According to the Bureau of Labor Statistics’ Business Employment Dynamics, only 50% of businesses with employees survive their 5th year of operations while the other half fail [1]. Some fail due to insufficient capital, cash flow or costing issues while others fail due to their product being unable to compete or lack of proper marketing. Whatever the reason, the failure of a business can almost always be tracked down to poor or inadequate business planning. Therefore, a concrete business plan is a must if you are planning to start your own business.
You might question the need to formally write down your business plan. Is it worth the investment of time? A lots of businessmen choose to wing it and skip the planning process. Sometimes this can work out, more often than not it leads to failure. In this article we have highlighted 8 reasons why it’s important to create a business plan. We’ve also created a free template to help you get started. If you are already sold on the idea of having a business plan, simply scroll to the end of the article, download the template and get cracking.
1. A business plan is important if you are seeking funding
When starting a business, entrepreneurs either use their savings as business capital or take a loan and seek funding to start a business. If you are planning to go with the latter route, angel investors, banks or venture capitalists would want to be 100% sure that you’ve got a business strategy planned. They’d like to know that you’ve got sufficient control on your business’s growth trajectory and how do you plan to use the capital provided by them.
A business plan consists of your financial statements and market forecasts that help investors understand your business’s financial position. It also includes competitor research and analysis that helps investors understand the scope of business and growth opportunities in the market.
2. To help your business grow 30% faster
Business planning is not about writing a lengthy document with complicated and unnecessary details that can predict the future of your business 100% accurately. What’s important to understand is that your business plan, once created, isn’t the holy grail. In fact, a study has proven that organizations that plan and keep reviewing their business plan regularly actually grow at a 30% faster rate than businesses that don’t [2]. It is considered wise to keep reviewing and updating your plan on the go as per the market situation and other internal and external factors. When the planning is efficient and done considering all market conditions, businesses are less likely to become a part of the statistics of failed businesses.
3. You’ll gain an extensive market understanding
Getting a deep and clear understanding of the kind of marketing you are entering, what the customers are looking for and what the competitor is already offering is imperative before actually jumping in the battle ground. Writing a business plan helps you highlight your Unique Selling Point (USP), how your product or service is better than what exists in the market and the loopholes in the existing systems.
A well researched business plan will clearly mention you direct, indirect, online and offline competitors. It will help you analyze what can be learnt from your rival’s strengths and how their weaknesses can be used as an opportunity for the growth of your business.
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4. A business plan will help you set SMART goals & milestones
SMART goals and milestones are – (S)pecific, (M)easureable, (A)chievable, (R)elevant and (T)ime-bound.
A business outline with clear SMART milestones and goals is helpful for employees and teams to better understand the purpose of your business. It will lay out long-term milestones that are crucial for business growth and success. It will help team members align with the business’s goals, priorities and standards.
Let us break down what SMART goals really mean:
Specific
The goal you are aiming for should be mentioned clearly. Try answering the five ‘W’ questions – What, Why, Who, Where and Which.
Measurable
By setting measurable goals, tracking your progression becomes easier and keeps you and the team motivated. Clearly mention your indicators of progression by addressing questions like “how much”, “how many” and “by when”.
Achievable
The goals you set should be attainable. The achievable goal you set should be challenging enough to push you out of your comfort zone, but keep in mind that path to achieving this goal should be well-defined.
Relevant
It is important to choose goals that are relevant to your business and industry. The goals you choose should directly or indirectly contribute to scaling up your business.
Time-bound
Adding a timeframe or a deadline to your goal makes you work more efficiently towards them. It is advised to categorize your goals into short-term goals and long-term goals. It is also important to mention tasks that need to be performed on a day-to-day basis.
5. Helps you recognize cash flow challenges early on
Apart from your balance sheet and income statement, your cash flow statement is another key financial statement that needs to be included in your business plan. Having the cash flow statement in place and reviewing it regularly helps you in seeing potential cash flow hurdles and challenges early on so that you can come up with an actionable plan to handle them or avoid them altogether.
6. It helps you make big decisions with confidence
Having a vision in mind and a plan on paper increases your confidence to take action. The forecasts and analysis you perform while writing your business plan will equip you with valuable insights and intel. Knowing your financial position (good or bad), will empower you to make smart spending decisions.
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7. Keeps every team member on the same page
Business plans make it easier to keep all team members on the same page. It will help you explain to team members how you plan to get from Point A to B. It also helps everyone see the bigger picture and understand the organization’s goals, mission and vision. Your team will work with a better clarity of mind if they understand the impact of their work. The will be more invested in their work, discussions and brainstorming sessions if they know how the daily tasks they perform contribute to the growth of your organization.
8. It is an asset if you ever plan to sell
After a couple of years, if you decide to sell your business or want to position your business for a potential merger or acquisition, having a robust business plan will help you make a powerful case for a better valuation. A business is likely to be worth a higher valuation if it’s easy for potential buyers to understand about its business model, target audience, market conditions and the overall growth potential.
How to get started – Free business plan template
Creating a business plan might feel like a big task, but the key is just to get started with it. It isn’t as complicated as it might seem, it does not take months to make one and it does not have to be 200-pages thick. In fact, there are tons of resources available online that help you in business planning. We have put together a business plan template for you to use.
Business Plan Template
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Sources
[1] U.S. Bureau of Labor Statistics “Survival of private sector establishments by opening year” [Online] Available from: https://www.bls.gov/bdm/us_age_naics_00_table7.txt [Accessed October 2020]
[2] Cite SeerX (2008) “Journal of Business Venturing” [Online] Available from: citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.473.3746&rep=rep1&type=pdf [Accessed October 2020]
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