‘Is it really important to have a business plan?’’
‘’I have seen many people start off their businesses without a business plan and they are doing just fine’’. These are a few statements made by some entrepreneurs.
If you are looking to have investors fund your projects or business, keep in mind that having a business plan is very essential.
Benjamin Franklin once said, ‘’If you fail to plan, you are planning to fail’’. According to Harvard Business Review, entrepreneurs who write business plans are more likely to succeed than those without business plans.
In this article, we will look at what a business plan is and the importance of having one.
What is a Business Plan?
According to Investopedia, a business plan is a document that defines in detail a company’s objectives and how it plans to achieve its goals. Note that no two businesses can have the same business plan even if they operate within the same industry. A business plan includes information about your product, marketing strategies, and finances. Before you start writing a business plan , it is essential to consider two important factors; who the reader will be and what you want their response to be.
For example, if you are interested in raising capital , investors will likely be your target audience. Whoever your target audience is ,make sure to focus on the key message in order to get the response you want.
Always note that you should create a business plan when you are starting a new business and keep updating it as your business grows.
Why is a Business Plan Important?
There are many important reasons for entrepreneurs to have a business plan. A few of these reasons include:
To secure funding
New businesses often require funds and a business plan can help you present your ideas to potential investors. Investors or lenders want a written business plan before investing in businesses. Ensure you have a thorough business and financial plan that demonstrates the likelihood of success. A business plan can help you decide how much money you will need to start, and operate your business.
Help you make sound decisions
The primary importance of having a business plan is that it helps you make sound decisions. As an entrepreneur, you always have to make critical decisions concerning your business and having a business plan makes it easier to make these decisions and help you define and focus on your business ideas and strategies.
It helps you identify any potential weaknesses and avoid big mistakes
According to data from CB insights some of the most common reasons businesses fail include; No market need, Pricing, Lack of capital, Inadequate team and Stiff competition. The exercise of creating a business plan can help you identify any potential pitfalls or loopholes in your idea and avoid these major mistakes listed. In addition, identify experts who are in the position to give you advice and share your plan with them.
To communicate objectives and benchmarks to stakeholders and teams
A business plan is a communication tool that you can use to secure investment capital from financial institutions and investors and acts as a guide for service providers. It also acts as a substitute teacher to your team members in your absence. Always let your staff know that when in doubt, they can consult the business plan to understand the next steps. 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.
To evaluate competitors and find your audience
Another important reason for having a business plan is that it helps you evaluate your competitors which includes their strengths and weaknesses. Also where they are not currently reaching customers. This can help you choose your target audience and add value to what your competitors are currently doing.
It helps you understand when and how you will make profits
A business plan helps you to provide investors an estimate of when they can expect a return on profit and how long until you will make profit as a business. A business plan lists the expected cost of a business as well as the revenue.
In a nutshell, it pays to plan. Having a business plan will help you avoid making big mistakes in the future, help you know your target audience and competitors, help you understand your business very well, form partnerships and most importantly, help you secure funding for your business.
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