By Gemima Carter
Not everyone believes in the value of a business plan. Crafting a business plan is a difficult task and it takes time. And having a stab at where your business needs to head on paper doesn’t necessarily guarantee success in the real world.
So why bother? Research suggests that individuals who write business plans are 2.5 times more likely to become entrepreneurs. Oliver Spevack, founding partner of OS Accounting, says:
“It is my firm belief, having worked with hundreds of SMEs over the years, that businesses with a business plan and a business strategy find growth challenges easier and become more profitable faster than the businesses that don’t bother with a business plan at all.”
Business plans definitely have their merits. Let’s define what a business plan is.
What Is a Business Plan?
A business plan is a written document that defines your business – what your business will do and what products and services it will offer – and outlines achievable deadlines and targets. Typically, it will include an executive summary, a marketing plan, a management team overview, and financial information such as income, cash-flow and balance sheet projections.
Ultimately, it is a guide to propel your business forward and keep it on track during growth.
10 Reasons You Need a Business Plan
Here are 10 reasons why your business should have a business plan.
1. Assess the feasibility of your business
Coming up with a good business idea is the easy bit. Getting your idea off the ground into a real business is much more difficult than you might think. Anyone who has started a business will tell you there were obstacles and hurdles they hadn’t thought to consider.
Before you launch into action with a business idea, a business plan is the perfect platform to assess the feasibility of your project.
2. Establish business milestones
Once your business is up and running it is really easy to become distracted with a particular area or problem. Without business milestones, certain goals can easily fall by the wayside and this could have serious consequences for long-term success.
3. Determine financial needs
Preparing financial projections is essential to ensure you can keep up with monthly operating costs and ensure that your business is profitable.
There are always unexpected expenditures in business, whether you are an established SME or at the start-up stage. Regularly reviewing financial projections will help you to know when you need to seek investment or take out a business loan to grow. Why do that before you need to? Well, obtaining finance in a crisis is much more difficult.
4. Understand your customers
Understanding your customers is key to delivering a good service and keeping them coming back for more. Customer analysis is a critical component of any business plan and will help you to define your target market. Gaining insight into customer behavior is paramount to the success of your business.
5. Understand your competition
Competitor research is essential for business success and hence is also an important feature of any business plan. Understanding your direct competitors will enable you to establish your unique value proposition (UVP) or unique selling point (USP). A huge part of being successful in business is in identifying and mitigating market risk. Knowing your competitors is an essential part of this process.
6. Judge success
Measuring business success is imperative. It enables you to identify areas where you are doing well and areas which aren’t going to plan. A business plan, when used as an ongoing tool, can help you to consolidate, identify weak points and measure business progress, which is vital for setting future goals and mitigating risk.
7. Attract partners
If you need support with your business, either in the form of an angel investor or working closely with another business, a business plan can act as a great hook and show potential partners where your organization is heading.
8. Raise capital
You will need a business plan if you intend to borrow money, either in the form of a business loan or if you are pitching to an investor.
9. Align goals
Strategic alignment ensures your business strategies are aligned with your company goals and objectives and helps you to gain buy-in from your employees. A business plan helps you to put all of your goals and strategic vision in one place.
10. Recognize obstacles
A business plan will help you to identify flaws in your business idea, uncover potential obstacles and give you perspective on the road ahead. A business plan can also generate new ideas.
It’s important to recognize that a business plan is a flexible document that can be changed as the business grows. It is a great tool to help you think more creatively and objectively, adjust your focus and come up with solutions to potential problems.
A business plan focuses you on all aspects of the business. Without one it is easy to get dragged into the day-to-day and develop blind spots. It’s these blind spots that can trip a business up.