, and effective communication skills . The best schools also give you unique real-world experience so that you’ll learn the realities of putting business theory into practice — essential when it comes to creating your own business plan and running your own thriving business.
Study at world-class Les Roches to learn all the business essentials you’ll need.
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Do You Really Need a Business Plan?
The art of storytelling, from net margin to sales.
Why is a business plan important?
- Who will the reader be?
- What do you want their response to be?
Four Reasons to Write a Business Plan
1. To raise money for your business
2. To make sound decisions
3. To help you identify any potential weaknesses
4. To communicate your ideas with stakeholders
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Why do Entrepreneurs need a Business Plan?
- By: Ariel Tavor
Having a plan for anything you want to achieve in your life is good. This same thing holds for those who have their own business. A business is full of risks. Entrepreneurs can create businesses that earn a lot, just break even, or lose a huge amount of money. Entrepreneurs need a business plan to showcase how their business will be profitable and stand out in the market to prospective investors and stakeholders.
A business strategy is a way to evaluate your business to have a closer look at the financial situation and smaller details such as budget planning and marketing. Moreover, it helps to clarify the goal and review if your idea will be profitable in the future. In this article, we have discussed the reasons why entrepreneurs need a business plan.
What is in a Business Plan for Entrepreneurs ?
The goal of a business strategy for entrepreneurs is to summarize the company’s strategy to implement it in the long term, forecast future business demands, and secure financing from investors. A business strategy summarizes your plan for the different aspects of the entrepreneur’s proposed business. This may include marketing, human resources, finances, intellectual property data, and more.
Related: Key Items to include in the business plan
Importance of A Business Plan for Entrepreneurs
Various reasons define the importance of a business strategy for entrepreneurs.
A few of the reasons are listed below:
To figure out the financial needs.
One of the main reasons for having a business plan for entrepreneurs is that it helps to determine the amount of capital you need for your venture. This procedure plays a vital role in enhancing the capital for business and employing the capital effectively.
To assess competitors and search your audience.
Another essential part of making a plan is searching for the latest companies in the industry you are interested in working in. With a business strategy , you can identify the competitors and where they are lacking to reach their customers. After reviewing, you can find ways to reach those customers, which will help you enhance your target audience.
A business plan helps entrepreneurs remain on track.
A company with a plan can move in the right direction. It helps entrepreneurs stay organized and keeps them on the correct path to success. A good plan is one of the basic points that help to operate your business successfully.
A Business S trategy helps to organize your resources.
A plan for business acts as a guide for structuring or allocating resources. With a plan, an entrepreneur will see the feasibility of opening an office, tracking operating costs, and hiring employees. A plan can easily depict whether your business is running at a loss or making a profit.
A business strategy helps make critical decisions.
Entrepreneurship is a continuous practice in crisis management and decision-making. Sitting down and reviewing all the consequences of any decision is a luxury that anyone can’t afford. That’s where the importance of a business strategy comes in. A plan lets you determine the solutions to some of the most crucial business decisions ahead of time.
To set better benchmarks and goals.
Our goals usually become arbitrary without a plan or reason. An effective business plan helps make those benchmarks more consequential and intentional. Plus, it also helps keep you accountable for long-term strategy and vision to gain insights into how the strategy works with time.
Before investing in your business, investors need to be aware of your business. In that scenario, a plan can be an essential document you can show to your investors. It will provide your business’s structure and the idea that helps them make informed decisions regarding supporting and funding your company.
A business plan helps to predict problems.
An effective plan for business helps you predict potential issues such as changing customer habits or trends and slow seasons. You can prepare and swamp these challenges with a business strategy before it turns into something worse.
Increases the chances of your business success
The main purpose of entrepreneurship is to have a successful business. However, no business idea comes with guaranteed success. But with a clear plan, the chances of the success of your business increase, as it will consistently remind you of why you chose to be an entrepreneur and help you focus on the mission of your business.
A business plan helps to reduce risks.
Entrepreneurship comes with various risk factors, but those can be managed if tested against a well-designed business strategy . Marking up expense projections and revenue, devising operational and logistics strategies, and understanding the competitive landscape and the market can help minimize all the risk factors. A business strategy lets you make better decisions and provides a clear view of your business’s future.
