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- Oct 24, 2020
The Top 5 Benefits of Having a Business Plan
Whether you’re starting a small business or exploring ways to expand an existing business, a Business Plan is an important tool to help guide your decisions. An effective Business Plan is a roadmap to success, providing clarity on all aspects of your business, from marketing and finance, through to operations, products, services, people and how you will be better than your competitors.
The purpose of a business plan is to help articulate a strategy for starting or changing your business. It defines how you will achieve your most important business objectives. A good Business Plan should help you to sleep at night if you are a business owner.
For existing businesses, a business plan should be updated annually as a way to guide growth and navigate expansion into new markets. Your plan should include explicit objectives for hiring new employees, what structure you will have, what products and services your business will provide, how you will promote them and how you will finance business operations.
If you are considering starting a business, a Business Plan can help you to check the viability of a business before investing too much time or money in it. It also provides insight on steps to be taken, resources required for achieving your business goals and a timeline of anticipated results.
The Benefits of Having a Business Plan:
1. Increased Clarity
A business plan can bring clarity to the decision-making process regarding key aspects of the business such as capital investments, leases, resourcing, etc. You can't do everything. A good Business Plan will help you identify business critical priorities and milestones to focus on.
2. Creation of a Marketing Roadmap
Marketing is an important aspect of a business plan. It helps to define your target market(s), target customers and how you will promote and place your product / service to these markets / customers.
3. Support for Funding
Whether you’re seeking credit from a bank or capital from investors, a business plan that answers questions about profitability and revenue generation is often required.
4. Helps to Secure Talent
For a business to succeed, attracting talented workers and partners is vital. Part of a business plan’s purpose is to help bring in the right talent, at the right time. Staff want to understand the vision, how the business will achieve its goals, and how they can contribute to this in their own roles.
5. Provides Structure
A business plan provides structure and defines business management objectives. It becomes a reference tool to keep the business on track with sales targets and operational milestones. When used properly and consulted regularly, it can help measure and manage your priority areas of focus.
Download your Business Plan template for $49.99 + GST here.
Many people engage us as business coaches to take a weekly / fortnightly step-by-step approach to the development of their own Business Plans, with the added benefit of our expertise and guidance throughout the process. In this way, you learn the essential aspects of running a successful business, while crafting your very own business plan over 8-12 weeks.
If you would like more information about how to create an effective Business Plan for your business, with our guidance, then please don't hesitate to contact Business Agility. We are business coaches who are former CEOs and MDs. We know what it takes to be successful in business.
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What are the advantages and disadvantages of a business plan?
Almost every business starts with a business plan. These documents are used to map out the steps you want to take to get your business off the ground. However, do these strategy documents work for all businesses?
Whether you’re an entrepreneur or an investor, business plans are considered an essential part of starting a new business . For business owners and other stakeholders, it acts as a manual that can be used to chart a business’ success. Similarly, business plans can generate confidence, helping to convince potential lenders that investment is a risk worth taking.
However, business plans can also be expensive and time-consuming to create. Additionally, there is also no guarantee that a business will succeed just because a sound plan has been put in place.
To help you decide if a business plan would benefit your new venture, this guide runs through the main advantages and disadvantages.
The advantages of a business plan
Although a business plan takes time and money to create, it can help save both in the future if done properly. Below we take a look at some of the key advantages of creating a business plan:
1. It helps you forecast future steps The primary purpose of a business plan is to give you (and investors) an idea of whether your business has the potential to be successful. By mapping out your next steps and setting milestones, you can spot strengths and weaknesses in your ideas and set targets. This is helpful as it may prevent you from proceeding with a business idea that may end up costing you money.
On the other hand, these initial forecasts may provide the positive projections you need to actually get started and even attract outside investment. Even if your business plan produces an uncertain forecast, it still provides a small glimpse of the direction your business wants to head in and how it may perform on the way. This is valuable information, both for business owners and third-party stakeholders.
2. It is required if you want to apply for credit In order to secure a business loan from an official lender, a business plan is essential. Most banks will not even meet with you to discuss financing unless you have a business plan to present. This is because financial institutions like banks and credit unions need a way to accurately gauge their lending risks.
A well-thought-out business plan gives you the opportunity to show lenders how organised and prepared you are. It should explain how your business will use any capital you are lent and how you intend to make repayments. This level of detail can help to instil confidence in your business by persuading lenders you are a good risk.
3. It helps you to identify future cash flow issues A business plan should contain detailed cash flow forecasts and analysis. This shows potential lenders how money is expected to travel in and out of your business. It can also be useful for owners to determine if/when the business is expected to have cash flow problems under certain strategies. Having this information at hand can make it easier to financially plan, ensuring the business is always properly funded.
4. It helps you to allocate resources One of the biggest challenges for new business owners is resource management. From how much inventory you should buy to setting initial budgets, these decisions can be difficult. A business plan encourages you to create a workable budget and allocate resources before you start spending. This ensures you can afford everything you need and you don’t overspend before your business can start making money.
5. It helps you better understand your competition Creating a business plan requires a great deal of industry research. While you may think you have a strong handle on what you want your business to achieve, only by analysing your competition will you be able to see the full picture. A business plan can help you produce highly valuable insights into competitor demographics. This includes existing consumer trends and preferences, as well as costing insights. These findings are not always viable without conducting business plan competitor analysis.
6. It can help to secure talent In order for a business to be successful, attracting talented workers is crucial. A business plan can help to secure this talent by setting out a clear vision for the business. From management to skilled entry level staff, by showing individuals the direction and potential of the business, you can start to build a strong and coherent team.
The disadvantages of a business plan
Business plans can be time-consuming and expensive to produce. On top of this, there is also no guarantee that they will be accurate or help you to achieve the investment you are looking for. With this in mind, below we outline a number of disadvantages when it comes to creating a business plan:
1. It may not be accurate Putting together credible business plans is a highly skilled process. For this reason, many businesses seek the help of experienced business advisors when creating one. However, even with the help of a broad range of expert opinions, there is no guarantee that what is produced will be accurate. Industries and even wider business climates can change very quickly. This means that even taking the time and money to create an in-depth business plan can be risky.
2. It can make you become ‘tunnel-visioned’ In a world where nothing is 100% certain, treating your business plan as an uncompromising manual is a bad idea. The fact is, they are nothing more than a set of forecasts. If followed religiously, these strategy documents can ultimately do more harm than good. This is especially true if you become tunnel-visioned by your business plan and fail to adapt when market forces and changing economic environments demand it.
3. It can waste precious time and money Creating a business plan can take a lot of time and money to produce. It may require the help of third-party experts, such as business advisors, lawyers and accountants, all of which will charge for their services. Additionally, it can also take you and other employees away from the day-to-day tasks involved with launching a new business. This can lead to precious resources being wasted on a task whose cost may exceed its benefits.
The above points show that although business plans represent an essential component for most new businesses, comprehensive plans may not be 100% necessary in all circumstances. Luckily, if you are looking to put one together but are struggling to know where to start, the Markel Law Hub can help. We have a simple, easy-to-follow business plan template for you to download. To learn how you can access the Markel Law Hub, click here .
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Planning, Startups, Stories
Tim berry on business planning, starting and growing your business, and having a life in the meantime., 10 benefits of business planning for all businesses.
(Note: I posted this Wednesday on the Small Business Administration’s Industry Word blog, where I am a guest expert. I’m reposting it here because it seems appropriate. View the original .)
And I’d like to point out that none of these benefits require a big formal business plan document. A lean business plan (as in What Business Plan Type is Best for Me) is usually enough. It takes an hour or two to do the first plan, then just an hour or two to review and revise monthly.
Here are those top ten benefits.
- See the whole business . Business planning done right connects the dots in your business so you get a better picture of the whole. Strategy is supposed to relate to tactics with strategic alignment. Does that show up in your plan? Do your sales connect to your sales and marketing expenses? Are your products right for your target market? Are you covering costs including long-term fixed costs, product development, and working capital needs as well? Take a step back and look at the larger picture.
- Strategic Focus . Startups and small business need to focus on their special identities, their target markets, and their products or services tailored to match.
- Set priorities . You can’t do everything. Business planning helps you keep track of the right things, and the most important things. Allocate your time, effort, and resources strategically.
