Startups are born from ideas, but it is the business plan that provides form and structure to them. While a fledgling venture can have a one page executive summary, mature companies can have plans that run into a dozen pages.
Every business needs a plan, whether or not they seek funding. Writing a plan not only helps you determine whether your business idea is feasible, it also establishes a map for your company’s future. Without it, your business is likely to drift along without direction or parameters for measuring progress.
Here are five good reasons why you should write a business plan:
1. Will your business idea actually work?
Instead of starting a business just to find out after a while that your business idea is untenable, just write a business plan initially. Writing a plan is the only way to test, without spending money or time, whether your business idea will actually work in the real world.
The industry analysis will reveal how trends in the industry, the market analysis will reveal the need for your product/service, the competitors profile and the financial section of the business plan will reveal the financial viability of your idea. At this stage you will be in a position to decide whether to go ahead with the idea or to waste no further time on it.
2. A roadmap to success
Although ‘sixth sense’ is the driving force behind entrepreneurship, ‘failing to plan is planning to fail‘. Without an indepth research, sound analysis, clear projections, and well-thought out contingencies, businesses tend to become hostages to fortune.
Proactive management is replaced by reactive coping, and instead of following a well-thought-out plan, owners and managers are reduced to responding to unforeseen events, or trying to catch up on missed opportunities.
A business plan gives direction to the business and helps you manage roadbumps. The planning process helps you learn about the different forces and factors that may affect your success. It helps you to learn about your industry, your market and competitors and any challenges you may come across.
3. Blueprint for your business
The plan is the blueprint for your business and it’s going to change a million times as you progress, because that’s what building a business is really all about – it’s about evolving and advancing a central idea through continually changing circumstances. The company’s original business plan needs to be revised as new goals are set. Reviewing the business plan will help you see what goals have been accomplished, what changes need to be made, or what new directions your company’s growth should take.
4. Show me the money!
Your business plan is very often the first impression potential investors get about your venture. But even if you have a great product, team, and customers, it could also be the last impression the investor gets if you make mistakes. You need more than a great idea to get funding.
Banks have a lot of knowledge about the success rate of small businesses won’t even talk to you without a business plan. They look for a viable financial plan and owner’s background in the industry in case of start-ups and cash flow projections in case of growing companies. Investors want to see a return on their investment. Financials projection is THE most important part of the business plan since investors will not invest if the business is not financially viable.
Established businesses often need money, too, to expand their business or because of market downturns. Having a business plan gives you a much better chance of getting the money you need to keep operating or to expand.
Too many businesses run into serious problems because they waste time trying to make their circumstances fit their plan rather than changing their plan to fit their circumstances.
A model or plan doesn’t necessarily get you to the truth. Eventually the “math” stalls out and something more human and personal takes over. Great entrepreneurs are pioneers. They embrace change so quickly that their decisions will never be totally justifiable by the numbers.