Discover the potential of your business
A business plan helps you think about the customers you are dealing with and their requirements. Knowing the needs of those customers enables you to find new opportunities for your business to serve them in a better way. With a business strategy , you can quickly review your strategy’s direction and where it needs adjustments, redirecting to the fresh opportunities that drive profitability.
A business plan acts as a guide for service providers
Typically, most businesses employ freelancers, contractors, and other professionals to help them with marketing, accounting, legal assistance, and more. An effective business strategy lets you easily share relevant sections with those who support your company while confirming that everyone is on the same page.
Now that you have a solid awareness of the “why,” you can confidently proceed with the motivation to make a business plan. One important thing to note is that a business plan is essential to your business throughout your journey and not only in the beginning. So, it is better to take advice from business consulting professionals. It will allow you to experience proficiency in creating a good and profitable business plan.
Business strategies are important; they will help you clarify your specific ideas and push you to define your vision and goals. When you have a plan ready, it’s time to investigate opportunities, develop partnerships, and find the right team to support your project. Y ou should know how to prepare a business plan that is appropriate to encompass your ideas and present them effectively to your prospective stakeholders.
Finally, ensure that your business strategy is up-to-date; never overlook the need to plan for the future.
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15 Reasons Why You Need a Business Plan in 2023
Posted january 21, 2022 by noah parsons.
As a small business owner or aspiring entrepreneur, a business plan can seem more like a hurdle you have to overcome than a useful tool. It’s a barrier that’s keeping you from moving forward with your business. Maybe the bank won’t review your loan application without a business plan or a potential investor has asked to see your business plan before they will meet with you.
But, writing a business plan doesn’t have to feel like a homework assignment. Instead, think of writing a business plan as an investment in your business. It’s a tool to figure out a strong and financially viable strategy for growth. And, it’s even been scientifically proven that planning will increase your chances of success and help you grow faster.
Still not convinced? Read on for our definitive list of reasons why you should write a plan for your business.
What is the key purpose of a business plan?
Imagine you’re setting out on a journey. You know what your final destination is, but you haven’t figured out how to get there. While it might be fun to just start driving and figure things out as you go, your trip will most likely take longer than you anticipated and cost you more. If you instead take a look at a map and chart the best way to get to your destination, you’ll arrive on time and on budget. Planning for your business isn’t that much different.
The primary purpose of a business plan is to help you figure out where you want to go with your business and how you’re going to get there. It helps you set your direction and determine a winning strategy. A solid business plan will set your business up for success and help you build an unbeatable company.
If you start off without a plan, you may go down some interesting detours, but you’re unlikely to grow quickly or stick to your budget.
Why do you need to write a business plan?
Establishing a strategic roadmap for your business is the primary benefit of writing a business plan. But what does that really look like for you and your business? Here are our top 15 reasons why you should write a business plan.
1. Reduce your risk
Writing a business plan takes some of the risk out of starting a business. It ensures that you’re thinking through every facet of your business to determine if it can truly be viable.
Does your solution fit the market? Are your startup or operational costs manageable? Will your proposed business model actually generate sales? What sort of milestones would you need to hit to achieve profitability? These are all questions associated with business risk that you can answer with your plan.
For those already running a business, writing a plan can help you better manage ongoing risk. Should you bring on a new employee? What does cash flow look like for your next month, quarter, or even year? Are you on track to meet your milestones or do you need to change your focus? Keep your plan up to date, review it regularly and you can easily answer these questions and mitigate risk.
2. Uncover your business’s potential
Writing a business plan helps you think about the customers you are serving and what their needs are. Exploring those customer needs will help you uncover new opportunities for your business to serve them and potentially expose new products and services that you could offer. When you use your business plan to manage your business, you’ll be able to see the parts of your strategy that are working and those that aren’t. For example, you may have invested in new marketing efforts to sell one of your products, but that strategy just isn’t working out. With a business plan in hand, you’ll be able to see what’s going to plan and where you need to make adjustments to your strategy, pivoting to new opportunities that will drive profitability.