- Manage change . With good planning process you regularly review assumptions, track progress, and catch new developments so you can adjust. Plan vs. actual analysis is a dashboard, and adjusting the plan is steering.
- Develop accountability . Good planning process sets expectations and tracks results. It’s a tool for regular review of what’s expected and what happened. Good work shows up. Disappointments show up too. A well-run monthly plan review with plan vs. actual included becomes an impromptu review of tasks and accomplishments.
- Manage cash . Good business planning connects the dots in cash flow. Sometimes just watching profits is enough. But when sales on account, physical products, purchasing assets, or repaying debts are involved, cash flow takes planning and management. Profitable businesses suffer when slow-paying clients or too much inventory constipate cash flow. A plan helps you see the problem and adjust to it.
- Strategic alignment . Does your day-to-day work fit with your main business tactics? Do those tactics match your strategy? If so, you have strategic alignment. If not, the business planning will bring up the hidden mismatches. For example, if you run a gourmet restaurant that has a drive-through window, you’re out of alignment.
- Milestones . Good business planning sets milestones you can work towards. These are key goals you want to achieve, like reaching a defined sales level, hiring that sales manager, or opening the new location. We’re human. We work better when we have visible goals we can work towards.
- Metrics . Put your performance indicators and numbers to track into a business plan where you can see them monthly in the plan review meeting. Figure out the numbers that matter. Sales and expenses usually do, but there are also calls, trips, seminars, web traffic, conversion rates, returns, and so forth. Use your business planning to define and track the key metrics.
- Realistic regular reminders to keep on track . We all want to do everything for our customers, but sometimes we need to push back to maintain quality and strategic focus. It’s hard, during the heat of the everyday routine, to remember the priorities and focus. The business planning process becomes a regular reminder.
These tips are great for beginners .
This article is a must-read for anyone looking to start their own business. It covers the basics of what it takes to get started with your future in mind!
Great article and very well written! Keep up the good work!
Either starting a business or just collaborating for a gig, It is very important to have a likewise mindset partner. And especially we are into supply and manufacturing which you explained very well.
This is an insightful read for young entrepreneurs. We understand the value of content.
I have personally never been able to plan or organize things without penning them down on a piece of paper. It helps me visualize things in a better way. Also, seeing things written down in front of me helps connect the dots. A great article and absolutely in line with my perspective. Cheers!
Wow, I had never considered the fact that business planning can help you keep track of the most important things and prioritize them. My entire life I have strived to be an organized person, and I think it is a good skill to have when it comes to a professional career. Do you know how often one should revise a plan in order to make corrections according to new circumstances and opportunities?
@Sam, generally once a month, but it depends on the nature and specifics of the business. Some can last 2-3 months without review … and you don’t necessarily correct every time you review the plan. Thanks for asking.
Thank you very much for helping the world to understand the genesis of how to plan business and make it reality in life. Business is made by minded person with great and love.
Hi Tim I appreciate you for writing this article,it has really helped me understand the importance of planning and how vital it is to a business and now to me planning is like the foundation of each and every business,keep up with the good work.
Very useful article and very well written. A business plan is important for every person who is planning to start a business because of the mentioned benefits in the article. Thanks for sharing it.
I was looking for the full list of books you recommend in each of these categories, but the link at the end of the article doesn’t seem to be working. I’m particularly interested in good “Applied Statistics” and “Statistical Analysis” books, if that helps. Could you point me to the list with your recommendations?
Sorry, all four links at the bottom of the article work for me, so I can’t help you with links. The closest thing I have to a list of book recommendations is the blog category books here on this blog, which is a list of blog posts about books, most of which are books I recommend. But I have no recommendations for books related to applied statistics or statistical analysis, that’s not my expertise.
That is really interesting that business planning can help you catch new developments and adjust. Something I have been thinking about lately is starting an online business. It has been something that seems to do well for others, and I want to find the opportunities.
I like how you said that business planning helps you keep track of the important stuff. That seems like a really important thing to do because it would allow you to progress more. Focusing on the necessary and essential would really mean that you could do more and accomplish more it seems to me.
Very good summary. I think one great benefit of developing/using Business Plans is that it will give you the chance of training your mindset and exercise the forrest-tree approach. One of the key elements of the BP is to drill down from the overall defined strategy, down to the critical success factors and define metrics to achieve them. As you gain experience, this way of thinking will become more and more embedded and I honestly believe it will help you be a more analytical person i.e. be able to better build BP’s. That is obviously my opinion, some people might argue.
Thanks again Antonio
Thank you Antonio for the welcome addition. I agree with you, another great benefit is the drilling down with the forest-tree thinking. Thanks for adding that. Tim
Hi Tim I couldn’t agree more. I could weep at the networking meetings I go to when I ask how many businesses have business plans and only my hand goes up (and those of my clients :-)) It’s how to persuade them that this really is an important thing to do when they think they are poddling along quite happily now. I’ve tried waving my plan at them and telling them it just got me a £1k grant and if they want a grant too, come to me and I’ll help them! The lot of a decent business coach/consultant can be a frustrating one 🙂
Thanks Karen, and I hope you emphasize the “coach” element in your practice, so that your clients always understand that it’s something they do, with you helping. Check out this one: https://timberry.bplans.com/2007/07/my-worst-ever-b.html (still very valid today).
And thanks for your addition. Glad to have you here.
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Checklist for a Business Plan
Why is an effective business plan introduction important, what does "abridged" mean on a business plan.
- What Does a Business Plan Consist Of?
- Importance of Following a Business Plan
What is a business plan, and what’s the point of a business plan? To understand the benefits of a business plan, it is important to first understand why it's useful and how to create one.
In essence, a business plan describes a business in detail, including its goals and how it intends to achieve them. Business plans are typically written for new businesses, though they can be written for existing ones as well. The plan includes the operational, financial and marketing aspects of the venture.
The business plan is a fundamental tool and is necessary for a startup that needs a sense of direction. One of the reasons a business plan is so important is that it is one of the main requirements of venture capital firms and banks interested in investing funds in businesses. The business plan usually starts with an executive summary, followed by a description of the business in detail, including its products and services, and a section on how the business is going to achieve its goals from operational, financial and marketing standpoints. The business plan also typically includes a brief look at the industry within which the business will operate and how the business will differentiate itself from the competition.
What Are the Various Types of Business Plans?
There are many types of business plans. These include: feasibility plans, annual plans, internal plans, operations plans, growth plans and more. These different types of plans are drafted to match the different business situations. For example, if you’re preparing a business plan for internal reasons and not to seek funding from a financial institution, there is absolutely no need to include background information in your business plan. When you’re preparing a business plan for external investors, you should describe the management team; if you’re preparing the business plan for a bank, you should include the financial history and background of the company. With different circumstances, different pieces of information are included in the business plan.
Business Plans for Start-Ups
The business plan you prepare for a startup is about as standard as it gets when it comes to explaining all the steps that need to be taken by a new business to achieve its goals. These plans typically include information on the financial analysis of the business, the milestones for implementation, the management team, the strategy of the business, various forecasts, the marketplace and the product or service offering of the organization.
Notable among the plan's forecasts are predictions for the sales, profit, loss, cash flow and balance sheet of the company. There will also likely be additional tables included in the section on financial analysis, as well as the monthly projections for the first year. The plan for a startup usually begins with an abstract and contains an appendix at the end.
Internal Business Plans
Any business plan you do not prepare with the intent to show a financial institution, an external investor or any other third party is known as an internal business plan. In such plans, you don’t really need to describe in detail the organization or the management team. You may also choose whether or not to include financial projections like forecasts and budget. Usually, in internal business plans, the whole plan is written as a report using paragraph form. The main points will either be depicted as bullet points or as slides, in the case of a PowerPoint presentation.
Operational Business Plans
Operational business plans are typically prepared for use by the business itself, so they are strictly a type of internal business plan. They are also known as annual plans and include detailed information on deadlines, implementation milestones, specific dates, and the responsibilities of teams and their managers.
The operational business plan doesn’t go into much detail about who needs to do what and when. It looks at the responsibilities and dates from the perspective of what is a top priority and what is high level. It typically arranges data in the form of bullet points on slides in a presentation. There's no need for descriptions of the management teams or the organization. You also won’t find detailed explanations of all financial projections in these business plans. They are typically not regarded at all when the business plan is being used to formulate strategies going forward.
