Starting a business is not a walk in the park. You often need to put a lot of things in place before you can start your business. From registering your business to opening a business account and even choosing a business name, a lot of preparation goes into starting a business. However, an integral aspect of starting a business that most people ignore to their detriment is writing a business plan.
A business plan is a breathing document that outlines your business strategy focusing on your vision, mission, objectives and market penetration tactics.
Contrary to what many people believe, a business plan is not a document that is cast in stone- meaning that you can edit it as you learn more about the market and adjust to the market forces in your industry. It serves as a guideline of some sort that you and your team can consult from time to time to know whether you are on track to achieve your business goals or not. So, what are business plans used for?
Uses Of A Business Plan
You can not pitch to most investors if you do not have a comprehensive business plan. Most investors prefer to see your business plan to understand how you intend to compete favourably in the market and your financial projections. If you have a great plan that covers these areas professionally, chances are that investors will be quite interested in you. Of course, there are other factors that they consider when trying to make a decision, but a well-written business plan will get you in the room.
To Attract Strategic Partners
When you are starting a business, you often need strategic partners to help you deliver a full experience to your customers. For example, if you are starting a restaurant; chances are that you will need raw food suppliers, logistics companies and butchers to help you deliver your service satisfactorily-all these people are your strategic partners.
There are some cases where you do not pay your strategic partners from the get-go. You have to convince them to believe and work with you and get a percentage or payment periodically. In that case, you have to convince them that you have a strong business plan. It is when they see a good business plan that they are convinced that they are not wasting their time,
To Track, Manage & Evaluate Progress Periodically
As we mentioned earlier, a business plan is a document that helps you stay on course. With a business plan, you can track if you are sticking to the plan or not. Again, a business plan is not a document that is cast in stone; so as time goes on and you learn more about the market, you can always edit your plans and your goals.
Perhaps one of the most important uses of a business plan is that it helps you manage your business effectively.
Typically, when you set goals, you have to further break them down into milestones and tasks that you should carry out per time to reach those goals. With a business plan, you can track those tasks from time to time in order to know if you are on track or not.
To Plan Ahead
The final use of a business plan that we will discuss here is perhaps its most basic use- to plan ahead. Simply put, writing a business plan helps you plan for your business’s future. You start with a mission statement, then set goals that you will track from time to time.
Why You Need A Business Plan
It Helps Steer And Guide You
Think of your business plan as a GPS device that helps guide you from place to place. It helps move you from point A to point B as your business starts and continues to grow. You need a business plan because it helps you understand the difference between where you are as a business and where you should be. A good business plan will help thoroughly think about how your business should run, then highlight every single step that will take you there.
You Need It To Attract Funding
We earlier noted that you can’t typically attract funding if you don’t have a business plan. Most investors that are looking to invest typically read your business plan to help them know if you are worth their investment or not. Therefore, creating a fool-proof business plan is often the first step towards swaying investors to consider your business.
It Helps You Study And Understand Your Competitor
One key thing that every business contains is a section dedicated to competitive analysis. It is a section where you identify your top competitors; their strengths, weaknesses, threats they pose and opportunities they are leaving on the table. Armed with that knowledge, you can go ahead to build a business that can truly compete in the market.
It Helps You Understand Your Customer
We can’t talk about reasons for writing a business plan without talking about how important it is to understanding your customers. The “target audience” or “audience analysis” section goes into details about the customer, trying to understand their psychographic and demographic information. This information is salient because it helps you have a deeper understanding of who you are canvassing to buy from you, and how to communicate effectively with them.
It Helps You Understand And Document Your Revenue Model
Another thing that a business plan helps you do is that it helps you identify, understand and document your revenue model. True, not all businesses were started because of money, but no business can truly survive without earning revenue. Therefore, understanding your revenue model very early is a big plus.
According to data released by the Bureau of Labour Statistics (LBS), about 49.7 per cent of businesses close shop within their first five years of operation. Although there are a lot of reasons why businesses end up failing, one of the common mistakes that entrepreneurs do is that they fail to plan and as the saying goes, when you fail to plan, you plan to fail. Writing a strong business plan is one way you can reduce the risk of your business failing prematurely. Above, we have shared some of the most important reasons you need a business plan for your business. However, we recognise that not everyone understands how to write a good business plan. If you fall into that category, invest in our “Strategy in Business Environment” Course and learn the A-Z of Business Strategy