3. Test a new business idea
When you have a new business idea, it really helps to spend a little time thinking through all the details. A business plan will help you think about your target market, your budget, how much money you’ll need to launch, and how your idea will actually work before you spend any real money. A business plan will also help you easily share your idea with other people to get input and feedback before you get started.
We recommend using a one-page business plan to test ideas quickly and easily.
4. Attract investors and get funding to start and grow your business
Sharing your business idea with investors requires a business plan. Now, you probably won’t share a long, detailed business plan to get investors interested, but you probably will share your executive summary — which is an overview of your business plan. Investors may never actually ask for your full business plan, but they will certainly ask you questions that you’ll only be able to answer if you’ve taken the time to write a plan.
At the very least, they’ll want to see your financial forecasts , so you should be prepared for this. If you end up pitching your business to investors, whether in-person or remotely , having a business plan written makes it much easier to translate the right information into a pitch deck. In short, you’ll have all of the right information ready and available to show why your business is worth investing in.
5. Plan for different scenarios
Even if you have a plan in place, things rarely actually go to plan. The world is always changing, customer tastes change, and new competitors arrive on the scene. Having a plan allows you to experiment with different scenarios to see how changes to your business will impact your forecasts, budgets, profitability, and cash flow.
6. Research shows that business plans definitely work
A Journal of Management Studies study found that businesses that take the time to plan grow 30% faster than those that don’t. Our own 2021 small business research study found that 58% of small business owners that have or are working on a plan feel confident in their business, even amidst a crisis. And a study in Small Business Economics found that entrepreneurs that write business plans for their ideas are 152% more likely to actually start their businesses. There’s plenty of additional research that links planning with success, so it’s a proven fact that you won’t be wasting your time when you write your plan.
7. Build a better budget and a financial forecast
A core component of any business plan is a financial forecast. When you take the time to plan, you’ll have to think through your expense budget, your sales goals, and the cash that it’s going to take to keep your doors open, purchase inventory, and more.
The beauty of incorporating forecasts into your business plan is that you don’t need to have the exact numbers to start. You can work with general assumptions and compare against competitive benchmarks to set a baseline for your business. As you operate and collect financial data you can then begin to update your forecasts to generate a more accurate view of how your business will operate.
8. Determine your financial needs
Without a business plan, it’s impossible to really know how much money it’s going to take to start and run your business. You don’t just need money for your initial purchases. You need to have enough cash in the bank to keep your business afloat while you get fully up and running. A plan will help you determine exactly how much money you’ll need and help you keep track of your cash flow and runway .
9. Attract employees
Especially if you’re a young startup company, attracting employees can be hard. Without a proven track record, why should someone take a risk to work for you? Having a business plan can help solve that problem. Your plan can help a prospective employee understand your business strategy and plans for growth so that they can feel confident joining your team. It’s also incredibly useful in determining when and if it’s feasible for you to bring on more employees .
10. Get your team all on the same page
A great strategy for your business can only be successful if your team understands it. By documenting your strategy with a business plan, you can easily get everyone on the same page, working towards the same goals. It’s even better if you regularly review your plan with members of your team. This ensures that everyone is consistently going back to the core strategy documentation, analyzing it, and exploring how it impacts individual and team goals .
11. Manage your business better
A business plan is all about setting goals for your company — both financial goals and milestones you hope to accomplish. When you use your plan to regularly check in on your business to see how you’re doing and what your progress is, you’re managing your business. Regular review , ideally monthly, will help you build a strong, resilient business.
12. Understand your market and build a marketing plan
No matter how good your idea is, you have to figure out who your ideal customers are and how you’re going to get the word out to them. That’s where a marketing plan comes in. It can be an indispensable tool for figuring out how you get your first customers as well as your thousandth customer.
13. It’s easier than you think
You may be procrastinating in writing a business plan because it sounds like a lot of work. The truth is that planning is much less complicated than you think. Start small with a one-page business plan that you complete in half an hour . From there, refine your plan until your idea is solid. At that point, you can invest a little more time in a more detailed business plan. Just start with the basics and expand from there.