Growth Business Plans
Some business plans do not concern themselves with the entirety of the business. They are only interested in a part of the business or a specific area of interest. These are called growth plans, new product plans or expansion plans, depending on what they are looking to achieve. They may or may not be internal plans, depending whether they are meant to attract outside investment or meet the loan requirements of a bank. For example, you could prepare a startup plan to attract new investment when the business is just starting out. When you need to attract new funding or some kind of debt finance, you would prepare an expansion plan. Both plans should include a detailed description of the organization as well as extensive background data on each member of the management team. If, however, the expansion plan is for the business’s own internal consumption, it will be categorized as an internal business plan and won’t contain details about the organizations or the management team. Internal expansion and growth plans are used to strategize on the steps the business needs to take to expand and grow. Such internal plans also involve internal funding provided by the business itself. There may or may not be detailed financial projections. However, the projections of the sales and costs of any expansion plans are typically laid out in detail.
The bigger picture: This is one of the key advantages of a business plan. When you plan your business right, you can get a clearer picture of the business as a whole. You can easily comnect the dots between strategy and tactics, and everything is easier to work out.
Strategic focus: As a startup, you need to create an identity and focus on building that identity. It is usually defined by your target market, and the products and services you are tailoring to match their needs.
Set priorities: It’s impossible to do everything at once in a business. When you plan your business, you can order things in terms of their importance and allocate your effort, resources and time in an efficient and strategic manner.
Manage change: When you plan your business effectively, you can check your assumptions, track your progress and see new developments right from the beginning, allowing you to adjust accordingly.
Forces you to be accountable: When you plan effectively, you set expectations for yourself and a means by which you will be able to track your results. You can constantly review your business plan in terms of what you expect and what eventually happens.
- Score: What is the purpose of a business plan?
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Nicky is a business writer with nearly two decades of hands-on and publishing experience. She's been published in several business publications, including The Employment Times, Web Hosting Sun and WOW! Women on Writing. She also studied business in college.
6 types of business plans, how to conclude a business plan, why is planning an important step in starting a business, what are the main purposes of a business plan, four types of information in a business plan, what is the difference between a marketing & business plan, how to simply write a business plan for a loan, what is the overall purpose of a business plan, what is a business plan template, most popular.
- 1 6 Types of Business Plans
- 2 How to Conclude a Business Plan
- 3 Why Is Planning an Important Step in Starting a Business?
- 4 What Are the Main Purposes of a Business Plan?
20 Reasons Why You Need a Business Plan in 2023
Written by Dave Lavinsky
What is the Purpose of a Business Plan?
The purpose of a business plan is to provide a clear roadmap for the company’s future. It outlines the vision, goals, and strategies of the business, guiding entrepreneurs and stakeholders in understanding its operations and objectives. A well-crafted business plan helps attract investors and funding by showcasing the potential for profitability and growth.
Top 20 Reasons Why you Need a Business Plan
1. to prove that you’re serious about your business.
A formal business plan is necessary to show all interested parties — employees, investors, partners and yourself — that you are committed to building the business. Creating your plan forces you to think through and select the strategies that will propel your growth.
2. To Establish Business Milestones
The business plan should clearly lay out the long-term milestones that are most important to the success of your business. To paraphrase Guy Kawasaki, a milestone is something significant enough to come home and tell your spouse about (without boring him or her to death). Would you tell your spouse that you tweaked the company brochure? Probably not. But you’d certainly share the news that you launched your new website or reached $1M in annual revenues.
3. To Better Understand Your Competition
Creating the business plan forces you to analyze the competition. All companies have competition in the form of either direct or indirect competitors, and it is critical to understand your company’s competitive advantages. And if you don’t currently have competitive advantages, to figure out what you must do to gain them.
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4. To Better Understand Your Customer
Why do they buy when they buy? Why don’t they when they don’t? An in-depth customer analysis is essential to an effective business plan and to a successful business. Understanding your customers will not only allow you to create better products and services for them, but will allow you to more cost-effectively reach them via advertising and promotions.
5. To Enunciate Previously Unstated Assumptions
The process of actually writing the business plan helps to bring previously “hidden” assumptions to the foreground. By writing them down and assessing them, you can test them and analyze their validity. For example, you might have assumed that local retailers would carry your product; in your business plan, you could assess the results of the scenario in which this didn’t occur.
6. To Assess the Feasibility of Your Venture
How good is this opportunity? The business plan process involves researching your target market, as well as the competitive landscape, and serves as a feasibility study for the success of your venture. In some cases, the result of your planning will be to table the venture. And it might be to go forward with a different venture that may have a better chance of success.
7. To Document Your Revenue Model
How exactly will your business make money? This is a critical question to answer in writing, for yourself and your investors. Documenting the revenue model helps to address challenges and assumptions associated with the model. And upon reading your plan, others may suggest additional revenue streams to consider.
8. To Determine Your Financial Needs
Does your business need to raise capital? How much? One of the purposes of a business plan is to help you to determine exactly how much capital you need and what you will use it for. This process is essential for raising capital for business and for effectively employing the capital. It will also enable you to plan ahead, particularly if you need to raise additional funding in the future.
9. To Attract Investors
A formal business plan is the basis for financing proposals. The business plan answers investors’ questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s exit strategy? While investors will generally want to meet you in person before writing you a check, in nearly all cases, they will also thoroughly review your business plan.
10. To Reduce the Risk of Pursuing the Wrong Opportunity
The process of creating the business plan helps to minimize opportunity costs. Writing the business plan helps you assess the attractiveness of this particular opportunity, versus other opportunities. So you make the best decisions.
11. To Force You to Research and Really Know Your Market
What are the most important trends in your industry? What are the greatest threats to your industry? Is the market growing or shrinking? What is the size of the target market for your product/service? Creating the business plan will help you to gain a wider, deeper, and more nuanced understanding of your marketplace. And it will allow you to use this knowledge to make decisions to improve your company’s success.
12. To Attract Employees and a Management Team
To attract and retain top quality talent, a business plan is necessary. The business plan inspires employees and management that the idea is sound and that the business is poised to achieve its strategic goals. Importantly, as you grow your company, your employees and not you will do most of the work. So getting them aligned and motivated will be key to your success.
13. To Plot Your Course and Focus Your Efforts
The business plan provides a roadmap from which to operate, and to look to for direction in times of doubt. Without a business plan, you may shift your short-term strategies constantly without a view to your long-term milestones. You wouldn’t go on a long driving trip without a map; think of your business plan as your map.
14. To attract partners
Partners also want to see a business plan, in order to determine whether it is worth partnering with your business. Establishing partnerships often requires time and capital, and companies will be more likely to partner with your venture if they can read a detailed explanation of your company.
15. To Position Your Brand
Creating the business plan helps to define your company’s role in the marketplace. This definition allows you to succinctly describe the business and position the brand to customers, investors, and partners. With the industry, customer and competitive insight you gain during the business planning process, you can best determine how to position your brand.
16. To Judge the Success of Your Business
A formal business plan allows you to compare actual operational results versus the business plan itself. In this way, it allows you to clearly see whether you have achieved your strategic, financing, and operational goals (and why you have or have not).
17. To Reposition Your Business to Deal with Changing Conditions
For example, during difficult economic conditions, if your current sales and operational models aren’t working, you can rewrite your business plan to define, try, and validate new ideas and strategies.
18. To Document Your Marketing Plan
How are you going to reach your customers? How will you retain them? What is your advertising budget? What price will you charge? A well-documented marketing plan is essential to the growth of a business. And the marketing strategies and tactics you use will evolve each year, so revisiting your marketing plan at least annually is critical.
19. To Understand and Forecast Your Company’s Staffing Needs
After completing your business plan, you will not be surprised when you are suddenly short-handed. Rather, your business plan provides a roadmap for your staffing needs, and thus helps to ensure smoother expansion. Importantly your plan can not only help you understand your staffing needs, but ensure your timing is right as it takes time to recruit and train great employees.
20. To Uncover New Opportunities
Through the process of brainstorming, white-boarding and creative interviewing, you will likely see your business in a different light. As a result, you will often come up with new ideas for marketing your product/service and running your business. It’s coming up with these ideas and executing on them which is often the difference between a business that fails or just survives and one that thrives.
