Why You Need a Business Plan
One major mistake people make when starting a business is not drawing up a business plan, or rushing through the process and ending up with a plan that’s light on details and not very useful.
There’s a misconception out there that you only need a business plan if you’re going to look for financing through angel investors, venture capital firms or business loans. This couldn’t be further from the truth. While a business plan is necessary to obtain financing, this is far from the only purpose it serves. There are several important reasons why you should have a business plan.
Find Potential Issues
When you create a business plan, it gives you the opportunity to review everything in a way that you can’t if you keep it all in your head. Having everything written down is a great way to see any problems that are easy to miss when you’re caught up in the excitement of launching a business.
Maybe you’ll notice that the product or service you plan to offer isn’t much different than what several other companies are offering, and you’ll need to adjust it so your business can stand out. Or perhaps you’ll find that you’re projecting far larger customer numbers than your business could handle with the amount of staff you plan to hire.
There are all kinds of problems that you may miss without a business plan. It’s much better to spot problems before you commit any money to your business than when you’re already a year in.
Set Goals and Deadlines
Your business will need goals and deadlines to stay on track. Without deadlines, it’s far more difficult to complete tasks in a reasonable time frame. In your business plan, you can set long-term and short-term goals for your business, along with when you want them completed. For example, you could set a goal of one month to complete a product prototype, three months to launch your business’s site and six months to reach a certain sales milestone.
When you set deadlines, they keep you motivated to work towards your goals and avoid slacking off. You can also compare your deadlines with when you actually reached those goals to see if you gave yourself enough time or too much time. Whether it takes more or less time to reach a goal, consider why that is the case. If it took more time, was there an unforeseen issue that slowed you down, or was it just a matter of an inaccurate projection?
Getting Other People to Believe in Your Business
Of course, a business plan is crucial if you want to secure financing for your business. You can have a great credit score, but without a solid business plan, it’s unlikely that a bank or credit union will issue you a business loan. Financial institutions know that if your business isn’t successful, you could default on your business loan. They’ll thoroughly evaluate your business plan and use that as a tool to evaluate the likelihood your business makes a profit.
A business plan will be even more important if you plan to seek funding through angel investors or venture capital firms. Since each of these will be investing in your business for equity in it, they’ll only make money if your business does well. Without a business plan, they won’t be able to assess if your business idea is feasible. They’ll also question how serious you are about your business if you won’t even take the time to create a plan for it.
What if you plan to bootstrap your business? You’ll still need a business plan to convince people of the viability of your business. You’ll probably need to hire people at some point, and your business plan will play a key role in attracting talent. Any jobseeker will be taking a big risk committing to a new business. Showing potential job candidates your business plan may make them more likely to work with you, and they can make sure that their abilities fit with what you need.
To Improve Efficiency
You may have other people involved in your business, and if so, everyone needs to be on the same page. Even with everyone working on different tasks, they still need to know how it all fits together and what they’re working towards. You don’t want a situation where one partner doesn’t know what another partner is doing.
Regardless of how many people are on board with your business, a business plan keeps things moving forward. Launching a business brings with it a range of emotions that can slow you down if you don’t stay focused. You could be so excited about the business in the early stages that you don’t know what to do first. If you’re not getting the results you wanted, it could leave you feeling discouraged and sap your motivation. In either situation, you can check your business plan to determine what you should do at this stage to progress.
In the modern world, starting a business is easier than ever. You can build a site and start selling products online in an afternoon. But even though it’s easy to start a business, it’s still difficult to start a successful business.
Your business plan is a valuable tool that can benefit your business in several ways. It helps you obtain financing and recruit new talent. It keeps you moving towards your goals, and it helps you spot issues that you might otherwise miss.
Sitting down to create your business plan probably won’t be the most exciting part of launching your business. Take the time to do it, though, to give your business a much better chance of success. Spend a few days creating your business plan, going over it and making adjustments when necessary. You’ll be glad you did.