6 Important Reasons Why You Need To Write A Business Plan
- September 29th, 2020
- 5 mins READING TIME
Your “business plan”’ is your roadmap to success. Without a solid written business plan, running a business is like going on a road trip without a map – you may get there in the end, but not before experiencing a few unwanted incidents or wrong turns along the way.
A business plan is one of the most important tools in your arsenal. Both new and existing businesses should write a business plan. It can set you up for success. It allows you to develop clarity of thought around what you are trying to achieve and should be used as a guide to navigate through each stage of your business – from startup, to growth and expansion and even exiting.
A well written Business Plan sets you up for success by mitigating failure.
In the words of Benjamin Franklin – “If you fail to plan, you are planning to fail.”
Whilst there are many reasons why you need to write a business plan, the 6 most important reasons are:
1. To help you get clarity of thought
Your idea may be great, but do people want to pay for it? What problem is it solving for them? Articulating your plan in writing enables you to objectively think about what you are doing, why you are doing it, and how you are doing it. Writing it down turns the conceptual into something more tangible and can even identify possible pitfalls in your thinking early on.
2. To prove the viability and the strategy of your business
Is your business plan achievable, or just pie-in-the-sky? You may be passionate about the idea, but is there real demand for what you are offering? And do you have a sustainable competitive edge? Can bigger companies copy your idea and force you out of the market? Is there scope for expansion into new markets – locally and internationally?
3. To set clear objectives and benchmarks
Your written business plan maps out your proposed road to success. Whilst not cast in stone, it should clearly detail your direction for the next 3-5 years ahead. It needs to show how you plan to achieve your objectives, underpinned by clear market research, financial projections and achievable benchmarks. These will all go a long way to giving you (and possible investors) comfort that the plan is achievable.
4. To help communicate your vision effectively
When you’re part of a team, a detailed business plan lets you easily share your vision and strategy with others, including key staff, board members and advisors. This enables everyone to buy into the long-term visions and goals of the company. More importantly it ensures that everyone is in a position to make informed decisions that are best for the company.
5. To secure funding – Capital or Debt
At some point in your journey, you may need to raise funds. Whether you’re pitching to the Bank, a Venture Capitalist or Private Equity firm, they will all ask to see the written business plan that supports your Pitch Deck. It gives them comfort that they are investing in good hands and that the goals are achievable.
6. To keep you on track and accountable
Your written business plan is a working tool. Don’t put it into file 13. You are accountable for achieving the outcomes in line with its goals. So, it needs to be reviewed and updated regularly in line with how you are tracking. Are you kicking goals? Is the anticipated demand for your products and services there? Are your sales targets being achieved? Is your production matching demand? You’ll be surprised at what you will learn and, you may find that your assumptions need to be adjusted.
Avoid making costly mistakes
Unless you can articulate your plans in writing clearly, the probability of success remains low. So, if you are starting out, it’s best to take the time to write your business plan BEFORE you launch to avoid some common mistakes like:
- Finding out too late that there is no demand in the market – remember an idea with no customers remains just that – an idea
- Entering a crowded market place where competition is high – if you don’t have a distinct competitive advantage, your pricing strategy will need attention. If too high, your sales volume may be impacted or; if it’s too low, your margins will be compromised
- Hiring the wrong team members – besides shortage of cash, if you have the wrong people in the team (or the right people in the wrong positions) you could be setting yourself up for failure
- Discovering too late that you lack funding – one of the biggest reasons why companies fail is that they do not have enough working capital
If you are already in business, a solid business plan will assist you in re-visiting and re-evaluating your previous assumptions and help you grow.