Why write a business plan? Simple: The business plan is the blueprint for your business. If you wanted to build a house, you wouldn't walk over to an empty lot and just start nailing boards together. Starting a business without a business plan is just as risky.
Yet, unlike a house, a business isn't static. We often make the mistake of thinking of a business plan as a single document that you just put together when you're first starting out and then set aside. Something to check off the to-do list and be done with.
But in actuality, the business plan for any business will change over time as the business develops, and any particular business may have multiple business plans as its objectives change.
In the growth phase, an updated business plan is useful for forecasting or raising additional capital for expansion. And if you decide to sell or close the business, the business plan can include strategies and timelines for the transfer to new ownership or dissolution of the company.
If you're not convinced yet, here are five good reasons to write a business plan when starting a new business.
To Test the Feasibility of Your Business Idea
Writing a business plan is the best way—other than going out and doing it—to test whether an idea for starting a business is feasible. In this sense, the business plan is your safety net. If working through a business plan reveals that your business idea is untenable, it will save you a great deal of time and money.
Often, an idea for starting a business is discarded at the marketing analysis or competitive analysis stage, freeing you to move on to a new (and better) idea.
Unfortunately, many prospective business owners are convinced that their idea for a product or service is a can't-miss proposition, so they don't take the time to do the necessary research and work through a proper business plan. The more you know about your industry, your prospective customers, and the competition, the greater the likelihood that your business will succeed.
To Give Your New Business the Best Chance of Success
Writing a business plan will ensure that you pay attention to the broad operational and financial objectives of your new business and the small details, such as budgeting and market planning. The process will ultimately make for a smoother startup period and fewer unforeseen problems as your business gets up and running.
The exercise of budgeting and market planning will help you define your target market, your unique selling proposition, optimum pricing strategies, and outline how you intend to sell and deliver your products to customers. In addition, developing a budget for implementation will assist with determining your startup and operating capital requirements.
To Secure Funding
Most new businesses need startup and operating capital to get off the ground. Without a well-developed business plan, there is no chance of getting debt financing from established financial institutions such as banks or equity financing from angel investors.
Established businesses often need money, too, to do things such as buy new equipment or property, or because of market downturns. Having an up-to-date business plan gives you a much better chance of getting the money you need to keep operating or to expand.
Investors and financiers are always looking at the risk of default, and word of mouth is no substitute for written facts and figures in a properly prepared business plan.
To Make Business Planning Manageable and Effective
A business plan is essential if you're thinking of starting a business, but it's also an important tool for established businesses. Viable businesses are dynamic; they change and grow. Your company's original business plan needs to be revised as you set new goals.
Reviewing the business plan can also help you see what goals have been accomplished, what changes need to be made, or what new directions your company's growth should take.
To Attract Investors
Whether you want to shop your business to venture capitalists or attract angel investors, you need to have a solid business plan. A presentation may pique their interest, but they'll need a well-written document they can study before they'll be prepared to make any investment commitment.
Be prepared to have your business plan scrutinized. Both venture capitalists and angel investors will want to conduct extensive background checks and competitive analyses to be certain that what's written in your business plan is indeed the case.
A Business Plan Is Essential
Writing a business plan is time-consuming, but it's essential if you want to have a successful business that's going to survive the startup phase. If your business doesn't have one, maybe it's time to start writing it. The process of writing a business plan can do wonders to clarify where you've been and where you're going.