Business Plan FAQs
What is a business plan.
A business plan is a document that details your business concept and strategy for growth.
A business plan helps guide your company's efforts and, if applicable, gives investors and lenders the information they need to decide whether or not to fund your company. A business plan template helps you to most easily complete your plan.
Why Do You Need a Business Plan?
A business plan provides details about your company, competition, customers and industry so that you make the best possible decisions to grow your company.
What is the Importance of a Business Plan?
The 3 most important purposes of a business plan are 1) to create an effective strategy for growth, 2) to determine your future financial needs, and 3) to attract investors (including angel investors and VC funding ) and lenders.
Why is a Business Plan Important to an Entrepreneur?
Business plans help entrepreneurs take their visions and turn them into tangible action plans for success.
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Table of Contents
Every year, thousands of new businesses see the light of the day. One look at the World Bank's Entrepreneurship Survey and database shows the mind-boggling rate of new business registrations. However, sadly, only a tiny percentage of them have a chance of survival.
According to the Bureau of Labor Statistics, about 20% of small businesses fail in their first year, about 50% in their fifth year.
Research from the University of Tennessee found that 44% of businesses fail within the first three years. Among those that operate within specific sectors, like information (which includes most tech firms), 63% shut shop within three years.
Several other statistics expose the abysmal rates of business failure. But why are so many businesses bound to fail? Most studies mention "lack of business planning" as one of the reasons.
This isn’t surprising at all.
Running a business without a plan is like riding a motorcycle up a craggy cliff blindfolded. Yet, way too many firms ( a whopping 67%) don't have a formal business plan in place.
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It doesn't matter if you're a startup with a great idea or a business with an excellent product. You can only go so far without a roadmap — a business plan. Only, a business plan is so much more than just a roadmap. A solid plan allows a business to weather market challenges and pivot quickly in the face of crisis, like the one global businesses are struggling with right now, in the post-pandemic world.
But before you can go ahead and develop a great business plan, you need to know the basics. In this article, we'll discuss the fundamentals of business planning to help you plan effectively for 2021.
Now before we begin with the details of business planning, let us understand what it is.
What Is a Business Plan?
No two businesses have an identical business plan, even if they operate within the same industry. So one business plan can look entirely different from another one. Still, for the sake of simplicity, a business plan can be defined as a guide for a company to operate and achieve its goals.
More specifically, it's a document in writing that outlines the goals, objectives, and purpose of a business while laying out the blueprint for its day-to-day operations and key functions such as marketing, finance, and expansion.
A good business plan can be a game-changer for startups that are looking to raise funds to grow and scale. It convinces prospective investors that the venture will be profitable and provides a realistic outlook on how much profit is on the cards and by when it will be attained.
However, it's not only new businesses that greatly benefit from a business plan. Well-established companies and large conglomerates also need to tweak their business plans to adapt to new business environments and unpredictable market changes.
Before getting into learning more about business planning, let us learn the advantages of having one.
The Advantages of Having a Business Plan
Since a detailed business plan offers a birds-eye view of the entire framework of an establishment, it has several benefits that make it an important part of any organization. Here are few ways a business plan can offer significant competitive edge.
- Sets objectives and benchmarks: Proper planning helps a business set realistic objectives and assign stipulated time for those goals to be met. This results in long-term profitability. It also lets a company set benchmarks and Key Performance Indicators (KPIs) necessary to reach its goals.
- Maximizes resource allocation: A good business plan helps to effectively organize and allocate the company’s resources. It provides an understanding of the result of actions, such as, opening new offices, recruiting fresh staff, change in production, and so on. It also helps the business estimate the financial impact of such actions.
- Enhances viability: A plan greatly contributes towards turning concepts into reality. Though business plans vary from company to company, the blueprints of successful companies often serve as an excellent guide for nascent-stage start-ups and new entrepreneurs. It also helps existing firms to market, advertise, and promote new products and services into the market.
- Aids in decision making: Running a business involves a lot of decision making: where to pitch, where to locate, what to sell, what to charge — the list goes on. A well thought-out business plan provides an organization the ability to anticipate the curveballs that the future could throw at them. It allows them to come up with answers and solutions to these issues well in advance.
- Fix past mistakes: When businesses create plans keeping in mind the flaws and failures of the past and what worked for them and what didn’t, it can help them save time, money, and resources. Such plans that reflects the lessons learnt from the past offers businesses an opportunity to avoid future pitfalls.
- Attracts investors: A business plan gives investors an in-depth idea about the objectives, structure, and validity of a firm. It helps to secure their confidence and encourages them to invest.
Now let's look at the various types involved in business planning.
The Types of Business Plans
Business plans are formulated according to the needs of a business. It can be a simple one-page document or an elaborate 40-page affair, or anything in between. While there’s no rule set in stone as to what exactly a business plan can or can’t contain, there are a few common types of business plan that nearly all businesses in existence use.
Here’s an overview of a few fundamental types of business plans.
- Start-up plan: As the name suggests, this is a documentation of the plans, structure, and objections of a new business establishments. It describes the products and services that are to be produced by the firm, the staff management, and market analysis of their production. Often, a detailed finance spreadsheet is also attached to this document for investors to determine the viability of the new business set-up.
- Feasibility plan: A feasibility plan evaluates the prospective customers of the products or services that are to be produced by a company. It also estimates the possibility of a profit or a loss of a venture. It helps to forecast how well a product will sell at the market, the duration it will require to yield results, and the profit margin that it will secure on investments.
- Expansion Plan: This kind of plan is primarily framed when a company decided to expand in terms of production or structure. It lays down the fundamental steps and guidelines with regards to internal or external growth. It helps the firm to analyze the activities like resource allocation for increased production, financial investments, employment of extra staff, and much more.
- Operations Plan: An operational plan is also called an annual plan. This details the day-to-day activities and strategies that a business needs to follow in order to materialize its targets. It outlines the roles and responsibilities of the managing body, the various departments, and the company’s employees for the holistic success of the firm.
- Strategic Plan: This document caters to the internal strategies of the company and is a part of the foundational grounds of the establishments. It can be accurately drafted with the help of a SWOT analysis through which the strengths, weaknesses, opportunities, and threats can be categorized and evaluated so that to develop means for optimizing profits.
The Key Elements of a Business Plan
There is some preliminary work that’s required before you actually sit down to write a plan for your business. Knowing what goes into a business plan is one of them.
Here are the key elements of a good business plan:
- Executive Summary: An executive summary gives a clear picture of the strategies and goals of your business right at the outset. Though its value is often understated, it can be extremely helpful in creating the readers’ first impression of your business. As such, it could define the opinions of customers and investors from the get-go.
- Business Description: A thorough business description removes room for any ambiguity from your processes. An excellent business description will explain the size and structure of the firm as well as its position in the market. It also describes the kind of products and services that the company offers. It even states as to whether the company is old and established or new and aspiring. Most importantly, it highlights the USP of the products or services as compared to your competitors in the market.
- Market Analysis: A systematic market analysis helps to determine the current position of a business and analyzes its scope for future expansions. This can help in evaluating investments, promotions, marketing, and distribution of products. In-depth market understanding also helps a business combat competition and make plans for long-term success.
- Operations and Management: Much like a statement of purpose, this allows an enterprise to explain its uniqueness to its readers and customers. It showcases the ways in which the firm can deliver greater and superior products at cheaper rates and in relatively less time.
- Financial Plan: This is the most important element of a business plan and is primarily addressed to investors and sponsors. It requires a firm to reveal its financial policies and market analysis. At times, a 5-year financial report is also required to be included to show past performances and profits. The financial plan draws out the current business strategies, future projections, and the total estimated worth of the firm.
Best Business Plan Software
The importance of business planning is it simplifies the planning of your company's finances to present this information to a bank or investors. Here are the best business plan software providers available right now:
- Business Sorter
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Common Challenges of Writing a Business Plan
The importance of business planning cannot be emphasized enough, but it can be challenging to write a business plan. Here are a few issues to consider before you start your business planning:
- Create a business plan to determine your company's direction, obtain financing, and attract investors.
