Why is creating a business plan an important step for an entrepreneur? Actually, there is no business law or decree anywhere that requires a new or an existing business to write a business plan. Thus, many entrepreneurs do ignore it. There are several advantages and disadvantages of having a business plan as well as advantages and limitations of having a business plan which are topics that will come up in subsequent posts. In this post, my focus will be on the benefits of having a business plan.
Why is a business plan important to an entrepreneur?
Nevertheless, the fact remains that an organized business that has detailed plans and clearly defined strategies is more likely to be prepared for business developments and growth, than its counterpart with no business plan. The truth is, a good business plan is more than being a document about your business- it is an effective business tool that comes with many benefits. The essence po this post is to discuss the importance of business planning in entrepreneurship.
To draft a good plan so as to enjoy the benefits, there are some mistakes to avoid:
What to Avoid in Your Business Plan
1. Place some reasonable limits on long-term, future projections. (i.e over one year.) it is better to stick with short-term objectives and modify the plan as your business progresses. Many times, long-range planning becomes meaningless because the reality of your business can be different from your initial concept.
2. Avoid optimism. To offset optimism, be extremely conservative in predicting capital requirements, timelines, sales and profits. Few business plans correctly anticipate how much money and time will be required.
3. Do not ignore spelling out what your strategies will be in the event of business adversities.
4. Use simple language in explaining the issues. Make it easy to read and understand.
5. Don't depend entirely on the uniqueness of your business or even a patented invention. Success comes to those who start businesses with great economics and not necessarily great inventions.
Having talked about those mistakes you should avoid, let us see some advantages associated with a business plan. A business plan has many benefits, but let compress them into four. Let's see them:
Why is a business plan important to a new business?
1. Provides Direction:
Before anything else, what a business plan does is that it provides a business with direction. Realistically, the research and preparation you will put into developing the plan will help broaden your understanding of your business, as well as its operations and its industry.
Why is a business plan so important to the entrepreneur? A business plan will enable you to clearly compare the business’s expenses against its customer demand, available finances and even competition. And by understanding vital information as this, it becomes easier for you as a business owner to develop appropriate strategies to generate successful outcomes, thereby, making clarity an important functions of a business plan.
2. For Bench-marking:
In the attempt to identify (clearly) the success and failure of your business strategies, you and your establishment will definitely need a way to monitor its progression. Am I right? This brings about another advantage of having a business plan for your business.
The business plan provides a broad snapshot of the business’s details and often includes one- and five-year projections. You can easily determine if your business has achieved or exceeded its goals by simply doing such things like comparing your business's current figures, receipts and totals against those presented in the business plan. Also, comparison of the business plan's current and previous marketing efforts can also help a business owner to improve or refine his or her business’s best practices.
3. Helps In Terms Of Financing:
Why is a business plan so important to the entrepreneur investor or bank? Every business owner should know that financing a business is one of the most critical aspects of its operation. There are different businesses funding options such as using personal savings and personal investments, loans, grants, etc. But when applying for external funding (loans, grants, investors money), quite often, institutions and Investor will demand a business plan. Even government grant and procurement opportunities require a business plan to be submitted with the application.
A complete business plan will include an appendix that holds copies of supporting documents that are often required by lending institutions during the lending process (e.g bank statements). Thus, the business plan provides a convenient and well-organized location for these supporting items
During the process of developing business relationships and completing contract negotiations, a business owner may be required to show and prove his or her business ideas and forecasts to other businesses.
Your business plan provides a very clear display of vital things such as your business’ missions, objectives and goals (short- and long-term). Furthermore, your plan helps you to clearly communicate your business’ missions and goals to your staff, as well as explain how those goals will be attained.
You can use the plan to solicit opinions and advice from people, including those in your intended field of business, who will freely give you invaluable advice. Too often, entrepreneurs forge ahead without the benefit of input from experts who could save them a great deal of wear and tear. This is why business plan are important.
Having seen the importance of business plan in entrepreneurship, what are you waiting for?