The business plan is considered to be the foundational plan for your business. Starting a business without a business plan is like building a house without a design. However, unlike a house, a business is not static. We often make the mistake of thinking of the business plan as a single document that you prepare once when starting the business and never touch again. But as the business evolves, the business plan should evolve as well. In fact, a particular business may have multiple business plans depending on its changing goals.
To test the feasibility of your business idea
Writing a business plan is the best way – aside from actually doing it – to test whether the idea of starting a business is viable. In this regard, the business plan acts as your safety net. If the process of writing the business plan reveals that your business idea is not viable, it will save you a lot of time and money.
Often, the idea of starting a business is discarded at the stage of market analysis or competition analysis, allowing you to move on to a new (and better) idea.
Unfortunately, many potential business owners are convinced that their product or service idea is a foolproof one, so they do not take the necessary time to do the required research and develop an appropriate business plan. The more you know about your industry, prospective customers, and competition, the greater the likelihood of your business’s success.
To give your new business the best chance of success
Writing a business plan will ensure that you pay attention to the broad operational and financial goals of your new business as well as the finer details like financial planning and market planning. This process will make the startup phase smoother and reduce unexpected problems when your business starts operating.
The financial planning and market planning process helps you identify your target market, a unique competitive advantage for your business, optimal pricing strategies, and outlines how you intend to sell and deliver your products to customers. Additionally, budgeting for execution helps to determine your capital requirements for starting and operating.
Note: According to the Small Business Administration, one of the most frequently cited reasons for business failures is a lack of planning. By starting without sufficient planning, your business sets itself up for failure.
To secure funding
Most new businesses need the necessary capital to start and operate. Without a well-developed business plan, there is no chance of obtaining debt financing from reputable financial institutions like banks or equity funding from angel investors.
Even established companies often need money, whether to purchase new equipment or real estate, or due to a market downturn. With an updated business plan, you have a better chance of securing the money you need to maintain operations or expand.
Note: Even an angel investor would like to ensure that their money goes to a business that knows what it is doing. The easiest way to prove this is through a well-developed business plan.
Investors and funders are always looking at the risks of assumptions, and a spoken word is not a substitute for the written facts in a well-prepared business plan.
To make planning practical and efficient
The business plan is essential if you are thinking of starting a business, but it is also an important tool for established companies. Successful businesses are dynamic; they change and grow. The original business plan should be refined as soon as new goals are established.
Reviewing the business plan can also help you see the goals that have been achieved, what needs to be changed, or what new directions your company should take for growth.
To attract investors
Whether you want to pitch your business for venture capital or attract angel investors, you need a strong business plan. The pitch may pique their interest, but they will need a well-written document that they can study before being ready to make any investment commitment.
Be
Prepared to carefully review your business plan. Both venture capitalists and angel investors would like to conduct background checks and comprehensive competitive analyses to ensure that what is written in your business plan is the reality.
Frequently Asked Questions (FAQs)
What are the sections of a business plan?
A comprehensive business plan should include the following sections: executive summary, company description, competitive analysis, industry analysis, product and service description, company management, and financial statements.
What is the purpose of a business plan?
A business plan has four main purposes: to test the feasibility and model of your business idea, to attract investors, to lay out a growth plan, and to identify capital needs.
Source: https://www.thebalancemoney.com/why-write-a-business-plan-2948013
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