- Identifying financial, demographic, and achievable goals is a common challenge when writing a business plan.
- Some entrepreneurs struggle to write a business plan that is concise, interesting, and informative enough to demonstrate the viability of their business idea.
- You can streamline your business planning process by conducting research, speaking with experts and peers, and working with a business consultant.
Become an Expert Business Planner
Whether you’re running your own business or in-charge of ensuring strategic performance and growth for your employer or clients, knowing the ins and outs of business planning can set you up for success.
Be it the launch of a new and exciting product or an expansion of operations, business planning is the necessity of all large and small companies. Which is why the need for professionals with superior business planning skills will never die out. In fact, their demand is on the rise with global firms putting emphasis on business analysis and planning to cope with cut-throat competition and market uncertainties.
While some are natural-born planners, most people have to work to develop this important skill. Plus, business planning requires you to understand the fundamentals of business management and be familiar with business analysis techniques . It also requires you to have a working knowledge of data visualization, project management, and monitoring tools commonly used by businesses today.
Simpliearn’s Post Graduate Program in Business Analysis will help you develop and hone the required skills to become an extraordinary business planner. This comprehensive training program combined with the latest tools and methods can pave the way for you and equip you with the skills and the know-how to tackle any real-world challenges that may arise. Completing this industry-recognized course also earns you a valued certification as tangible proof of your talent.
What Is Meant by Business Planning?
Business planning is developing a company's mission or goals and defining the strategies you will use to achieve those goals or tasks. The process can be extensive, encompassing all aspects of the operation, or it can be concrete, focusing on specific functions within the overall corporate structure.
What Are the 4 Types of Business Plans?
The following are the four types of business plans:
This type of planning typically describes the company's day-to-day operations. Single-use plans are developed for events and activities that occur only once (such as a single marketing campaign). Ongoing plans include problem-solving policies, rules for specific regulations, and procedures for a step-by-step process for achieving particular goals.
Strategic plans are all about why things must occur. A high-level overview of the entire business is included in strategic planning. It is the organization's foundation and will dictate long-term decisions.
Tactical plans are about what will happen. Strategic planning is aided by tactical planning. It outlines the tactics the organization intends to employ to achieve the goals outlined in the strategic plan.
When something unexpected occurs or something needs to be changed, contingency plans are created. In situations where a change is required, contingency planning can be beneficial.
What Are the 7 Steps of a Business Plan?
The following are the seven steps required for a business plan:
If your company is to run a viable business plan and attract investors, your information must be of the highest quality.
Have a Goal
The goal must be unambiguous. You will waste your time if you don't know why you're writing a business plan. Knowing also implies having a target audience for when the plan is expected to get completed.
Create a Company Profile
Some refer to it as a company profile, while others refer to it as a snapshot. It's designed to be mentally quick and digestible because it needs to stick in the reader's mind quickly since more information is provided later in the plan.
Describe the Company in Detail
Explain the company's current situation, both good and bad. Details should also include patents, licenses, copyrights, and unique strengths that no one else has.
Create a marketing plan ahead of time.
A strategic marketing plan is required because it outlines how your product or service will be communicated, delivered, and sold to customers.
Be Willing to Change Your Plan for the Sake of Your Audience
Another standard error is that people only write one business plan. Startups have several versions, just as candidates have numerous resumes for various potential employers.
Incorporate Your Motivation
Your motivation must be a compelling reason for people to believe your company will succeed in all circumstances. A mission should drive a business, not just selling, to make money. That mission is defined by your motivation as specified in your business plan.
What Are the Basic Steps in Business Planning?
These are the basic steps in business planning:
Summary and Objectives
Briefly describe your company, its objectives, and your plan to keep it running.
Services and Products
Add specifics to your detailed description of the product or service you intend to offer. Where, why, and how much you plan to sell your product or service and any special offers.
Conduct research on your industry and the ideal customers to whom you want to sell. Identify the issues you want to solve for your customers.
Operations are the process of running your business, including the people, skills, and experience required to make it successful.
How are you going to reach your target audience? How you intend to sell to them may include positioning, pricing, promotion, and distribution.
Consider funding costs, operating expenses, and projected income. Include your financial objectives and a breakdown of what it takes to make your company profitable. With proper business planning through the help of support, system, and mentorship, it is easy to start a business.
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The benefits of a business plan
1. the importance of a business plan, 2. why you need a business plan, 3. the benefits of creating a business plan, 4. how to write a business plan, 5. what to include in your business plan, 6. how to use your business plan, 7. tips for successfully implementing your business plan, 8. real world examples of successful business plans, 9. resources for further reading on business plans.
When it comes to starting a business, there are a lot of important things to keep in mind. One of the most important is creating a business plan. A business plan is essential for a successful business for several reasons.
The first reason is that a business plan helps to ensure that all of the necessary elements are in place before the business gets started. This includes things like market research, financial planning, and setting up the business structure. Without a business plan, its easy to overlook important details that could make or break the business.
Another reason why a business plan is so important is that it forces the entrepreneur to think through all aspects of the business. What are the company's goals? How will it be structured? What are the potential risks and how will they be mitigated? By taking the time to answer these questions in the planning stage, entrepreneurs can avoid costly mistakes down the road.
Lastly, a well-crafted business plan can be a valuable tool for attracting investors and partners. When investors see that a business has a clear plan in place, they are more likely to put money into it. Similarly, potential partners will be more likely to sign on if they see that the company has a solid roadmap for success.
So, if you're thinking about starting a business, don't forget the importance of a business plan. By taking the time to create one, you'll increase your chances of success and avoid costly mistakes.
Today as an entrepreneur you have more options. Niklas Zennstrom
A business plan is a formal document that outlines the goals and objectives of your business, as well as the strategies you will use to achieve them. It is important to have a business plan because it will help you to:
1. Crystallize your business idea;
2. set out your goals and objectives;, 3. identify the resources you need to achieve your goals;, 4. develop a marketing strategy;, 5. track your progress and measure your success; and, 6. attract investors and partners..
A business plan does not have to be long or complex, but it does need to cover the key elements of your business. The following sections are typically included in a business plan:
1. Executive Summary : This is a brief overview of your business, including your business idea, your goals and objectives, and your strategy for achieving them.
2. Company Description : This section provides an overview of your company, including its history, its structure, and its products or services.
3. Market Analysis : This section looks at your industry and the market for your products or services, including your target market, your competitors, and your competitive advantage.
4. Marketing Plan : This section outlines your marketing strategy, including your sales and promotion plans, your pricing strategy, and your distribution channels.
5. Financial Plan : This section contains financial projections for your business, including your income statement, your balance sheet, and your cash flow statement.
6. Appendix : This section contains supporting materials for your business plan, such as market research reports, product brochures, and letters of reference.
Creating a business plan can be a daunting task, but it's an important step in starting a business. A business plan can help you secure funding for your business, get your business off the ground, and make it easier to manage your finances.
There are many benefits to creating a business plan, including:
1. A business plan can help you secure funding for your business
If you're looking for funding for your business, a business plan can be a valuable tool. Investors and lenders will want to see a well-thought-out business plan that includes information on your business model, your financial projections, and your growth strategy. A business plan can also help you get a better understanding of your industry and your competition.
2. A business plan can help you get your business off the ground
A business plan can be a helpful roadmap for getting your business up and running. It can help you set goals and track your progress. It can also help you attract employees and partners.
3. A business plan can make it easier to manage your finances
A business plan can help you keep track of your expenses and income. It can also help you forecast your cash flow and manage your financial risks.
4. A business plan can help you attract customers
A well-written business plan can help you attract customers and partners. It can also help you build credibility with potential customers.
5. A business plan can help you stay organized
A business plan can keep you focused on your goals and help you stay organized. It can also help you track your progress and make adjustments to your business as needed.
Creating a business plan takes time and effort, but it's worth it. A well-crafted business plan can help you secure funding, get your business off the ground, attract customers, and manage your finances.
Creating a business plan is an important step in the process of starting a business. It can help you to think through the details of your business, including your marketing strategy, your financial projections, and your overall goals.
A business plan can also be a valuable tool for existing businesses. It can help you to clarify your business's direction, set goals, and track your progress.
If you're thinking about starting a business, or if you're already running one, a business plan can be a helpful way to focus your thoughts and ensure that you're covering all of your bases.
