Why is a business plan important?
A business plan is a very important and strategic tool for entrepreneurs. A good business plan not only helps entrepreneurs focus on the specific steps necessary for them to make business ideas succeed, but it also helps them to achieve short-term and long-term objectives. Benjamin Franklin once said, "If you fail to plan, you are planning to fail." (Benjamin Franklin).While a business plan is essential whether you
start a Limited Liability Company (LLC) or a simple
sole proprietorship, not every entrepreneur sees the need for one. Many are reluctant to have their plan written down and there are numerous articles online claiming that the business plan is dead or irrelevant. Of course, not everyone agrees with that. A large number of business funding experts support the idea that having a good business plan is not enough. Even excellent business ideas can be useless if you cannot formulate, execute and implement a strategic plan to make your business idea work. If you are looking to raise funds from institutional investors and lenders, keep in mind that having a good business plan is extremely valuable. You should aim to have a well-documented plan that speaks for itself. It needs to be clear and easy to read and understand.Before
writing a business plan, it is important to consider two important factors:
- Who will the reader be?
- What do you want their response to be?
For example, if you are interested in raising capital, investors will likely be your target audience. If you are interested in partnerships or joint ventures, your potential business partners will be your audience. Whoever this audience may be, focus on the key message you want them to receive in order to get the response you want.
Four Reasons to Write a Business Plan
1. To raise money for your business
Potential investors or lenders want a written business plan before they give you money. A mere description of your business concept is not enough. Instead, ensure you have a thorough business and financial plan that demonstrates the likelihood of success and how much you will need for your business to be successful in the long term.
2. To make sound decisions
As an entrepreneur, having a business plan helps you define and focus on your business ideas and strategies. You not only concentrate on financial matters but also on management issues, human resource planning, technology, and creating value for your customer.
3. To help you identify any potential weaknesses
Having a business plan helps you identify potential pitfalls in your idea. You can also share the plan with others who can give you their opinions and advice. Identify experts and professionals who are in a position to give you invaluable advice and share your plan with them.
4. To communicate your ideas with stakeholders
A business plan is a communication tool that you can use to secure investment capital from financial institutions or lenders. You can also use it to convince people to work for your enterprise, secure credit from suppliers, and to attract potential customers.
Creating a business plan involves a lot of thought. You need to consider what you want to do and use that as a starting point. It does not need to be complicated. At its core, your plan should identify where you are now, where you want your business to go and how you will get there. Writing a good business plan does not guarantee success, but it can go a long way toward reducing the odds of failure. Besides, even if you are not looking for investment, your entrepreneurial plans will fall flat quickly without a plan to guide them.
The Duquesne University SBDC provides free business consulting for entrepreneurs in the Greater Pittsburgh area.Click hereto request free consulting, orcontact the SBDCfor additional help and information.Rich Longois a Business Consultant with the Duquesne University Small Business Development Center where he assists new and existing businesses with developing and implementing business plans. He is also certified in Technology Commercialization. Rich has extensive experience with Federally Qualified Health Centers and has been a Senior Vice President of Network Management for Devon Health Services, Inc., one of the largest regional PPOs in the northeast. He has been an adjunct faculty member at Robert Morris University and the University of Pittsburgh.
FAQs
A solid business plan can provide direction, help you attract investors and ensure you maintain momentum. No matter what industry you plan on going into, a business plan is the first step for any successful enterprise.
What happens if you don't have a business plan? ›
Without a business plan, it's impossible to know how much money it will cost to start and run a business. You don't just need money for your initial purchases; you need enough cash in the bank to maintain your cash runway and keep your business afloat while you get fully up and running.
Can I start a business without a business plan? ›
Even excellent business ideas can be useless if you cannot formulate, execute and implement a strategic plan to make your business idea work. If you are looking to raise funds from institutional investors and lenders, keep in mind that having a good business plan is extremely valuable.
Can you succeed without business plan? ›
According to a research by the University of Oregon, businesses that plan, grow 30% quicker than those that do not. This study indicated that while many firms can succeed in the short term without a plan, those with a plan grew quicker, and overall, were more successful than those without one.
At what point do I need a business plan? ›
The best time to write a business plan is any time you can benefit from more focus and direction. This might be when you're in the early stages of exploring a new idea, when you're ready to commit to your idea, when you've been running your business for years, or even a combination of all three.
What happens if a business doesn't have a plan? ›
You'll lack a roadmap: Without a plan, it's difficult to track progress, identify problems, or make strategic decisions. You'll struggle to get funding: Investors and lenders rely on business plans and financial statements to assess the potential of your venture.
What is better than a business plan? ›
The Business Model Canvas is a better and more reliable tool for startups because it's a representation of how you understand the business at a specific point in time. The Business Model Canvas is designed to be continually updated as you talk to customers, learn, and validate or invalidate your assumptions.
What to do instead of a business plan? ›
6 Innovative Alternatives To The Traditional Business Plan
- Use A PowerPoint Slide Deck For Effective Pitch Meetings.
- Create A Successful Business Model With LaunchBoard.
- Use A Lean Canvas For Concise Business Plans.
- Grow Your Busines With Strategyzer.
- Create A Visual Business Plan With Pinterest.
50% of new businesses fail in 5 years
It is often because they did not follow a set business plan. Businesses who do not have a business plan 25% of the them will die within two years of startup.
What happens if there is no business planning? ›
If there is no business planning you are setting your business up for failure. A well-defined business plan is essential for any new business - without one you are likely to make poor decisions, run into financial trouble, and miss out on opportunities.
Even if you hire someone to write a business plan, it helps if you have begun the process yourself. No one knows the details better than the small business owner. Giving the writer a starting point will help the process go faster, especially if you are an existing business.
Why do so many entrepreneurs not draw up business plans? ›
Some entrepreneurs fail to write business plans because they don't want to test their ideas too much, for fear they won't withstand the scrutiny. Taken seriously, a business plan will show that some businesses should not be started, a possibility some entrepreneurs don't want to confront.
What percentage of businesses have a business plan? ›
71% of fast-growing companies have strategic plans or business plans. In my experience working with fast-growing companies, I've found that 71% have strategic or business plans in place. These plans are crucial for their success because they help set goals, create budgets, and outline sales and marketing strategies.
Which businesses need to write business plans? ›
Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.
What are the three main purposes of a business plan? ›
The three main purposes of a business plan are: To serve as a roadmap for achieving the business's goals, To attract funding and investment from investors or financial institutions, and. To provide a framework for managing and monitoring the business's performance over time.
Is it important to have a business plan? ›
Having a business plan supports small business owners in making smarter decisions by providing a structured framework to assess all parts of their businesses. It helps you foresee potential challenges, identify opportunities, and set clear objectives.
Does a company need a business plan? ›
All businesses should have a business plan. The plan should explain your business strategy and your key goals to get from where you are now to where you want to be in the future. How will you make your business more profitable, gain more resources or increase your assets?
