A business plan is important because it is a blueprint for a business that not only includes business concept, current business position, financial features and requirements, available resources, objectives, and achievements but also ensures their synchronization and channelization to accomplish business goals. The importance of a business plan simply indicates the significance that an adequately structured business plan can hold for the growth and success of a business.
What is the importance of a Business Plan?
A business plan is a strategic tool that is very important for the success of a business. It is a piece of detailed information that helps the company improve its chance of success. Since a business can never be static due to the frequent change in market condition, the business plan must be revised every now and often.
In the growth phase of the business, an updated business plan becomes an essential tool of forecasting. It is also used to raise additional capital for expansion. Also, when the management decides to close or sell the business, it includes strategies and timelines for the transfer to new ownership.
Key purposes of a Business Plan are-
- Establishing a business focus
- Doing initial market research
- Securing funding
- Understanding audiences
- Attracting executives
- Generating leads
- Retaining customers
- Engaging employees, etc
Who Needs a Business Plan?
From small businesses to new ventures to existing businesses and big brands, all need a business plan to break down uncertainty into meaningful pieces to accomplish business goals.
Managers, entrepreneurs, or business owners who need to understand- sales projection, spending plan, accomplishing milestones, cost analysis, payment timing, handling investors or stakeholders, tracking results, etc need a business plan.
10 Reasons Why Businesses Need a Business Plan
Some of the key reasons why businesses need business plans are-
1. To establish a milestone
Business plans are detailed information about starting a venture. It lays out the long-term milestone that is important for the success of one’s business in the long run.
A business milestone is a goal that one can set for the company at the beginning of the venture. It is something which gives the company a motive to work for. A business plan consists of business goals that are updated at the time of expansion.
2. To identify market feasibility
Drafting a business plan requires a lot of research which demands determining the market feasibility. A business plan is born out of an idea, and the driving force behind it is the probability of success one could achieve. But to attain that success, it is vital to draw a business plan. And identifying the market feasibility is the first step.
One has to first check whether the business is feasible or not with the target market. This requires a lot of research, starting from knowing about the consumer’s preference to determine the sources for resources. One has also to do the competitive analysis of the competitors. Every detailed information that is required to start a business is laid out in a business plan.
3. To understand the market
Starting a venture requires one to understand the market situation. When drafting a business plan, one has to do a thorough analysis of the market situation. In the planning stage, it is essential to note down current trends and the possible future trends of the market. Market trends help the company understand consumer behavior according to which necessary action could be taken to improve the sales performance. All these are updated on the business plan to make the employee work in conformity to the current goals and target.
The management often refers to the business plan that understands and predicts the market situation. One can determine possible threats in the industry to understand more about the product feasibility in the market. A business plan helps the management to gain a deeper understanding of one’s market. Hence, the realization of the critical details and knowledge helps make the company improve its success rate.
4. To have an insight into the customers
Every business has the purpose of providing excellent products or services to customers. However, to stay ahead in the competition, a company must understand its customers and cater according to their demands. Look from the customer’s perspective to understand their needs. Analyze the sets of target markets accordingly plan everything out.
An in-depth analysis of the customers is vital for the company to create better products and services. Besides attracting new customers, it is also essential to retain the existing ones. A strategic plan is required to captured the desired market segment. However, It becomes difficult for the management to develop strategies without planning everything out. Because of the business plan, the management is driven to do more research on customer’s behavior, preference, and purchasing pattern.
5. Determines financial needs and securing necessary funds
Every business, especially start-ups, requires operating capital to get the venture started. A detailed plan helps in determining the overall financial needs of the business. After determining financial needs, it becomes easy for one to get financing from different sources.
Finance is one of the factors that are important to start a business. In the planning phase, after the market research, one has to identify the necessary point of finance. After which, it helps in determining how much fund is needed to start the functioning of the business.
After one has determined the financial needs of the business, the next is securing the necessary funds. A detailed, up-to-date business plan gives a much better understanding and a better chance to secure funds.
6. Attracting investors and partners
Investors and partners are important sources of finance. For start-ups, it becomes difficult to secure the necessary funds. One of the ways to raise funds is to attract investors to invest in their business plan and partner up with someone who would bring in some amount of capital for the venture.
A detailed formal business plan is the basis for the financing proposals. Hence it acts as a means also to answer all the necessary questions of the investors. Some of the necessary answers are-
- The feasibility of the product or service in the market
- Financial projection of the next five years or more
- Company’s exit strategy and so on
Partners also need to see the detailed business plan before deciding to invest full time in it or not and forming a partnership ease one’s burden of time and capital.
7. To reduce risk
A detailed business plan is made after all the necessary and important research on the market, customer, and the industry. In the process of creating a business plan, it helps to reduce the opportunity costs.
When one is making a business plan, it helps a person assess the attractiveness of this particular opportunity versus other opportunities, therefore enabling better decision—making and reducing the risk of investing in the wrong opportunity. A business plan can also be treated as a forecasting tool that helps one stay on the path without taking unnecessary risks.
8. Identifying business opportunities
The importance of a business plan has highlighted attention towards the broad operational and financial objectives of one’s new business. Apart from identifying the pertaining risk in the market, a business plan also helps one discover the opportunities in the market.
A business plan is a detailed document that is completed after brainstorming, creative interviewing, market research, and so on. It helps the management see one’s business in a different light. As a result, the company can often come up with new ideas for marketing one’s product or service and meeting the consumers’ timely demand.
9. Helps in forecasting
A business plan helps forecast the market situation and helps in forecasting the staffing, financial, resources, etc., needs. For the business to work at its best, a company needs to predict the required count for the resources. In staffing, hiring more staff will increase the company’s cost without getting the best result. The same goes if one’s company is understaffed.
A business plan, when drafted, notes down the standards on how management should function. It considers all the aspects of the market condition even though it is dynamic. Although it doesn’t provide accurate forecasting, a business plan should still be considered while making an important decision while forecasting market demand.
10. Making business manageable and effective
A business plan is a mandatory requirement before starting a business. It is an essential tool for an established business. A viable business is dynamic as it is subjected to change and growth. A business plan gives the management an idea of the diverging path between what was planned and how it is going.
By identifying the gap, it becomes easy to determine anomalies. According to which the management can take necessary action to fill the gap. Management becomes more effective when everything goes according to plan. However, it is also necessary to review one’s company goal as it starts to head in the desired direction. This is because the market condition is subjected to change, and one has to improvise certain points.
Steps of writing a Business Plan
- Creating an executive summary
- Composing your company description via mission statement, objectives, and history
- Summarizing market research and potential
- Conducting competitive analysis
- Describing your product or service
- Developing a marketing and sales strategy
- Compiling your business financials
- Describing your organization and management
- Explaining your funding request
- Compiling an appendix for official documents
A business plan is the most important tool to start one’s business. It helps guide one’s company effort towards the business goals. It gives the investor and lenders important information required to help determine whether or not to fund one’s company.
The importance of a business plan emphasizes the effective strategy of growth, determining financial needs, and attract investors. Also, it provides necessary details on customers, competition, and industry. Therefore, helping the team to make the best possible decision to grow one’s business.
How important do you consider a business plan for optimizing the presence, growth, and success of a business? Share your opinion with us in the comment section below.