What is a Business Plan and Why Do I Need a Business Plan?

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What Is a Business Plan?

The prospect of starting a small business is exciting. You might be tempted to go out and lease a storefront or rent an office, put up a sign, and start pulling in customers. It’s perfectly natural for you to be enthusiastic and want to get started right away. Investing the time it takes to study your business idea and prepare a solid business plan before you dive in head first, however, is extremely beneficial. So just what is a business plan?

Business Plan Definition

A business plan is a written document that defines your business in detail. A business plan clearly states your business goals and identifies your strategies for reaching those goals. Business plans contain an examination of the marketplace, a breakdown of the competition, an explanation of your marketing strategy, an overview of your operations, as well as key financial analysis and projections. When you create a business plan, you are mapping out the future of your business.

Why Do I Need a Business Plan?

Now that you have a business plan definition, the next question you might ask is: why do I need a business plan? You might think you don’t need a business plan because you’re not going to be applying for a loan or trying to line up venture capital. You may think that because you have a strict budget, you don’t really need a business plan. Or maybe you just feel like you don’t have enough time to write a business plan. You might be able to get by or even do well without writing a business plan, but as the saying goes, failing to plan is planning to fail.

A business plan is not simply a document you include with a loan application, though any potential lender is going to want to see one. A budget is necessary for controlling your costs, but it’s no substitute for a well thought out business plan as it doesn’t speak directly to other critical areas of your business.

If you think you don’t have enough time to put together a business plan, make the time. All businesses can benefit from producing a business plan, even if you’re a busy sole proprietor who works from home. It doesn’t have to be lengthy to be helpful.

Your business plan will aid you in making important strategic decisions that help your business grow. A business plan gives you clarity, guides your progress toward your business objectives, and helps you meet those objectives. Even if you’re not going to be applying for a loan or pitching to venture capitalists, writing a business plan will help give you direction, come up with a strategy, and help you maintain your focus as your business matures.

Of course, having a business plan does not guarantee that your business will be a success. Business plans can, however, help you avoid problems that cause many businesses to fail such as being under-capitalized, lacking a sufficient market for their product, underestimating the competition, or having no real marketing strategy.

Advantages of Having a Business Plan

Planning increases your odds of meeting your goals. This is undeniably true in business and in everyday life. We plan trips, parties, exercise routines, and even the most mundane tasks. We plan these things to ensure that they get done and get done right. We plan things in advance to ensure that our objectives are met. If you’ve spent more time planning your next meal than planning your business, consider the following advantages of having a business plan in place:

• A business plan forces you to thoroughly research and objectively examine your idea to make sure that it is viable.
• A business plan helps you set clear business goals. Your plan will include benchmarks, timeframes, milestones, and financial targets so your business objectives will be both specific and measurable.
• Creating a business plan requires that you think strategically about your company, your company’s place in the market, your competitors, and your competitive advantage or unique selling proposition.
• Having a business plan can help your company stay focused. A carefully constructed plan serves as a guide from the early phases throughout the life of your business. It provides a reference for prioritizing and making decisions based on the overall goals of the business.
• A business plan can be used to help you get a loan or attract investment. Whether you are applying for a bank loan or pitching your family and friends, a solid business plan will increase your chances of being funded.
• Business plans can be used as a basis for tracking the performance of your business. At any given time, you can check your current progress against the goals and projections you set forth in your plan.

So What is a Business Plan and Why Do I Need a Business Plan?

A business plan is a detailed roadmap of your business. Writing a business plan will get you organized, clarify your goals, and give you a game plan for success. If you are planning on applying for a small business loan or appealing to outside investors, a solid business plan can impress and persuade loan committees or potential investors to fund you. A good business plan can be the difference between the success and failure of your small business so take the time to prepare one whether you’re just getting started or established your business without one.