There are a few rules of thought in regards to the significance of writing a business plan. Many say you should not even consider starting a business without one, and others say that a business plan is not needed. Most agree that it is important to map out a general direction for your business and if you will be applying for funding, a formal business plan is a good idea.
A business plan accurately defines your business, identifies your goals, and serves as your company’s resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you distribute resources properly, handle unforeseen complications, and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application.
Despite the critical importance of a business plan, many entrepreneurs drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don’t have enough time. But just as a builder won’t begin construction without a blueprint, eager business owners shouldn’t rush into new ventures without a business plan.
What is a Business Plan Used For?
A business plan is a tool with three basic purposes: communication, management, and planning.
Communication – the business plan is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners. The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.
Management – the business plan helps you track, monitor and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.
Planning – the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.
Before you begin writing your business plan, consider these questions:
- What service does your business provide and what needs does it fill?
- Who are the potential clients for your service and why will they purchase it from you?
- How will you reach your potential clients?
- Where will you get the financial resources to start your business?