Do you REALLY need a business plan?
The top three questions that I get asked most frequently as a professional business plan writer will probably not surprise you:
- What is the purpose of a business plan – why is it really required?
- How is it going to benefit my business if I write a business plan?
- Is a business plan really that important – how can I actually use it?
Keep reading to get my take on what the most essential advantages of preparing a business plan are—and why you may (not) need to prepare one.
The importance, purpose and benefit of a business plan is in that it enables you to validate a business idea, secure funding, set strategic goals – and then take organized action on those goals by making decisions, managing resources, risk and change, while effectively communicating with stakeholders.
Let’s take a closer look at how each of the important business planning benefits can catapult your business forward:
1. Validate Your Business Idea
The process of writing your business plan will force you to ask the difficult questions about the major components of your business, including:
- External: industry, target market of prospective customers, competitive landscape
- Internal: business model, unique selling proposition, operations, marketing, finance
Business planning connects the dots to draw a big picture of the entire business.
And imagine how much time and money you would save if working through a business plan revealed that your business idea is untenable. You would be surprised how often that happens – an idea that once sounded so very promising may easily fall apart after you actually write down all the facts, details and numbers.
While you may be tempted to jump directly into start-up mode, writing a business plan is an essential first step to check the feasibility of a business before investing too much time and money into it. Business plans help to confirm that the idea you are so passionate and convinced about is solid from business point of view.
Take the time to do the necessary research and work through a proper business plan. The more you know, the higher the likelihood that your business will succeed.
2. Set and Track Goals
Successful businesses are dynamic and continuously evolve. And so are good business plans that allow you to:
- Priorities: Regularly set goals, targets (e.g., sales revenues reached), milestones (e.g. number of employees hired), performance indicators and metrics for short, mid and long term
- Accountability: Track your progress toward goals and benchmarks
- Course-correction: make changes to your business as you learn more about your market and what works and what does not
- Mission: Refer to a clear set of values to help steer your business through any times of trouble
Essentially, business plan is a blueprint and an important strategic tool that keeps you focused, motivated and accountable to keep your business on track. When used properly and consulted regularly, it can help you measure and manage what you are working so hard to create – your long-term vision.
As humans, we work better when we have clear goals we can work towards. The everyday business hustle makes it challenging to keep an eye on the strategic priorities. The business planning process serves as a useful reminder.
3. Take Action
A business plan is also a plan of action . At its core, your plan identifies where you are now, where you want your business to go, and how you will get there.
Planning out exactly how you are going to turn your vision into a successful business is perhaps the most important step between an idea and reality. Success comes not only from having a vision but working towards that vision in a systematic and organized way.
A good business plan clearly outlines specific steps necessary to turn the business objectives into reality. Think of it as a roadmap to success. The strategy and tactics need to be in alignment to make sure that your day-to-day activities lead to the achievement of your business goals.
4. Manage Resources
A business plan also provides insight on how resources required for achieving your business goals will be structured and allocated according to their strategic priority. For example:
Large Spending Decisions
- Assets: When and in what amount will the business commit resources to buy/lease new assets, such as computers or vehicles.
- Human Resources: Objectives for hiring new employees, including not only their pay but how they will help the business grow and flourish.
- Business Space: Information on costs of renting/buying space for offices, retail, manufacturing or other operations, for example when expanding to a new location.
Cash Flow It is essential that a business carefully plans and manages cash flows to ensure that there are optimal levels of cash in the bank at all times and avoid situations where the business could run out of cash and could not afford to pay its bills.
Revenues v. Expenses In addition, your business plan will compare your revenue forecasts to the budgeted costs to make sure that your financials are healthy and the business is set up for success.
5. Make Decisions
Whether you are starting a small business or expanding an existing one, a business plan is an important tool to help guide your decisions:
Sound decisions Gathering information for the business plan boosts your knowledge across many important areas of the business:
- Industry, market, customers and competitors
- Financial projections (e.g., revenue, expenses, assets, cash flow)
- Operations, technology and logistics
- Human resources (management and staff)
- Creating value for your customer through products and services
Decision-making skills The business planning process involves thorough research and critical thinking about many intertwined and complex business issues. As a result, it solidifies the decision-making skills of the business owner and builds a solid foundation for strategic planning , prioritization and sound decision making in your business. The more you understand, the better your decisions will be.
Planning Thorough planning allows you to determine the answer to some of the most critical business decisions ahead of time , prepare for anticipate problems before they arise, and ensure that any tactical solutions are in line with the overall strategy and goals.
If you do not take time to plan, you risk becoming overwhelmed by countless options and conflicting directions because you are not unclear about the mission , vision and strategy for your business.
6. Manage Risk
Some level of uncertainty is inherent in every business, but there is a lot you can do to reduce and manage the risk, starting with a business plan to uncover your weak spots.
You will need to take a realistic and pragmatic look at the hard facts and identify:
- Major risks , challenges and obstacles that you can expect on the way – so you can prepare to deal with them.