14. You’ll sleep better at night
When you have a plan for your business, you have peace of mind. You know that you’ve invested the time to figure out a business model that actually works and you’ve considered different financial scenarios so you can handle the unexpected. And, you’ve got a management tool to run your business better than your competitors.
15. Effectively navigate a crisis
Having a business plan not only helps you create a roadmap for your business but also helps you navigate unforeseen events. Large-scale economic downturns, supply shortages, payment delays, cash flow problems, and any number of other issues are bound to pop up. But, you can be prepared to face each crisis head-on by leveraging your business plan.
A plan helps you assess your current situation, determine how the crisis will alter your plan, and begin to explore what it will take to recover. With a little planning, you can even prepare your business for future downturns with this same process. It’ll make crisis planning easier and ideally recession-proof your business by having the right plan and processes in place.
Don’t wait, start writing your business plan today
There are plenty of reasons to write a business plan, but the real reason is about finding success for you and your business. Taking the time to plan is an investment in yourself and your business that will pay dividends, whether you’re starting a new business or taking your existing business to the next level.
You can jump-start your business plan writing process with our article covering how to write a business plan in as little as 30-minutes .
If you’re looking for a tool to help you get more from your business plan, we recommend trying out LivePlan . Our business planning and management tool will guide you through the entire process, including all of your financial forecasts, without ever requiring that you open a spreadsheet.
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20 Reasons Why You Need a Business Plan in 2023
Written by Dave Lavinsky
What is the Purpose of a Business Plan?
The purpose of a business plan is to provide a clear roadmap for the company’s future. It outlines the vision, goals, and strategies of the business, guiding entrepreneurs and stakeholders in understanding its operations and objectives. A well-crafted business plan helps attract investors and funding by showcasing the potential for profitability and growth.
Top 20 Reasons Why you Need a Business Plan
1. to prove that you’re serious about your business.
A formal business plan is necessary to show all interested parties — employees, investors, partners and yourself — that you are committed to building the business. Creating your plan forces you to think through and select the strategies that will propel your growth.
2. To Establish Business Milestones
The business plan should clearly lay out the long-term milestones that are most important to the success of your business. To paraphrase Guy Kawasaki, a milestone is something significant enough to come home and tell your spouse about (without boring him or her to death). Would you tell your spouse that you tweaked the company brochure? Probably not. But you’d certainly share the news that you launched your new website or reached $1M in annual revenues.
3. To Better Understand Your Competition
Creating the business plan forces you to analyze the competition. All companies have competition in the form of either direct or indirect competitors, and it is critical to understand your company’s competitive advantages. And if you don’t currently have competitive advantages, to figure out what you must do to gain them.
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4. To Better Understand Your Customer
Why do they buy when they buy? Why don’t they when they don’t? An in-depth customer analysis is essential to an effective business plan and to a successful business. Understanding your customers will not only allow you to create better products and services for them, but will allow you to more cost-effectively reach them via advertising and promotions.
5. To Enunciate Previously Unstated Assumptions
The process of actually writing the business plan helps to bring previously “hidden” assumptions to the foreground. By writing them down and assessing them, you can test them and analyze their validity. For example, you might have assumed that local retailers would carry your product; in your business plan, you could assess the results of the scenario in which this didn’t occur.
6. To Assess the Feasibility of Your Venture
How good is this opportunity? The business plan process involves researching your target market, as well as the competitive landscape, and serves as a feasibility study for the success of your venture. In some cases, the result of your planning will be to table the venture. And it might be to go forward with a different venture that may have a better chance of success.
7. To Document Your Revenue Model
How exactly will your business make money? This is a critical question to answer in writing, for yourself and your investors. Documenting the revenue model helps to address challenges and assumptions associated with the model. And upon reading your plan, others may suggest additional revenue streams to consider.
8. To Determine Your Financial Needs
Does your business need to raise capital? How much? One of the purposes of a business plan is to help you to determine exactly how much capital you need and what you will use it for. This process is essential for raising capital for business and for effectively employing the capital. It will also enable you to plan ahead, particularly if you need to raise additional funding in the future.
9. To Attract Investors
A formal business plan is the basis for financing proposals. The business plan answers investors’ questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s exit strategy? While investors will generally want to meet you in person before writing you a check, in nearly all cases, they will also thoroughly review your business plan.
