Creating a business plan is something every serious business owner or aspiring entrepreneur should do.
Too many entrepreneurs jump into a new business without enough research, planning, or forethought. While you need that kind of passion, inspiration, and drive to become successful in building a new company from scratch, you also need the ability to plan ahead, manage your finances, and avoid major pitfalls and financial setbacks along the way.
You will learn those skills when you research and write your business plan.
Why Make a Business Plan
There are 8 major benefits to writing a business plan.
Writing the business plan will give you clarity. Going through the process of writing out your business plan will force you to think through all of your options and to choose the best direction for you and your business. Clarity is what separates successful business owners from unsuccessful business owners.
If you get nothing else out of writing your business plan, it’ll be worth it because of the clarity you’ll gain.
Writing a business plan forces you to plan your business strategies and goals. Successful entrepreneurs plan more and plan better than unsuccessful entrepreneurs.
“Planning” might sound like a boring word, but if it saves you $10,000 on construction costs or helps you avoid hiring an unnecessary person at $50,000 a year, those cost savings could mean the difference between bankruptcy and profitability.
Most new businesses fail because the founder didn’t plan ahead in order to avoid completely unnecessary problems and financial setbacks. Writing a business plan could make the difference between success and failure for your company.
While writing your business plan you will naturally need to collaborate with others. You’ll need to do some in-depth research and due diligence on your industry and business model. You’ll need to make phone calls, read articles, talk to potential customers, suppliers, and competitors. This will allow you to take other peoples’ ideas and use them to your benefit.
When you talk to others in your industry or about your business, always be thinking, “How could this be done better?”
This will keep you objective when you analyze what’s going on in the industry and allow you to see unmet needs in the market and opportunities for growth.
4. Raising Capital
It’s very hard to raise money for a business without a well-written business plan. Private investors, banks, venture capitalists, and other institutional investors will often require you to have a business plan in place before they’ll invest. The business plan should provide a potential investor or lender to the business with enough information to learn enough about the business to make an informed decision as to whether or not they should invest in the business.
5. Financial Projections
Creating pro forma financial statements for your business will force you to think through all your assumptions about the business. This will help you view the profitability and potential for the business objectively and critically.
Don’t just put some numbers you got out of thin air in a spreadsheet and call it a financial projection. You need to get quotes and research the cost of everything.
For example, if you were starting a restaurant, you would have to get quotes from suppliers for the cost of everything including kitchen equipment, stoves, construction costs, furniture, silverware, dishes, napkins, to-go containers, cups, lids, every single ingredient you’ll be using, etc.
If it sounds like too much work to get quotes on all those items, then starting a business will definitely be too much work for you so you might as well quit right now and save yourself the money and heartache.
Your business plan should give you guidance as you grow your business. It should have an “Operations Plan” or “Operations Schedule” that details the steps you need to take to get the business off the ground.
As an example, if you were starting a restaurant you would have a timeline of when you would lease the building, how long renovations would take, a schedule for the opening day, and then an estimate of the day you break-even, just to name a few of the steps you would take.
7. Measuring Results
One of the major differences between successful entrepreneurs and unsuccessful entrepreneurs is that successful ones measure results. Your business plan should provide you with a financial projection that you can use to measure your results against. If you beat your projections, then you’re doing well.
If you fall short, you either made bad projections or you’re failing to execute the business properly.
Projections are never going to be 100% accurate, and you’ll need to constantly update your projections as new information comes in. You need a goal to aim for, and you need to know if you’re on track. That’s what projections provide you in business. If you can’t take the time to make projections before you start the business, you’ll likely fail in business because you’ll need to constantly update cash flow projections and other financial projections once your business is up and running to make sure you can handle future growth and challenges.
This is one aspect of the business plan that most people don’t understand. Your business plan is a marketing tool. You need to use it that way! You should send a copy of your business plan to anyone who could potentially invest in your business and anyone who might be remotely interested in learning about your business.
Now, I’m not telling you to solicit strangers and make them read your business plan. But if you know someone who may be interested in what you’re doing, then it’s only kind and appropriate for you to give them a call or send them an e-mail explaining that you’re starting a business and that you’d appreciate it if they gave you feedback on your business plan. Often, you will find your best investors and advisors come from those in your circle of influence whom you send your plan to (and you never know who they might share your business plan with).
Success in business is built one relationship at a time. If you can start a few great relationships with folks who have read your business plan, that could lead to new referral partners and customers for your business. And that alone could make the difference for your company between success and failure.
Write Your Business Plan
Now that you know the 8 major benefits in writing a business plan, it’s time to get to work!
If you’re not sure how to get started or what to include in your business plan, follow our free step-by-step guide on how to write a business plan.