1. Keep it brief
Your business plan does not need to be long or complicated. In fact, it's better to keep it concise and focus on the key points. You can always provide more detail if needed.
2. Include all the important elements
When you're writing your business plan, make sure to include all of the important elements. This includes your company overview, your market analysis, your financial projections, and your marketing strategy.
3. Make it realistic
Your business plan should be realistic. Avoid making assumptions or overestimating the potential of your business. Be honest about the challenges you're facing and the potential risks involved.
4. Get feedback
Before you finalize your business plan, get feedback from people you trust. This can help you to catch any errors or omissions and make sure that your plan is clear and concise.
5. Be prepared to revise
Your business plan is not set in stone. As you get more experience in running your business, you may need to revise and update your plan. Don't be afraid to make changes as needed.
When it comes to your business plan, there are certain elements that are absolutely essential in order to make it successful. Without these key components, your business plan will likely fall flat, leaving you struggling to get your business off the ground. So, what exactly should you include in your business plan?
First and foremost, your business plan should include a detailed description of your business. This should include what your business does, what products or services you offer, and what your businesss unique selling proposition is. You should also include an overview of your target market and a marketing strategy for reaching them.
Next, your business plan should include a financial projection for your business. This should include a sales forecast, expenses budget, and a profit and loss statement. This will give potential investors an idea of how much money they can expect to make from investing in your business.
Finally, your business plan should include a management team section. This should include information on your executive team, their qualifications, and their experience in running a business. This will show potential investors that you have a solid team in place who can help take your business to the next level.
By including these essential elements in your business plan, you'll be well on your way to crafting a successful document that will help you get the funding you need to start and grow your business.
As always, space remains an unforgiving frontier, and the skies overhead will surely present obstacles and setbacks that must be overcome. But hard challenges demand fresh approaches, and I'm optimistic that Stratolaunch will yield transformative benefits - not only for scientists and space entrepreneurs, but for all of us. Paul Allen
A business plan is a critical tool for any business owner. It provides a roadmap for your business, setting out your goals and objectives and outlining how you plan to achieve them.
Your business plan should be reviewed and updated regularly to ensure it remains relevant and is achieving its goals.
1. Use it as a roadmap
Your business plan should be used as a roadmap for your business. It should set out your goals and objectives and outline how you plan to achieve them.
2. Review and update it regularly
3. share it with your team.
Your business plan should be shared with your team so they are aware of your goals and objectives and how you plan to achieve them.
4. Use it to raise finance
If you are looking to raise finance for your business, your business plan will be essential. It will give potential investors an insight into your business and help them to make a decision on whether or not to invest.
5. Use it to measure progress
Your business plan can be used to measure your progress against your goals and objectives. This will help you to see how well your business is doing and whether or not you are on track to achieve your goals.
6. Use it to make decisions
Your business plan can be used as a tool to help you make decisions about your business. It can help you to consider different options and make the best decision for your business.
7. Get feedback
Before finalising your business plan, it is a good idea to get feedback from others. This could include family, friends, colleagues, or even potential investors. Getting feedback will help you to improve your business plan and make it more likely to succeed.
8. Be realistic
When writing your business plan, it is important to be realistic. This means setting achievable goals and objectives and having a realistic view of what your business can achieve in the short and long term.
A business plan is critical to the success of any business, yet many entrepreneurs don't take the time to create one because they find the process overwhelming. However, a business plan doesn't have to be a long, tedious document. In fact, it can be helpful to think of your business plan as a living document that will evolve as your business grows.
Here are four tips for creating a successful business plan:
1. Keep it simple
The biggest mistake entrepreneurs make when creating a business plan is trying to make it too complicated. Your business plan should be a roadmap that outlines your goals and how you plan on achieving them. It doesn't need to be overly detailed or filled with jargon.
2. Make it measurable
Another common mistake is failing to include measurable goals in your business plan. Without measurable goals, it will be difficult to track your progress and determine whether or not your business is on track. Be sure to include both short-term and long-term goals in your plan and create a timeline for each goal.
3. Get input from others
When you're creating your business plan, its important to get input from others who are knowledgeable about business planning. Ask for feedback from your mentors, advisors, and peers. Their insights can help you refine your ideas and make your plan more robust.
4. Be prepared to pivot
No matter how well you plan, there will always be unforeseen obstacles and challenges. The key is to be prepared to pivot when necessary. Be flexible and willing to adjust your plans as needed. The best businesses are those that are able to adapt and change as the market evolves.
By following these tips, you can create a successful business plan that will help you achieve your goals. Remember, your business plan is a living document that should be updated as your business grows.
The term business plan can conjure up images of long, detailed documents that are created in advance of starting a business. However, the reality is that business planning is a fluid process that should be revisited and updated regularly as your business grows and changes.
One of the most important benefits of creating a business plan is that it forces you to think through the key components of your business, such as your value proposition, target market, competitive landscape, and go-to-market strategy. This process helps you clarify your business goals and develop a road map for achieving them.
Another key benefit of having a business plan is that it can help you secure funding from investors or lenders. A well-crafted business plan will include financial projections and analysis that can convince potential investors or lenders to provide the capital you need to start or grow your business.
Finally, a business plan can be a valuable tool for managing and growing your business. By periodically revisiting and updating your business plan, you can ensure that your business is on track to achieve its goals.
While there is no one-size-fits-all template for creating a successful business plan, there are some key elements that should be included. Here are some real-world examples of successful business plans to provide inspiration for your own planning process.
1. The Lean Plan : This type of business plan is best suited for businesses that are just getting started. It is focused on clarifying the key components of your business, such as your value proposition, target market, and go-to-market strategy. The Lean Plan can be created in just a few hours and is typically only a few pages long.
2. The traditional business Plan : This type of business plan is more comprehensive and includes detailed financial projections and analysis. It is best suited for businesses that are seeking investment or loan financing. The traditional business plan can take several weeks or even months to complete.
3. The One-Page Business Plan : As the name implies, this type of business plan can be created on just one page. It is best suited for businesses that are already up and running and just need a simple road map to help them achieve their next level of growth.
4. The Elevator Pitch : This is a short, one- to two-minute pitch that summarizesthe key components of your business. It is typically used to quickly generate interest from potential investors or partners.
5. The Milestone-Based Plan : This type of business plan focuses on key milestones that need to be achieved in order to reach your overall goal. It is best suited for businesses that have a clear vision for where they want to be in the future but need help developing a roadmap for getting there.
Creating a business plan is an important step in the process of starting a business. It allows you to articulate your business goals, strategies, and how you plan on achieving them. A business plan can also help you secure funding from investors or lenders.
While there is no one-size-fits-all template for a business plan, there are some key components that should be included. These include an executive summary, company overview, market analysis, product or service offerings, target market, competitive analysis, marketing and sales strategy, financial projections, and a management team overview.
If you're not sure where to start, there are many resources available to help you create a business plan. The small Business administration (SBA) has a helpful guide that outlines the key components of a business plan. There are also many software programs and online services that can help you create a business plan.
Once you've created your business plan, it's important to keep it up to date as your business grows and changes. Review and revise your plan regularly to ensure it remains relevant and accurate.
If you're looking for more information on business plans, there are many books and articles available on the subject. A few of our favorites are listed below.
"The Lean Startup : How Today's entrepreneurs Use Continuous Innovation to Create radically Successful Businesses" by Eric Ries
"The Art of the Start 2.0 : The Time-Tested, battle-Hardened Guide for Anyone starting Anything" by Guy Kawasaki
"The Innovator's Dilemma : When New Technologies Cause Great Firms to Fail" by Clayton M. Christensen
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Nine reasons why you need a business plan
Building a great business plan helps you plan, strategize and succeed. Presented by Chase for Business .
Making the decision to create a new business is an exciting yet stressful experience. Starting a business involves many tasks and obstacles, so it’s important to focus before you take action. A solid business plan can provide direction, help you attract investors and ensure you maintain momentum.
No matter what industry you plan on going into, a business plan is the first step for any successful enterprise. Building your business plan helps you figure out where you want your business to go and identify the necessary steps to get you there. This is a key document for your company to both guide your actions and track your progress.
What is the purpose of a business plan?