10. To Reduce the Risk of Pursuing the Wrong Opportunity
The process of creating the business plan helps to minimize opportunity costs. Writing the business plan helps you assess the attractiveness of this particular opportunity, versus other opportunities. So you make the best decisions.
11. To Force You to Research and Really Know Your Market
What are the most important trends in your industry? What are the greatest threats to your industry? Is the market growing or shrinking? What is the size of the target market for your product/service? Creating the business plan will help you to gain a wider, deeper, and more nuanced understanding of your marketplace. And it will allow you to use this knowledge to make decisions to improve your company’s success.
12. To Attract Employees and a Management Team
To attract and retain top quality talent, a business plan is necessary. The business plan inspires employees and management that the idea is sound and that the business is poised to achieve its strategic goals. Importantly, as you grow your company, your employees and not you will do most of the work. So getting them aligned and motivated will be key to your success.
13. To Plot Your Course and Focus Your Efforts
The business plan provides a roadmap from which to operate, and to look to for direction in times of doubt. Without a business plan, you may shift your short-term strategies constantly without a view to your long-term milestones. You wouldn’t go on a long driving trip without a map; think of your business plan as your map.
14. To attract partners
Partners also want to see a business plan, in order to determine whether it is worth partnering with your business. Establishing partnerships often requires time and capital, and companies will be more likely to partner with your venture if they can read a detailed explanation of your company.
15. To Position Your Brand
Creating the business plan helps to define your company’s role in the marketplace. This definition allows you to succinctly describe the business and position the brand to customers, investors, and partners. With the industry, customer and competitive insight you gain during the business planning process, you can best determine how to position your brand.
16. To Judge the Success of Your Business
A formal business plan allows you to compare actual operational results versus the business plan itself. In this way, it allows you to clearly see whether you have achieved your strategic, financing, and operational goals (and why you have or have not).
17. To Reposition Your Business to Deal with Changing Conditions
For example, during difficult economic conditions, if your current sales and operational models aren’t working, you can rewrite your business plan to define, try, and validate new ideas and strategies.
18. To Document Your Marketing Plan
How are you going to reach your customers? How will you retain them? What is your advertising budget? What price will you charge? A well-documented marketing plan is essential to the growth of a business. And the marketing strategies and tactics you use will evolve each year, so revisiting your marketing plan at least annually is critical.
19. To Understand and Forecast Your Company’s Staffing Needs
After completing your business plan, you will not be surprised when you are suddenly short-handed. Rather, your business plan provides a roadmap for your staffing needs, and thus helps to ensure smoother expansion. Importantly your plan can not only help you understand your staffing needs, but ensure your timing is right as it takes time to recruit and train great employees.
20. To Uncover New Opportunities
Through the process of brainstorming, white-boarding and creative interviewing, you will likely see your business in a different light. As a result, you will often come up with new ideas for marketing your product/service and running your business. It’s coming up with these ideas and executing on them which is often the difference between a business that fails or just survives and one that thrives.
Business Plan FAQs
What is a business plan.
A business plan is a document that details your business concept and strategy for growth.
A business plan helps guide your company's efforts and, if applicable, gives investors and lenders the information they need to decide whether or not to fund your company. A business plan template helps you to most easily complete your plan.
Why Do You Need a Business Plan?
A business plan provides details about your company, competition, customers and industry so that you make the best possible decisions to grow your company.
What is the Importance of a Business Plan?
The 3 most important purposes of a business plan are 1) to create an effective strategy for growth, 2) to determine your future financial needs, and 3) to attract investors (including angel investors and VC funding ) and lenders.
Why is a Business Plan Important to an Entrepreneur?
Business plans help entrepreneurs take their visions and turn them into tangible action plans for success.
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14 Reasons Why You Need a Business Plan
10 min. read
Updated October 27, 2023
There’s no question that starting and running a business is hard work. But it’s also incredibly rewarding. And, one of the most important things you can do to increase your chances of success is to have a business plan.
A business plan is a foundational document that is essential for any company, no matter the size or age. From attracting potential investors to keeping your business on track—a business plan helps you achieve important milestones and grow in the right direction.
