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Why You Need a Business Plan: The Top 7 Reasons
Why do you need a business plan? Communicate your goals for the business, how you will reach them and get everyone in your team on the same page.
Whether you’ve just started your business, or you are looking for potential investors, having a well-thought-out business plan is what you need to pivot your company towards success.
Besides the obvious reasons, there are many other factors why a business plan is deemed essential for any organisation trying to be more competitive in their industry.
Here are seven key reasons why you should have a business plan:
1. Know Your Company Better & Avoid Big Mistakes
Being able to sidestep potential business pitfalls is one of the key reasons you should establish a sound business model.
With a well-structured written plan (& robust financial model), you can get a comprehensive top-down view of your company as a whole.
It helps you to understand the market, your customer, and also gives you an idea of where your company is heading and determine the feasibility of your venture.
When you examine your business feasibility, your investors can then understandwhy your business idea is worth pursuing.
Finding out that your startup was doomed to fail from the very beginning after working on it for a year is the very last thing your investors want to spend money on.
Unfortunately, most entrepreneurs learn things the hard way. They fail to secure enough capital to bring their business to fruition. They also fail to come up with feasible ways to generate profit, and make bad decisions.
When you develop a business plan, you can reduce the risk of getting into the same mistakes.
2. Helps You Prioritise and Establish Goals
A complete, premeditated business plan is the most valuable tool that can help you achieve your long-term objectives.
It defines your goals, helps you achieve those targets with the right strategy, and provides direction to your startup. It also helps you in countering possible bumps along the way.
This way, you can focus your energy and resources on things that matter, rather than taking on too much.
Once you’ve set your business model, it’s always advisable to review it regularly to ensure you are on track towards your meeting your goals.
In doing so, you’ll be able to become aware of your priorities, evaluate whether the strategies are working, and implement new changes to reach your goals quicker.
A well-articulated model will also help you make the most out of any opportunity that comes along.
3. Foster Alignment
One of your primary objectives should be to have everyone in your team on the same page.
When you have a business plan, your founding team will be aware of the things that are expected of them. This in turn will ensure that they’re aligned with the present and future expectations for your business.
Especially if you’re a fledgling young startup, you need to ensure everyone in the company from the top down is heading towards the same direction.
With a clear business plan your team can stay aware of the approach you want them to follow and enable them to work together on pushing the company towards achieving significant milestones.
A business plan will, therefore, help avoid any miscommunication with your team.
4. Establish Control over Your Business
By creating a venture plan, you can take a step back and see if things are working out for the better. This will help you to devise better strategies to make further improvements.
The planning process can also serve as an excellent opportunity for your team members to share their opinion on possible improvements and ideas. In doing so, your team will value this chance to contribute to the company.
Taking the time to come up with a well-articulated venture plan will offer you a sense of control over the future prospects of your company.
You will make informed decisions and assumptions and ultimately bring your goals to fruition in the long run.
5. Aids You in Planning and Managing Your Cash Flows
A good business plan can also help you in terms of cash flows. Sometimes you can do this by just analysing your profits. However, when it comes to physical products, sales on account, repaying debts, or purchasing assets, it requires proper planning and management.
Most successful businesses suffer when too many inventory or slow-paying clients hinder cash flow. Having a well-written document will help you address the issue and adjust to it.
A venture plan is also an essential tool in terms of cash flow management. It indicates when you might require a short-term capital investment to cope with a surplus in cash flow or when your startup costs are quite high. It will also help in showing you how much capital you need for your business idea.
6. Hold Yourself Accountable
A business plan allows entrepreneurs to articulate their future ideas and vision for their company. When you’re developing a business plan, it forces you to think and come up with long term strategies and insights for your business idea.
Once you have set your venture plan, it can help you track your company’s progress. It can also serve as a blueprint for the future of your company and that your investors can hold you accountable for it.
7. Help You Secure Funding
Whether you’re a startup or an established entrepreneur looking to grow your business, you will need a business model.
Since it provides a detailed explanation of your company, it makes it easier for potential investors to decide whether or not they should finance your startup with their capital.
No investor will take a chance on your company if you fail to provide a detailed plan of your business.
Having a well-crafted business plan offers investors an insight into your financial projections, the demand for your product/service, and the exit strategy of your company. Hence, a venture plan helps investors determine if it is worth funding your company.
Similarly, banks and other financial institutions aren’t willing to provide business loans to companies that fail to provide a structured plan. In order to attract investors, you must provide a detailed document indicating all the main points and show potential returns.
All in all, a business plan is a living blueprint that maps out the attributes of your business. It covers how your business will be designed, what it will sell, and what the competition looks like.
Your business plan should also provide a broad outline in regards to your approach in selling your business’ offerings, your financial projections, and the necessary permits and other documentation.
Having a good business plan establishes legitimacy, reassuring other investors about the feasibility of your business idea.
Therefore, it is always a worthwhile endeavour to spend some time, take a step back and analyse your plan holistically and go through any aspects of your business plans that you can tweak and improve on.
With that being said, while it is essential to have a business plan, it is just as important to review your plan regularly and keep it up to date.