If you are a budding entrepreneur thinking about starting your own business, you have probably heard of business plans.
A business plan is a highly important document which describes in detail your future business – your target market, what your business aims to do, your marketing and financial strategies, growth milestones and forecasts etc.
It should outline your short-term and long-term goals against which you measure your own performance. Even though there are no rules about the style, content or length of a business plan, the aim is to cover all practical aspects. It is not just start-up companies that need business plans. If you are planning to expand your business or branch out into a new area, it is a good idea to revisit your business plan. This allows you to explore the feasibility of your plan and ensure that you keep on track for success.
Some experts disagree about the need for a business plan, arguing that companies which start out without a formal plan are often as successful as those which have detailed plans. But even the dissenters agree that a business plan is essential if you need outside funding. In my opinion, those entrepreneurs who start out with a formal business plan prove to be more proactive about doing market research and projections, which in turn increase their chances for long run success.
Let us look at some of the reasons why people need a business plan:
1. Understanding the market and the competition
It is when you sit down to write a business plan that you actually understand the customer – what they buy and why they choose those products or services. You also become aware of your competitors and how they have succeeded in the market. This analysis will help you develop your own strategies to survive and succeed.
2. Assessing the feasibility
Most of us dream of starting a business at some point of our lives. It is only when you get to the business plan stage, that you fully realise the realities of your decision. A formal business plan helps you explore the financial feasibility and business risks and help to decide whether this business opportunity is the right one for you.
3. Determining financial requirements
A good business plan also helps you to list out all potential expenses and help you assess your financial needs. How much capital will you need initially? What will you be using it for? Will you need to rent office space? What equipment will you need? These are some of the questions you will find yourself answering when preparing a business plan.
4. Attracting investors
A sound business plan is essential in order to attract investors. Whether you are approaching commercial banks, governmental lenders or venture capitalists, one thing is certain – they will all ask for a business plan. A detailed, well-written business plan goes a long way towards getting good financial backing. Investors are more likely to approve your financing if they feel that you are serious about your business and have put in a lot of effort for its success.
5. Attracting partners and employees
If you are looking to establish a partnership with a reputable company, a business plan becomes crucial. The plan also helps to attract top quality talent as employees and helps to retain them.
6. Setting growth milestones and long-term goals
In order to succeed as a small business, you should have specific milestones and goals to work towards. A business plan is the ideal place to give words to your ideas. Having it in writing makes it much easier to plan for and achieve. These milestones become your quarterly, monthly and even weekly targets and are a great tracking mechanism.
7. Growing your business, branching out or selling
Whether you are looking to grow your business or branch out to new products or markets, a business plan helps you to keep on track and avoid potential pitfalls. If you are looking to sell your business, your plan will help buyers understand your business and how much it is worth.
A living document
It is important to remember that your business plan is not something which you prepare at the beginning of your venture, and then keep aside. It is an evolvable document which you can use to do live planning by setting growth milestones and success strategies through Key Performance Indicators (KPI), quarterly goals and targets. Business owners, managers and staff members can all benefit from this constant performance monitoring. For example, if the actual results after a quarter vary considerably from the sales estimates, the plan helps you to understand the reasons for the variance. You can then revise your plan accordingly and make suitable changes in your business strategy to accommodate the change. Thus the business plan is not a short-term investment. It is something which will grow and develop along with your business and the investment of either your time or your money into the plan, will bring you a higher level of success. “