A business plan isn’t just a document you put together once when starting your business. It’s a living, breathing guide for existing businesses – one that business owners should revisit and update regularly.
Unfortunately, writing a business plan is often a daunting task for potential entrepreneurs. So, do you really need a business plan? Is it really worth the investment of time and resources? Can’t you just wing it and skip the whole planning process?
Good questions. Here’s every reason why you need a business plan.
- 1. Business planning is proven to help you grow 30 percent faster
Writing a business plan isn’t about producing a document that accurately predicts the future of your company. The process of writing your plan is what’s important. Writing your plan and reviewing it regularly gives you a better window into what you need to do to achieve your goals and succeed.
You don’t have to just take our word for it. Studies have proven that companies that plan and review their results regularly grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to become one of those woeful failure statistics, or experience cash flow crises that threaten to close them down.
- 2. Planning is a necessary part of the fundraising process
One of the top reasons to have a business plan is to make it easier to raise money for your business. Without a business plan, it’s difficult to know how much money you need to raise, how you will spend the money once you raise it, and what your budget should be.
Investors want to know that you have a solid plan in place – that your business is headed in the right direction and that there is long-term potential in your venture.
A business plan shows that your business is serious and that there are clearly defined steps on how it aims to become successful. It also demonstrates that you have the necessary competence to make that vision a reality.
Investors, partners, and creditors will want to see detailed financial forecasts for your business that shows how you plan to grow and how you plan on spending their money.
- 3. Having a business plan minimizes your risk
When you’re just starting out, there’s so much you don’t know—about your customers, your competition, and even about operations.
What’s your biggest business challenge right now?
As a business owner, you signed up for some of that uncertainty when you started your business, but there’s a lot you can do to reduce your risk . Creating and reviewing your business plan regularly is a great way to uncover your weak spots—the flaws, gaps, and assumptions you’ve made—and develop contingency plans.
Your business plan will also help you define budgets and revenue goals. And, if you’re not meeting your goals, you can quickly adjust spending plans and create more realistic budgets to keep your business healthy.
- 4. Crafts a roadmap to achieve important milestones
A business plan is like a roadmap for your business. It helps you set, track and reach business milestones.
For your plan to function in this way, your business plan should first outline your company’s short- and long-term goals. You can then fill in the specific steps necessary to reach those goals. This ensures that you measure your progress (or lack thereof) and make necessary adjustments along the way to stay on track while avoiding costly detours.
In fact, one of the top reasons why new businesses fail is due to bad business planning. Combine this with inflexibility and you have a recipe for disaster.
And planning is not just for startups. Established businesses benefit greatly from revisiting their business plan. It keeps them on track, even when the global market rapidly shifts as we’ve seen in recent years.
- 5. A plan helps you figure out if your idea can become a business
To turn your idea into reality, you need to accurately assess the feasibility of your business idea.
You need to verify:
- If there is a market for your product or service
- Who your target audience is
- How you will gain an edge over the current competition
- If your business can run profitably
A business plan forces you to take a step back and look at your business objectively, which makes it far easier to make tough decisions down the road. Additionally, a business plan helps you to identify risks and opportunities early on, providing you with the necessary time to come up with strategies to address them properly.
Finally, a business plan helps you work through the nuts and bolts of how your business will work financially and if it can become sustainable over time.
- 6. You’ll make big spending decisions with confidence
As your business grows, you’ll have to figure out when to hire new employees, when to expand to a new location, or whether you can afford a major purchase.
These are always major spending decisions, and if you’re regularly reviewing the forecasts you mapped out in your business plan, you’re going to have better information to use to make your decisions.
- 7. You’re more likely to catch critical cash flow challenges early
The other side of those major spending decisions is understanding and monitoring your business’s cash flow. Your cash flow statement is one of the three key financial statements you’ll put together for your business plan. (The other two are your balance sheet and your income statement (P&L).
Reviewing your cash flow statement regularly as part of your regular business plan review will help you see potential cash flow challenges earlier so you can take action to avoid a cash crisis where you can’t pay your bills.
