In Part 3 of our New Business Series, we're looking at the concept of a formal business plan. A business plan describes the business: how it operates, how it is managed, how it interacts in the marketplace, how it functions financially and what its strengths and weaknesses are. The following excerpt from the SBDC Small Business Start Up Guide explains the importance of a well thought-out business plan. The process may seem intimidating, but the benefits of a formal business plan aren't just limited to new businesses; it can also help owners of existing businesses re-evaluate and solidify their goals. So, here are five reasons why you should write a business plan:
1) To test the feasibility of your business idea.
Writing a business plan is the best way to test whether or not an idea for starting a business is feasible, other than going out and doing it. In this sense, the business plan is your safety net; writing a business plan can save you a great deal of time and money if working through the business plan reveals that your business idea is unsustainable. An idea for starting a business may be discarded at the marketing analysis or competitive analysis stage, freeing you to move on to a new (and better) idea.
2) To give your business the best possible chance of success.
Writing a business plan will ensure that you pay attention to both the broad operational and financial objectives of your business and the details, such as budgeting and market planning. Taking the time to work through the process of writing a formal business plan will make for a smoother start-up period and fewer unforeseen problems as your business becomes established.
3) To secure funding.
You’re going to need both operating and start-up capital to start a new business, and you have slim chance of obtaining funding from established financial institutions (banks) without a well-developed business plan.
4) To make business planning manageable and effective.
Viable businesses are dynamic; they change and grow. The company’s original business plan needs to be revised as new goals are set. Reviewing the business plan can help you see what goals have been accomplished, what changes need to be made, or what new directions your company’s growth should take.
5) 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 might pique their interest, but they’ll need a well-written document they can take away and study before they’ll be prepared to make any investment commitment. Be prepared for your business plan to be scrutinized.
In our next article we'll address the topic of business structure.