- Weaknesses in your business idea, business model and strategy – so you can fix them.
- Critical mistakes before they arise – so you can avoid them.
Essentially, the business plan is your safety net . Naturally, business plan cannot entirely eliminate risk, but it can significantly reduce it and prepare you for any challenges you may encounter.
7. Communicate Internally
Attract talent For a business to succeed, attracting talented workers and partners is of vital importance.
A business plan can be used as a communication tool to attract the right talent at all levels, from skilled staff to executive management, to work for your business by explaining the direction and growth potential of the business in a presentable format.
Align performance Sharing your business plan with all team members helps to ensure that everyone is on the same page when it comes to the long-term vision and strategy.
You need their buy-in from the beginning, because aligning your team with your priorities will increase the efficiency of your business as everyone is working towards a common goal .
If everyone on your team understands that their piece of work matters and how it fits into the big picture, they are more invested in achieving the objectives of the business.
It also makes it easier to track and communicate on your progress.
Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.
8. Communicate Externally
Alliances If you are interested in partnerships or joint ventures, you may share selected sections of your plan with the potential business partners in order to develop new alliances.
Suppliers A business plan can play a part in attracting reliable suppliers and getting approved for business credit from suppliers. Suppliers who feel confident that your business will succeed (e.g., sales projections) will be much more likely to extend credit.
In addition, suppliers may want to ensure their products are being represented in the right way .
Professional Services Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, including attorneys, accountants, and other professional consultants as needed, to make sure that everyone is on the same page.
Advisors Share the plan with experts and professionals who are in a position to give you valuable advice.
Landlord Some landlords and property managers require businesses to submit a business plan to be considered for a lease to prove that your business will have sufficient cash flows to pay the rent.
Customers The business plan may also function as a prospectus for potential customers, especially when it comes to large corporate accounts and exclusive customer relationships.
9. Secure Funding
If you intend to seek outside financing for your business, you are likely going to need a business plan.
Whether you are seeking debt financing (e.g. loan or credit line) from a lender (e.g., bank or financial institution) or equity capital financing from investors (e.g., venture or angel capital), a business plan can make the difference between whether or not – and how much – someone decides to invest.
Investors and financiers are always looking at the risk of default and the earning potential based on facts and figures. Understandably, anyone who is interested in supporting your business will want to check that you know what you are doing, that their money is in good hands, and that the venture is viable in the long run.
Business plans tend to be the most effective ways of proving that. A presentation may pique their interest , but they will most probably request a well-written document they can study in detail before they will be prepared to make any financial commitment.
That is why a business plan can often be the single most important document you can present to potential investors/financiers that will provide the structure and confidence that they need to make decisions about funding and supporting your company.
Be prepared to have your business plan scrutinized . Investors and financiers will conduct extensive checks and analyses to be certain that what is written in your business plan faithful representation of the truth.
10. Grow and Change
It is a very common misconception that a business plan is a static document that a new business prepares once in the start-up phase and then happily forgets about.
But businesses are not static. And neither are business plans. The business plan for any business will change over time as the company evolves and expands .
In the growth phase, an updated business plan is particularly useful for:
Raising additional capital for expansion
- Seeking financing for new assets , such as equipment or property
- Securing financing to support steady cash flows (e.g., seasonality, market downturns, timing of sale/purchase invoices)
- Forecasting to allocate resources according to strategic priority and operational needs
- Valuation (e.g., mergers & acquisitions, tax issues, transactions related to divorce, inheritance, estate planning)
Keeping the business plan updated gives established businesses better chance of getting the money they need to grow or even keep operating.
Business plan is also an excellent tool for planning an exit as it would include the strategy and timelines for a transfer to new ownership or dissolution of the company.
Also, if you ever make the decision to sell your business or position yourself for a merger or an acquisition , a strong business plan in hand is going to help you to maximize the business valuation.
Valuation is the process of establishing the worth of a business by a valuation expert who will draw on professional experience as well as a business plan that will outline what you have, what it’s worth now and how much will it likely produce in the future.
Your business is likely to be worth more to a buyer if they clearly understand your business model, your market, your assets and your overall potential to grow and scale .
Related Questions
Business plan purpose: what is the purpose of a business plan.
The purpose of a business plan is to articulate a strategy for starting a new business or growing an existing one by identifying where the business is going and how it will get there to test the viability of a business idea and maximize the chances of securing funding and achieving business goals and success.
Business Plan Benefits: What are the benefits of a business plan?
A business plan benefits businesses by serving as a strategic tool outlining the steps and resources required to achieve goals and make business ideas succeed, as well as a communication tool allowing businesses to articulate their strategy to stakeholders that support the business.
Business Plan Importance: Why is business plan important?
The importance of a business plan lies in it being a roadmap that guides the decisions of a business on the road to success, providing clarity on all aspects of its operations. This blueprint outlines the goals of the business and what exactly is needed to achieve them through effective management.
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