The purpose of a business plan is to better define a strategy for starting a new business. A business plan is important because it provides details about your company, competition, and customers. It allows you to share your vision with others and take the steps needed to plan for a successful future business.
You need a business plan to think ahead and share your vision with your supporters and with potential investors and loan officers. Writing a business plan does not have to be challenging. You can use a free business plan template or use a step-by-step builder to create a legal business plan pertaining to your situation and location.
This article will outline seven reasons that strive to answer the question: “Why is a business plan important?” It will cover how an effective business plan can guide critical decisions, help secure investments or loans, seek ways to minimize financial risk, and vastly improve a new business owner’s chances for success.
1. Help with critical business decisions
A business plan can help you think objectively about your business’s key elements and can inform your decision-making as you move forward.
By creating a detailed plan, you can provide a semblance of control over a potentially unwieldy process. If you take the time to formulate a plan, it can improve your ability to make choices and decisions for yourself and for the business. This approach is much better than suddenly having to make a critical decision with no time to evaluate, or haphazardly letting others make decisions for you.
In terms of critical decision-making, a business plan is an indispensable tool. A sound business plan works to present the precise steps and actions needed to move forward. Because the plan expresses the aspirations you have for your business, it serves as a constant reminder. You can ask yourself if your decision, in a particular instance, is in line with your original plans and ultimate goals.
2. Secure an investment or a loan
An accurate business plan is essential whether or not you need to secure a business loan.
Your business plan must grab the attention of potential investors and provide them with enough structure and confidence that they will move forward and grant funding and support to your business. Investors want a return on their investment, and your plan must signal future success.
A comprehensive business plan can be the most significant factor in obtaining funding. Your business plan must persuade others that investing and working with you is an intelligent choice. With that in mind, your presentation must be bold, eye-catching, and extensive. Within the document itself, you can:
- Provide pictorial demonstrations for your product or service
- Use arresting images to grab the attention of readers
- Describe projected marketing and sales for your business.
- Reinforce your visual marketing materials with presentations
- Showcase customer testimonials or anticipation for your business
3. Create milestones
In terms of creating milestones, a business plan can help you think objectively about your business’s key components and can help mark achievements or milestones.
Milestones help new business owners manage and keep track of the progress they have made. By achieving successive milestones, a business owner can develop a more accurate understanding of how the business is moving forward.
Being well-organized and developing effective plans allows you to reach your most important goals and objectives, whether business-related or personal. For example, a milestone can be a start date, a financial marker, the number of investors, hiring certain personnel, completing a remodeling, a visit from your relatives, or selling a certain amount of goods.
By laying out milestones, you suddenly have a clear and attainable plan of action with the ability to see and monitor your progress. You also have the ability to aim for short-, mid-, and long-term goals and can adjust accordingly to meet your objectives.
4. Minimize risk
By striving to understand both your competitors and your customers, you can minimize the risk to your business. A business plan is essential in allocating resources and in demonstrating monthly whether your business will be making a profit that month or losing money,
In order to minimize risk, a business plan typically includes detailed information that can improve the chances of success for any new business. Some specific items in a business plan that will serve to minimize risk include:
- Market analysis of the industry and your expected contribution
- Competitive analysis of what is working in the industry
- Customer loyalty toward your potential business
- Logistics in terms of physical location and efficiency
- Marketing of your products or services with cost projections
- Plan for immediate business operations
- Projection of cash flow for the foreseeable future
- Plans for long-term growth spanning 3 to 5 years
5. Understand your competitors and your customers
By striving to understand both your competitors and your customers, you can create a business plan that takes into account many variables. By learning about your competition, you can help make your goods or services stand out.
First, determine how you are different from the competitors in your industry and consider how you can attract customers for your products and services.
Next, evaluate pricing to find the point where customers will buy your services instead of a competitor‘s and you can still make a profit.
How do competitors advertise? What do customers seem to appreciate the most? How can you perfectly position yourself to increase your customer base? A well-written business plan will help answer these questions.
6. Identify weaknesses and realize potential opportunities
Recognizing potential opportunities is just as important as identifying problems and challenges.
The importance of writing a business plan for any entrepreneur begins by encouraging them to be more realistic about their financial health. Hard facts revealed in a business plan will help business owners understand their real challenges and obstacles. These perceived weaknesses can be approached directly once they are out in the open.
Your business plan may change as you discover unexpected weaknesses and the unpredictable variables that come with starting your own business. In order to be proactive, your business strategy should include a plan that accounts in advance for the 3 to 5 years after establishing your business.
7. Help attract staff and service providers
Presenting a business plan to potential staff in which you outline the exact duties, salaries, and expectations you have for your employees can help attract a higher caliber of employees.
A plan for hiring new staff may not necessarily make its way into your business plan, but it does serve as a potential milestone and also helps determine projected operational costs. Staff and service providers are crucial components in the cost of your new business.
A business plan allows you to demonstrate and communicate your business concept to others and persuade them to help you meet your goals and objectives. A well-designed business plan can help you focus on the steps necessary to make your business a success and minimize risk as you make critical business decisions.
Evaluating your strengths and weaknesses can also assist you in your efforts to seek loans or investment funding. A detailed and strategic business plan may take time, but anticipating potential problems and striving to understand your industry’s competitors and customers will be well worth the effort.
Use our free business plan template to start building your very own business plan today, or use our document builder to help guide you through the process. Our guide to how to write a business plan can also help you get started.