Starting a business is not for the faint of heart. It’s a gamble where anything can happen, and risk is always a reality. According to data from the U.S. Bureau of Labor Statistics, about 20% of U.S. small businesses fail within the first year. Without proper preparation and planning for your business, there’s an even greater chance that it will fail. You can’t just wing it and expect to be successful.
Take a look at it this way: you don’t just walk over an empty lot and begin nailing boards together to build a house. You must first create a blueprint and use it as a guide to ensure your home is structurally sound. Otherwise, you will end up with a maze-like layout, stairs leading to dead-ends, and inaccessible rooms.
A business plan is a blueprint for your business. Whether you’re starting a small business or a big-time project, having a reliable and well-written business plan can make a big difference and help you succeed. Let’s take a look at some of the reasons why you need one for your business and how it can help your business become a success.
You need this if you want to secure funding
It’s no secret that launching and maintaining a business costs money and may even break your bank. A study conducted by the Ewing Marion Kauffman Foundation found that the average cost to start a new business is around $30,000. Between your office space, equipment, employee payroll, upgrades for expansion, and other expenses, you might need to secure funding to keep your company afloat.
But a bank, investor, venture capitalist, or business partner won’t simply risk their money for you unless they know you have a viable and sustainable business. You will need to hand them a report that shows there’s a market for the services or products you're offering. They will also want to know what you’re doing and if you have a good grasp on your business trajectory.
Here’s where you can use your business plan as a tool to secure funding. It will help answer questions about profitability and revenue generation. When you have a well-written one in place, your investors will feel confident that they will see a return on their investment. Not only can this make the difference on whether they will invest but on how much money they will give you.
It can help you determine whether you will make money
Most entrepreneurs are often convinced that their business idea is the next big thing that no one has ever thought of before. Although this confidence is admirable, too much of it can blind you from glaring issues and mistakes that can be extremely costly. You invest your time and resources only to end up failing.
When you create a business plan, the financial projections will help test your revenue model. You will be able to see whether your idea is feasible from a financial perspective. By performing a few equations, you can get a rough estimate of how much money your business will make and if you’ll be able to cover all the operational costs.
By calculating your profit, you will be able to determine your level of success. It will also provide information about where your business is earning money and where you are losing it. You will be able to spot your weaknesses, allowing you to improve your business idea.
It’s a great way to map your strategy
The importance of having a reliable business plan follows the necessity of strategic planning and prioritization. When you’re creating a business plan, you have to ask yourself a lot of difficult questions. You have to take your time dissecting each issue and researching to come up with insightful answers.
It’s a great place to map out the path your business intends to take to make money. You can assess how your goals fit with your budget and iron out any kinks. Most successful entrepreneurs use SWOT analysis to create a strategy that effectively attacks their target audience.
Your business plan is also a great way to get everyone on the company on the same page. It will help you explain how the company will get from one point to the next. When you’re not around to give them answers and instructions directly, they can consult the business plan to understand what steps they need to take.
Having a business plan keeps you on track as you grow
Even if you’re getting into a freelance business or other ways to make money online, all business ventures should lay out goals and milestones. This will give you targets to aim for in the short, mid, and long run. But without putting it on paper, you could lose track of your goals.
A business plan can act as a map that keeps you focused. It can help track your progress and prevent you from losing sight of your end goals and going off course. When things don’t go as planned, having a business plan and a clear goal makes it easier to make changes.
Without a reliable business plan, looking at the big picture can start becoming confusing, and you will end up continually changing your short-term plans. It establishes a clear vision for your company and the necessary plan of action to achieve that goal. This activity will become even more vital as your business grows and becomes complex.
A reliable business plan minimizes your risk
Entrepreneurship is not easy. Some challenges and issues may pop up as the business launches and grows. However, the risks become significantly more manageable once tested against a reliable and well-written business plan.
Although it may not eliminate all risks, having a business plan allows you to leave less of it up to chance. You can forecast financial implications, understand your target audience and the market, and devise operational plans to reduce the risk factors.
By creating a business plan and reviewing it regularly, you can uncover your flaws, gaps, and wrong assumptions. You can develop a contingency plan and seamlessly make adjustments in your business. It gives you more control by seeing the whole picture, planning, and making better decisions.
Although it’s possible to skip the planning process and jump directly into startup mode, this will only increase the likelihood of your business failing. Rather than putting your business at a higher risk, it’s better to create a business plan that can guide you as you start and grow. It can help you see the bigger picture, plan, make smarter decisions, and increase your likelihood of success.