- 8. Position your brand against the competition
Competitors are one of the factors that you need to take into account when starting a business. Luckily, competitive research is an integral part of writing a business plan. It encourages you to ask questions like:
- What is your competition doing well? What are they doing poorly?
- What can you do to set yourself apart?
- What can you learn from them?
- How can you make your business stand out?
- What key business areas can you outcompete?
- How can you identify your target market?
Finding answers to these questions helps you solidify a strategic market position and identify ways to differentiate yourself. It also proves to potential investors that you’ve done your homework and understand how to compete.
- 9. Determines financial needs and revenue models
A vital part of starting a business is understanding what your expenses will be and how you will generate revenue to cover those expenses. Creating a business plan helps you do just that while also defining ongoing financial needs to keep in mind.
Without a business model, it’s difficult to know whether your business idea will generate revenue. By detailing how you plan to make money, you can effectively assess the viability and scalability of your business.
Understanding this early on can help you avoid unnecessary risks and start with the confidence that your business is set up to succeed.
- 10. Helps you think through your marketing strategy
A business plan is a great way to document your marketing plan. This will ensure that all of your marketing activities are aligned with your overall goals. After all, a business can’t grow without customers and you’ll need a strategy for acquiring those customers.
Your business plan should include information about your target market, your marketing strategy, and your marketing budget. Detail things like how you plan to attract and retain customers, acquire new leads, how the digital marketing funnel will work, etc.
Having a documented marketing plan will help you to automate business operations, stay on track and ensure that you’re making the most of your marketing dollars.
- 11. Clarifies your vision and ensures everyone is on the same page
In order to create a successful business, you need a clear vision and a plan for how you’re going to achieve it. This is all detailed with your mission statement, which defines the purpose of your business, and your personnel plan, which outlines the roles and responsibilities of current and future employees. Together, they establish the long-term vision you have in mind and who will need to be involved to get there.
Additionally, your business plan is a great tool for getting your team in sync. Through consistent plan reviews, you can easily get everyone in your company on the same page and direct your workforce toward tasks that truly move the needle.
- 12. Future-proof your business
A business plan helps you to evaluate your current situation and make realistic projections for the future.
This is an essential step in growing your business, and it’s one that’s often overlooked. When you have a business plan in place, it’s easier to identify opportunities and make informed decisions based on data.
Therefore, it requires you to outline goals, strategies, and tactics to help the organization stay focused on what’s important.
By regularly revisiting your business plan, especially when the global market changes, you’ll be better equipped to handle whatever challenges come your way, and pivot faster.
You’ll also be in a better position to seize opportunities as they arise.
- 13. Tracks your progress and measures success
An often overlooked purpose of a business plan is as a tool to define success metrics. A key part of writing your plan involves pulling together a viable financial plan. This includes financial statements such as your profit and loss, cash flow, balance sheet, and sales forecast.
By housing these financial metrics within your business plan, you suddenly have an easy way to relate your strategy to actual performance. You can track progress, measure results, and follow up on how the company is progressing. Without a plan, it’s almost impossible to gauge whether you’re on track or not.
Additionally, by evaluating your successes and failures, you learn what works and what doesn’t and you can make necessary changes to your plan. In short, having a business plan gives you a framework for measuring your success. It also helps with building up a “lessons learned” knowledge database to avoid costly mistakes in the future.
- 14. Your business plan is an asset if you ever want to sell
Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale.
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- Writing your business plan
By taking the time to create a business plan, you ensure that your business is heading in the right direction and that you have a roadmap to get there. We hope that this post has shown you just how important and valuable a business plan can be. While it may still seem daunting, the benefits far outweigh the time investment and learning curve for writing one.
Luckily, you can write a plan in as little as 30 minutes. And there are plenty of excellent planning tools out there if you’re looking for more step-by-step guidance. Whatever it takes, write your plan and you’ll quickly see how useful it can be.
See why 1.2 million entrepreneurs have written their business plans with LivePlan
Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.
Table of Contents
9 Min. Read
10 Qualities of a Good Business Plan Explained
2 Min. Read
What to Include in Your Business Plan Appendix
How to Write a Business Plan for a Service Business
6 Min. Read
How to Write a Fix-and-Flip Business Plan + Free Template PDF
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