Think of a business plan like a roadmap. It enables you to solve problems and make key business decisions, such as marketing and competitive analysis, customer and market analysis and logistics and operations plans.
It can also help you organize your thoughts and goals, as well as give you a better idea of how your company will work. Good planning is often the difference between success and failure.
Here are nine reasons your company needs a business plan.
1. Prove your idea is viable
Through the process of writing a business plan, you can assess whether your company will be successful. Understanding market dynamics, as well as competitors, will help determine if your idea is viable.
This is also the time to develop financial projections for your business plan, like estimated startup costs, a profit and loss forecast, a break-even analysis and a cash flow statement . By taking time to investigate the viability of your idea, you can build goals and strategies to support your path to success.
A proper business plan proves to all interested parties—including potential investors, customers, employees, partners and most importantly yourself — that you are serious about your business.
2. Set important goals
As a business owner, the bulk of your time will mostly likely be spent managing day-to-day tasks. As a result, it might be hard to find time after you launch your business to set goals and milestones. Writing a business plan allows you to lay out significant goals for yourself ahead of time for three or even five years down the road. Create both short- and long-term business goals.
3. Reduce potential risks
Prevent your business from falling victim to unexpected dangers by researching before you break ground. A business plan opens your eyes to potential risks that your business could face. Don’t be afraid to ask yourself the hard questions that may need research and analysis to answer. This is also good practice in how your business would actually manage issues when they arise. Incorporate a contingency plan that identifies risks and how you would respond to them effectively.
The most common reasons businesses fail include:
- Lack of capital
- Lack of market impact or need
- Unresearched pricing (too high or low)
- Explosive growth that drains all your capital
- Stiff competition
Lack of capital is the most prevalent reason why businesses fail. To best alleviate this problem, take time to determine how your business will generate revenue. Build a comprehensive model to help mitigate future risks and long-term pain points. This can be turned into a tool to manage growth and expansion.
4. Secure investments
Whether you’re planning to apply for an SBA loan , build a relationship with angel investors or seek venture capital funding, you need more than just an elevator pitch to get funding. All credible investors will want to review your business plan. Although investors will focus on the financial aspects of the plan, they will also want to see if you’ve spent time researching your industry, developed a viable product or service and created a strong marketing strategy.
While building your business plan, think about how much raised capital you need to get your idea off the ground. Determine exactly how much funding you’ll need and what you will use it for. This is essential for raising and employing capital.
5. Allot resources and plan purchases
You will have many investments to make at the launch of your business, such as product and services development, new technology, hiring, operations, sales and marketing. Resource planning is an important part of your business plan. It gives you an idea of how much you’ll need to spend on resources and it ensures your business will manage those resources effectively.
A business plan provides clarity about necessary assets and investment for each item. A good business plan can also determine when it is feasible to expand to a larger store or workspace.
In your plan, include research on new products and services, where you can buy reliable equipment and what technologies you may need. Allocate capital and plan how you’ll fund major purchases, such as with a Chase small business checking account or business credit card .
6. Build your team
From seasoned executives to skilled labor, a compelling business plan can help you attract top-tier talent, ideally inspiring management and employees long after hiring. Business plans include an overview of your executive team as well as the different roles you need filled immediately and further down the line.
Small businesses often employ specialized consultants, contractors and freelancers for individual tasks such as marketing, accounting and legal assistance. Sharing a business plan helps the larger team work collectively in the same direction.
This will also come into play when you begin working with any new partners. As a new business, a potential partner may ask to see your business plan. Building partnerships takes time and money, and with a solid business plan you have the opportunity to attract and work with the type of partners your new business needs.
7. Share your vision
When you start a business, it's easy to assume you'll be available to guide your team. A business plan helps your team and investors understand your vision for the company. Your plan will outline your goals and can help your team make decisions or take action on your behalf. Share your business plan with employees to align your full staff toward a collective goal or objective for the company. Consider employee and stakeholder ownership as a compelling and motivating force.
8. Develop a marketing strategy
A marketing strategy details how you will reach your customers and build brand awareness. The clearer your brand positioning is to investors, customers, partners and employees, the more successful your business will be.
Important questions to consider as you build your marketing strategy include:
- What industry segments are we pursuing?
- What is the value proposition of the products or services we plan to offer?
- Who are our customers?
- How will we retain our customers and keep them engaged with our products or services and marketing?
- What is our advertising budget?
- What price will we charge?
- What is the overall look and feel of our brand? What are our brand guidelines?
- Will we need to hire marketing experts to help us create our brand?
- Who are our competitors? What marketing strategies have worked (or not worked) for them?
With a thoughtful marketing strategy integrated into your business plan, your company goals are significantly more in reach.
9. Focus your energy
Your business plan determines which areas of your business to focus on while also avoiding possible distractions. It provides a roadmap for critical tradeoffs and resource allocation.
As a business owner, you will feel the urge to solve all of your internal and customers’ problems, but it is important to maintain focus. Keep your priorities at the top of your mind as you set off to build your company.
As a small business owner, writing a business plan should be one of your first priorities. Read our checklist for starting a business, and learn how to take your business from a plan to reality. When you’re ready to get started, talk with a Chase business banker to open a Chase business checking or savings account today.
For Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.
JPMorgan Chase Bank, N.A. Member FDIC. Equal Opportunity Lender, ©2023 JPMorgan Chase & Co
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4 Benefits of a Business Plan for Your Small Business
Do you need a business plan for your small business? If you are seeking outside funding, you are required to present a formal proposal. But, the benefits of a business plan go beyond finding lenders.
A strategy can help you grow your company. Think of the concept like this:
If you’re like most people, you probably wouldn’t buy a car without doing some research. You would choose one after weighing the good and bad traits of different vehicles. You’d make sure the car starts before signing the title.
It’s a similar situation with your business venture. You need to be sure your business has the potential to be a worthwhile investment.
A business plan can be a simple outline or a detailed document. Your plan is a roadmap that steers you in the right direction. A business plan is not a promise you have to keep over time.
Download our free guide on what you need to start your business to learn more, plus get a checklist!
4 Benefits of a business plan
So what can a solid strategy for building your business help you accomplish? Here are four benefits of a business plan:
1. You can get outside funding
To get funding from lenders or investors, you need to show a business plan. Lenders want to see that they are investing in a company that will last and grow. You must give lenders a plan detailing the steps you will take as a business owner.
Even if your lenders are friends and family, it’s good to organize your ideas.
A business plan helps others understand your passion and see where their money is going. Communicating clear ideas to investors helps prove you can get your business off the ground and build it up.
You’ll need to know how to write an exit strategy for a business plan as well. A thriving business is no good to your investors if they have no way to eventually cash in on their investment.
2. You gain an understanding of your market
One key piece of your business plan is knowing how to conduct a market analysis . When you conduct this study, you look at your industry, target market, and competitors. You can see trends in decisions that could help, or harm, your business.
Another great benefit of a business plan is learning from someone else’s mistakes. Learning from other’s mistakes is less time consuming and financially burdening than learning from your own mistakes. The more prepared you are to deal with the aspects of your market, the easier it might be to handle issues down the road.
3. You focus your strategies
The entrepreneur in you is eager to dive right into business. But, having a business plan can help you pinpoint the best strategies for your company. Before you take the plunge into ownership, work out the important details.
This business plan benefit also helps you prioritize tasks. By looking at the big picture of your business, you can decide which challenges to tackle first. A business plan could also help you choose which tasks to address later.
4. You can check the financial numbers
Business plans include financial projections for your company. While the projections are not a peek inside a crystal ball, they do represent a forecast of your financial health. Planning for expenses will be important for keeping operations steady.
Cash flow projections help you see if your goals are possible. They also point out trends that could potentially harm your business. The faster you spot upcoming issues, the faster you can correct problems.
Be sure that your projections match up to your expectations. Have you set aside enough money to do the tasks at hand? Double-check your numbers so you are prepared to handle your finances in the future.
Business plan parts
Here are a few items you could include in your business plan:
- Company description telling how you will meet your customers’ needs.
- A market analysis that talks about your industry, target market, and competitors.
- Services or products you will sell.
- Marketing plans for generating sales.
- Funding requests with a budget outlined.
- Financial projections from your financial statements.
