You’re probably wondering what makes a business plan super important for entrepreneurs. Or why you need to write one as you plan on launching your new business.
Before we get deep into this article, let me ask you a practical question:
How do you feel whenever you use a map with GPRS to trace a location or address you practically haven’t been to before?
But maybe not 100% confident. But at least 50% that you wouldn’t get missing as one without any direction. Don’t you think you should see a business plan should in the same way? As a map to a business owner,
According to a study, apart from a few startups that succeed spectacularly, such as Facebook, many fail as a result of some of these top reasons:
- No market need
- Ran out of cash
- Not the right team
- Get outcompeted
- Pricing/cost issues
- Poor product
- Need/lack business model
- Poor marketing
- Ignore customers
- Product mistimed
- Lose focus
- Disharmony on team/investors
- Pivot went bad
- Lack passion
- Bad location
- No financing/investor interest
- Legal challenges
- Don’t use network/ advisors
- Burn out
- Failure to pivot
If you observed closely, you’ll realize that over 90% of these issues revolve around a business plan. Anyways, that’s what you’ll learn in this post, discussed in the following subheadings:
- What is a business plan?
- Why is a business plan important to an entrepreneur
- What are the four importance of a business plan?
What is a Business Plan?
As an entrepreneur, a business plan is a document that serves as a map, guiding you all through your journey of building your business. It spells out where you intend to go, how you’re going to get there, and, of course, what it will cost you to do that.
Starting a business is a great thing. But sourcing for capital remains a big challenge for many startup owners. And even for a growing business— on its way to expansion. But again, when sourcing for funds, your business plan becomes very handy.
That’s because it helps give your potential investors and lenders a clear insight into your business and its vision. Also, it tells them why they should feel more confident in investing or partnering with you. As you know, most investors are careful in choosing their investment options when building their investment portfolio.
And therefore, they’re not willing to put their money or resources into businesses that cannot generate a handsome return on investment (ROI).
However, beyond that, having a well-written business plan in place helps you stay focused, organized, and on track towards achieving your business goals.
In other words, if you’re contemplating starting a business, whether online or physical, it’s in your best interest to take your time in writing a business plan for your business yourself or with the aid of a qualified person or team to do that.
Why is a Business plan Important to an Entrepreneur?
As a blueprint for a business, a business plan guides business owners in making essential and sound decisions. On top of that, it allows you to secure funds as you achieve your predetermined business goals. Not only that. It keeps you as an entrepreneur motivated and focused by giving you direction for managing your business. At every stage and phase of its business life cycle.
More interestingly, through its different sections, a business plan helps you to envision possible challenges and develop effective and efficient ways to overcome them. Particularly from information and data obtained from market research and financial projections, and so on.
Interestingly, those are some of the crucial information that help potential investors know if your business is a profitable investment opportunity for them.
What are Four Importance of a Business Plan?
Of course, there are tons of benefits that an entrepreneur can enjoy from having a professional and well-written business plan. Depending on the angle from which you’re looking at it. But in this article, we shall look at the four major important roles a business plan serves to an entrepreneur in any industry or business in the corporate world.
And they include:
#1. Helps entrepreneurs set and achieve goals
While this point seems self-explanatory, you may ask how. It’s understandable: there’s a big gap between theory and practicality. So let’s say you have a friend named Mitchel in your neighborhood. And wants to open a bakery in your town.
In short, you’re one of those who encourage her to do so. That’s because you know that she has always loved baking and wants to turn her hobby into a business.
So Mitchel met with you and shared some of what she had written in the business plan she had spent the previous week creating. And based on her plan, you can see that she has set a goal of opening the bakery within six months and achieving a profit within the first year of operation.
Not only that. She has included a detailed market analysis in the drafted plan that shows a high demand for baked goods in your area and a lack of competition.
Also, her proposed sales and marketing plan outlines how she intends to attract customers to her bakery. And her strategies include offering unique flavors of cupcakes and hosting a grand opening event.
As her close friend of Mitchell, with the clarity and details of her business plan, do you think she has better positioned herself and her business to realize her goal of opening the bakery within six months and achieving a profit within the first year?
#2. Provides a roadmap for the business
Here’s another importance of a business plan to an entrepreneur. It serves as a compass that helps him to channel his time and other resources productively to maximize profit. To drive this point home, let’s look at another practical example.
Imagine you have a male friend named Pablo who wants to start an online clothing store. For years you’re aware that Pablo has been passionate about anything clothing or fashion. So you’re in support when he shared his business idea with you.
So Pablo spends the next 7 days crafting a professional business plan. And in it, he outlines the practical steps he must take to launch his online store. Some of which include:
- Step One: Research the market,
- Step Two: Choosing a target audience,
- Step Three: Selecting a product line,
- Step Four: Setting up a website, and
- Step Five: Creating a marketing strategy.
From the above steps, what do you think?
Your friend Pablo has successfully created a road map for his business in making his dream a reality, right?
You’ll agree that this roadmap in his business plan will help Pablo know what he needs to do to launch his store. And then how he can achieve his business goal with focus and motivation.
In other words, a business plan doesn’t only make an entrepreneur anticipate potential challenges for his business. But also provide clear direction to overcome them— and to get to his destination.
#3. Helps an entrepreneur or business owner secure funding
Starting a business is one part of the “puzzle” of building a successful and profitable business. Getting the required capital and resources to grow and scale your business is another part of the puzzle.
Unfortunately, that part is somewhat daunting for many startup companies or business owners. Especially when don’t have a comprehensive and compelling business plan.
But whether you like to hear it or not, no investors would love to invest in your company without paying close attention to what your business plan is saying. Again, let’s use the practical example of your friend Pablo.
You’re happy that his online clothing store is now up and running. However, Pablo seems concerned about expanding his product line and contemplating opening a physical store. But he doesn’t have the required capital to do that.
So to achieve that, Pablo needs additional funding. And consequently, he decided to revise his business plan, which now has detailed financial projections and market research of his business. And interestingly, these facts and figures captured by his market research and financial projections in the plan show potential investors that the expansion of John’s business is a sound investment opportunity.
And boom! Pablo eventually secured the funding he needed to achieve his goal of expanding his business.
#4. Facilitates effective decision-making
Just as life is all about choosing between alternatives, the entrepreneurial journey of every businessman is full of decision-making processes. Again, let’s stick with the example of your friend Pablo.
His clothing business is growing, and he’s currently facing a challenge that requires him to either expand his product line or open a new store location. But to make an economically sound and informed decision, Pablo turns to his business plan to help him through his decision-making process.
So he decided to evaluate the potential profitability of each option by reviewing the market research, target audience, and financial projections.
You’d agree that with this information from his business plan, Pablo can make an informed decision that will benefit his business.
A final thought on the Importance of business plan to an entrepreneur
Now you’ve learned that a business plan is a crucial tool for entrepreneurs since it serves as a guide for their business growth and development. It states in an orderly manner essential information that helps you as an entrepreneur get finance from lenders or investors. Some of this information includes the company’s objectives, strategies, financial projections, etc.
Summarily, it is pertinent to note that having a solid and professional business plan is pivotal for any entrepreneur who wants to start or grow a lucrative business.