While many startup business owners and entrepreneurs will generally agree that it sounds like a good idea to have a business plan, often they don’t completely understand the reasons why it’s actually an absolute must for success. So, here are five of the most important reasons for creating a solid business plan:
Helps You Establish Your Finances
A business plan is only a concept until you start filling in your finances. Including things like sales forecast, expenses budget, and cash flow statement will help you understand the scope of your finances and helps you answer a few questions about how you plan to run your business in the first few months and even the first few years.
For instance, do you plan on hiring staff? If so, do you need highly-skilled specialists or can you hire untrained employees? Do you need to rent commercial space? Will your growth forecasts be enough to cover new assets? These are just a few questions to ask yourself, but you can see how complicated things can get without a plan.
Helps You Get Capital
In order to get your business started, you’re going to need capital. It is extremely rare for lenders or investors to seriously consider your business proposal without getting a look at a business plan. Before making a commitment to you they want to see that you have thought through the critical issues facing you as new business.
Generally, new businesses with sound business plans raise as much as twice the capital in the first 12 months than do new businesses that start without a plan. A well-thought and developed plan will communicate your vision and needs in a clear and compelling way, as well as show that your business has a good chance of succeeding.
Helps You Decide to Stop or Keep Going
This may come as a surprise, but you – the business owner or entrepreneur – are the most important person you must convince of the soundness of your proposal. Creating a business plan serves a dual purpose: 1) it is designed to provide answers to all the questions that prospective investors and lenders will ask and; 2) it will also teach how money flows through your business, what your business model’s strengths and weaknesses, and what your realistic chances of success are.
If your analysis demonstrates your idea might not work, you will be able to avoid starting your business. This point cannot be expressed enough. Many business people owe their success to an earlier decision to not start a business with too many built-in problems or hurdles that revealed the business model was far from ready.
Lets You Improve Your Business Model
Developing a plan lets you fine tune your business model so you can increase your chances of success. When you are able to tinker with moving parts before getting your business off the ground, you give yourself the opportunity to find ways to maximize profit and accomplish other goals.
For example, let’s say that market research reveals that the cost of goods and services your business will rely on are likely to rise in the next years. Identifying this early on will let you adjust your business model so that you aren’t entirely dependent on those goods or services, or you develop a plan to offset rising prices with higher profits. Whatever the case may be, having the chance to improve your business methods is a luxury you can’t afford to squander.
Helps You Stay on Track
Many new business owners spend hours, if not days, handling unexpected emergencies simply because they never planned ahead or had contingency plans in place. Developing a business plan will help you anticipate problems and have ways to resolve them before they become disasters.
A written business plan gives you a clear course toward the future and makes your decision making a lot easier when you run into the unexpected. Some problems or opportunities you encounter may represent a change of direction worth following, while others may be detrimental to your business. Referring to your business plan will enable you to avoid the negative stuff and put keep on track to succeed.