Your business plan could be anything between a basic outline to a 40-page presentation. If the plan is just to keep you on track, you can cover the areas you think need to be addressed. The benefits of a business plan are not limited to a specific length, but can be tailored to your needs.
If you write your business plan for lenders, you will want a more formal, detailed plan. Include a table of contents, a summary of your business, and an appendix with supporting documents.
Does your business plan include a system for tracking finances? Our accounting software is an easy-to-use program for small business owners and their accountants. Try it for free today!
This article has been updated from its original publication date of February 19, 2016.
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What's the Point of Planning? The Benefits of a 5-Year Business Plan
Business Skills , Strategy
To say we’re living in "interesting" times is putting it mildly.
We're still feeling the effects of the global pandemic. Oil prices fluctuate wildly. War has returned to Europe. The climate is in crisis. Generative AI has arrived.
And political, social and technological change is only going to get faster, more frantic – and harder to foresee. It’s the epitome of a "VUCA world": volatile, uncertain, complex, and ambiguous.  It’s become very difficult to see any kind of clear view ahead.
“May you live in interesting times” was always meant as a curse, after all.
But there are also opportunities amid unpredictability – if you're ready to grab them. And, while many businesses are going by the wayside, many others are finding ways to survive and thrive. They keep a grip on their future – however fractured things get.
And usually, it’s because they have a plan.
Fail to Plan, Plan to Fail
In turbulent times, mid-to-long-term planning lets you and your organization focus on the things you can control – and at least be aware of the things you can't . Get it right, and you'll keep a handle on who you are as a company, what you want to achieve, how you’re going to do that, by when, and with what effect. And you'll spot some of the difficulties and dangers ahead.
Your plan isn't a rigid list of actions you can take to guarantee success, because that's just not possible now – and probably never was.
Instead, it's a well-thought-out map for the way forward, with room for a little "course correction" along the way. And it lets you bring others on the journey with you. Even if the direction has been set by the C-suite, managers at all levels need to know how they fit in, to make sure the core work gets done. Only then can they inspire their teams to help turn aspirations into actions.
Without a plan, you’re lost.
Business Planning, the Family Way!
I know the power of a good plan from personal experience.
Eighteen years ago, my family life felt like its own little VUCA world. My wife and I both worked in radio, and our industry was changing fast: new technology, unexpected challengers, different ways of doing things. And in the radio station where we worked, large-scale change was looming.
We had two young children then, and suddenly there were big decisions to make – about our jobs, where to live, how to share the childcare, what to do about schools… It felt overwhelming trying to consider everything: to know what would be best for everyone, and how to achieve it all.
So we made a five-year plan – a fairly small-scale one, granted, but, in retrospect, it was actually a very business-minded approach. Because it covered many of the things that commercial enterprises need to put in their plans (just couched in ways that made sense for two parents and their kids!).
Business Planning Basics
Here’s an example of the type of business plan I’m talking about. It shows what many companies consider when they’re starting out, or looking for new investment, or launching new products or services, or – like us – just in need of more clarity about where to go in the next few years and how to get there. There are nine common components:
- Executive summary
- Mission statement
- SWOT analysis
- Goals and metrics
- Industry analysis
- Competitor analysis
- Marketing plan
And here’s how that collection of information, analysis and ideas can work in practice – as experienced by my wife and me!
Business Planning in Action
We started with our version of the executive summary – an in-a-nutshell description of all the information and ideas we’d be pulling together – then followed it by drafting a kind of mission statement , based on who we were, what we wanted to achieve, and why we felt it was important.
For us, that highlighted the importance of getting a good work-life balance, doing jobs we felt passionate about, and finding a community where our family could thrive. For businesses, it’s often a useful way to summarize plans for stakeholders – or maybe prospective investors.
We did our own version of a SWOT analysis , listing all the strengths, weaknesses, opportunities, and threats that we could think of, relating to our family. My wife and I both love learning, for example, and could retrain if we decided to – that was a strength. We had little help with childcare though – that was a weakness. The value of our house had gone up recently – so there were opportunities there. But we also saw a new level of competition for jobs where we worked, adding urgency to our decision-making.
In a commercial plan, this is a particularly important part of the process, helping to shape ambitious but achievable strategies, and to secure internal and external support.
For us, all of this led naturally to defining our goals – and trying to do it in a SMART, businesslike way. We looked for useful metrics , including the income we’d need at different points in the plan. And, since a key goal was to have more time for the kids, we chose some fairly loose ways to measure that, too.
We did our own kind of industry analysis . As in a typical business plan, we thought about our industry – radio – as it was then, and how it was likely to change in the near future.
I suppose we even did some competitor analysis – thinking about the people who might be coming for our jobs, as well as the market forces that were putting the whole industry under pressure.
By this point, we'd already begun thinking about leaving radio – potentially to retrain as teachers. So we had a new target audience to research. Were there enough opportunities for us there? What needs could we satisfy – and what did we have to offer?
And then, to make that shift, how would we show off our experience and skills? A marketing plan of sorts emerged as we decided to spruce up our CVs, and targeted people to talk to. As in a commercial business plan, all the earlier analysis focused our ideas.
The financials were particularly important. Like any business we looked back at our records, drew up budgets , and made projections. More companies use complex algorithms to do that. We took a simpler approach, but we still had to be rigorous. Any five-year plan needs to make financial sense, with regular checkpoints, a little wriggle room, and at least some form of safety net in case things get really tight.
Looking back, that financial part turned out to be the one we relied on the most. It helped us make decisions, gave us confidence – and, occasionally, confronted us with hard truths – as we enacted our plan.
The last element was a conclusion , bringing together everything we’d collected and explored. In a commercial five-year plan, this summary often becomes a rallying call to stakeholders and a powerful message to potential investors. For us, too, it was a clear call to action. It crystallized everything we’d been thinking and talking about.
Suddenly we had a route to follow to the future we wanted. It fueled our confidence to push ahead – and, as we did, we learned even more about the full power of a well-made plan.
The Benefits of a Five-Year Plan
Whether you’re managing people in a company or a family, having a plan helps at every turn.
It provides clarity for everyone involved and influences everything you do – from the people you gather around you, to the products or services you decide to develop, to the way you end up delivering them.
It can help you to secure funding if you need it, and keep your stakeholders involved and informed as you move forward.
However busy things get, you’ve got a document to refer to that reminds you of your purpose and your priorities. It helps you to do the things that move you in the right direction – and say no to the things that don’t.
It’s a way to avoid overwhelm, manage stress, and stay motivated. But it also lets you see when to adjust your course a little – because, inevitably, things will change.
Five Years Later…
Five years after making our plan, we were both fully trained teachers, living in a new city, and our children were happy in their schools. Some of our work-life balance was right, although that part was still very much a work in progress. And we’d taken a financial hit that would take a while to heal. But our plan had helped us get the big things right, bounce back from the odd misstep, stay afloat financially, and just about manage all the moving parts of family life.
Some of the thinking we did back then still guides our decisions today. It's good to look back at our original goals and see how far we’ve come. And we may well repeat the process before long. The kids are starting to leave home. Retirement is no longer a distant prospect. Where do we want to be five years from now – and how are we going to get there?
Meanwhile, times are likely to keep getting more “interesting” for everyone. In families and businesses everywhere, VUCA levels can make it hard to see anything beyond the struggles of the here and now.
But experience tells me that, when you feel like there’s simply no point making any meaningful plans, that’s exactly when you need them most.
To learn more about business planning, Mind Tools members have a range of resources to choose from, including:
Practical Business Planning
Business Requirements Analysis
Managing in a VUCA World .
 U.S. Army Heritage and Education Center (2018). Who first originated the term VUCA (Volatility, Uncertainty, Complexity and Ambiguity)? [online]. Available here . [Accessed June 9, 2023.]
About the Author:
After a 15-year career as a BBC presenter and producer, Jonathan switched to education, where he spent a decade as a teacher and school leader. With numerous books about memory and learning to his name, he compiles quiz questions for TV shows and heads up the U.K.'s Junior Memory Championship. Since 2019 he's been a writer and editor at Mind Tools, working on a wide range of resources and co-presenting the Expert Voices podcast. Outside of work, he loves watching soccer, tending his garden, and running – everything from 5Ks to ultramarathons.
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