Reason #1: To Prove the Viability of the Business
While passion can be a great motivator and provide the “spark” needed to get the business off the ground, it is definitely not a substitute for proof of concept. A solid business plan will lay out all the groundwork for what the business is, and how it’s going to work. Not only is this a valuable tool to have for potential funding or investors, but it is an invaluable road map for the business owner to be able to stay on point and adhere to the original vision.
Reason #2: To Reduce Risk
Owning a business comes with a lot of responsibilities and quite a lot of risk. By laying out how the business is going to work, along with well-constructed financial projections, this hefty risk can be mitigated.
Reason #3: To Make the Right Decisions
In the everyday life of an entrepreneur, decisions are made all day long, both big and small, yet all are equally important. Having a solid business plan is like having road map for your business with a beginning, a middle, and the destination. This map can keep you moving in the right direction and make it easier to make the right decisions to move the business forward.
Reason #4: To Help Identify Potential Weaknesses
Recapping the last 3 points made … turning passion into proof, reducing risk, and guiding the right decisions, another great benefit to documenting your business plan is that it can spot potential weaknesses. This now becomes an opportunity to fine tune your marketing plan, to learn how customers buy from you, or to shore up your financials to make them stronger and more realistic. Also, being able to show trusted advisors and mentors your plan may help in their identifying any potential weaknesses or cracks which will only help make your business plan, and your business, that much stronger.
Reason #5: To Communicate Your Ideas & Objectives
Many people think of a business plan as something you need in order to secure financing from a bank or investors, and it can absolutely help with that. But it can also help you to communicate your vision and goals to others, such as potential employees or partners, potential vendor relationships, and perhaps even to attract potential customers!
Reason #6: To Set Better Objectives & Goals
Without a business plan that strategically outlines your goals and objectives, those goals and objectives just become arbitrary. As they say, “A goal without a plan is just a wish.” And in business, you need a lot more than just wishes to be successful. Setting and writing down your goals and objectives, and how you will go about achieving them, helps to keep you accountable to your path and your long-term vision. A well thought-out, documented strategy that you can refer back to helps to keep you grounded yet moving in the right direction. That is one of the superpowers of a business plan.
Reason #7: To Avoid Big Mistakes
Businesses fail – both small and large – this fact is not a secret. And while no one may ever know the exact number of how many fail versus how many succeed, the Small Business Administration has suggested that about half, 50%, of all small businesses do not make it to their 5th birthday. But the thing is, the most common reasons why businesses fail are purposefully addressed in business plans!
Here are a few examples of why businesses fail…
- No Market Need: No one wants what you’re selling. This would be identified and mapped out in your market analysis section which would describe who your customer avatar is and why.
- Lack of Capital: In my experience in working with hundreds of businesses, being underfunded from the beginning is a huge yet common problem that many start-up businesses face, and they fail because of lack of funds to really get off the ground. Having a strong, well thought out set of financials should help to mitigate this.
- Inadequate Team: No business is an island and the importance of having the right Team Players, the A Players, in the right positions, is essential to the health and growth of any business. Having a “Team” section in your business plan that highlights the skills and strengths of your Team and how they will play out during both the start-up and day-to-day operations will be essential in ensuring a winning business.
- Tough Competition: You must be sure there is room for your business in your market and how you will stand out from the competition. It is one thing to have “built a better mouse trap” but if you’ve just built another mouse trap, why will yours be chosen over the others? This will be identified and solved within your business plan when discussing the competition.
- Pricing: Pricing is key and rarely do you get a second shot at that apple. Price it too high – and your product or service may not even be considered. Price it too low – then you may get the stigma of being cheap. The exercise of writing your business plan will help you to avoid any pricing mistakes assuming you have completed all the due diligence required to truly understand your product, your market, your customer and your competition.
Reason #8: To Provide a Guide for Service Providers and Potential Future Partners or Employees
Depending on how you write your business plan, and what you are comfortable sharing, you can also use the plan, or even just parts of it, to quickly and easily share your vision with others. Whether you plan on hiring all freelancers and independent contractors, or employees, to be able to share your vision and goals with them in this documented way, so that everyone is on the same page with the same vision, is priceless.
Reason #9: To Better Understand the Broader Landscape
Because writing a business plan can give you a well-rounded, 360-degree view of the landscape surrounding your business, this further helps to solidify YOUR business’s place among the landscape. Where it fits, who it fits, how it fits, why it fits… all can be looked at and addressed during the course of writing your plan and thus shoring up the potential success of your business.
Reason #10: To Secure Financing
Lastly, but certainly not least, it’s about the financials. The story behind your business, your “why”, is important and compelling, but it is also meaningless without sales. A business, any business, cannot survive without revenue. Cash (sales) is the lifeblood of any business and without it, the business will die. From the start-up funds, to opening working capital, to the profitability potential of the business, the financial plan needs to be carefully thought-out, documented, and followed. These financials can be your living-breathing budget, tweaked as necessary, but followed just as you would follow how you operate the other parts of your business. For potential financing and investors, having accurate, conservative, proven financials is key. But I would also argue that as the owner of the business, the financials you include with your business plan are one of, if not the, most important road maps for your business to follow. Cash is king and with a well-constructed, thorough business plan, you can be king too.