why you need a business plan

 

Your written plan describes your business, outlines your goals and serves as a road map for future activities— everything from handling unforeseen complications to repaying borrowed money. It's a document that should grow with your business, undergoing constant tweaks as your big idea evolves from a concept into a successful company.

A strong business plan is essentially the cornerstone of your business, and yet many entrepreneurs drag their feet when it comes to writing one— possibly because it involves a good deal of work and may bring back childhood memories of writing a tedious book report on summer vacation. But it's critical that you not only organize your thoughts on how you intend to run your business but also formalize your plan in writing. Here's why:

* It forces you to identify your (and your company's) strengths and weaknesses. You don't want to start a company that is flawed before it's even in business. Sitting down, writing a plan, thinking about everything you bring to the table (whether that's a passion for cupcakes or an enthusiasm for medical software) and considering everything you're lacking (whether that's salesmanship or computer skills) can give you a realistic snapshot of your odds of success. Your goal should be to focus on your strengths and fix any problems that could hamper your growth.

* It helps you figure out how much money you'll need. Entrepreneurs chronically underestimate how much money they'll need to start a business. Keep in mind: a lack of capital is one of the top reasons why businesses struggle or close during the first year. Writing a plan forces you to get a handle on where your money will come from, where it will go and whether it will be enough— not only to get your business off the ground, but also to sustain growth in subsequent years.

* It gives you clear direction, which can help eliminate stress. As a business owner, you often have to juggle multiple roles— everything from bookkeeper to CEO— and that can leave you feeling distracted, disorganized and overwhelmed. A document that outlines your mission and plans for the future can prevent overload, help you set realistic goals, keep you on track and boost your productivity.

* It will serve as a resume when you seek lenders, investors or partners. Most lenders, and certainly any professional investor such as an angel or venture capitalist, will expect to see a business plan before giving you money. Even if you're not seeking outside money, a business plan can be helpful when renting space (a landlord might demand to see one) or seeking a business partner. For partners who start a business together, writing a plan ensures that everyone is on the same page when it comes to the company's mission and strategies.

* It makes you evaluate the market for your product or service and size up the competition. As you write your plan you'll research the current market and see how your product or service might fare against existing offerings. By analyzing your competition, you'll get a sense of how to price your product or service, how to target the right customers and how to make your company stand out, particularly in a crowded marketplace. As you assemble your business plan, you'll see opportunities to fine-tune your concept, avoid problems that could become disasters and ultimately increase your odds of success.