Do you need a business plan for your small business? If you are seeking outside funding, you are required to present a formal proposal. But, the benefits of a business plan go beyond finding lenders.
A strategy can help you grow your company. Think of the concept like this:
If you’re like most people, you probably wouldn’t buy a car without doing some research. You would choose one after weighing the good and bad traits of different vehicles. You’d make sure the car starts before signing the title.
It’s a similar situation with your business venture. You need to be sure your business has the potential to be a worthwhile investment.
A business plan can be a simple outline or a detailed document. Your plan is a roadmap that steers you in the right direction. A business plan is not a promise you have to keep over time.
4 Benefits of a business plan
So what can a solid strategy for building your business help you accomplish? Here are four benefits of a business plan:
1. You can get outside funding
To get funding from lenders or investors, you need to show a business plan. Lenders want to see that they are investing in a company that will last and grow. You must give lenders a plan detailing the steps you will take as a business owner.
Even if your lenders are friends and family, it’s good to organize your ideas.
A business plan helps others understand your passion and see where their money is going. Communicating clear ideas to investors helps prove you can get your business off the ground and build it up.
You’ll need to know how to write an exit strategy for a business plan as well. A thriving business is no good to your investors if they have no way to eventually cash in on their investment.
2. You gain an understanding of your market
One key piece of your business plan is knowing how to conduct a market analysis. When you conduct this study, you look at your industry, target market, and competitors. You can see trends in decisions that could help, or harm, your business.
Another great benefit of a business plan is learning from someone else’s mistakes. Learning from other’s mistakes is less time consuming and financially burdening than learning from your own mistakes. The more prepared you are to deal with the aspects of your market, the easier it might be to handle issues down the road.
3. You focus your strategies
The entrepreneur in you is eager to dive right into business. But, having a business plan can help you pinpoint the best strategies for your company. Before you take the plunge into ownership, work out the important details.
This business plan benefit also helps you prioritize tasks. By looking at the big picture of your business, you can decide which challenges to tackle first. A business plan could also help you choose which tasks to address later.
4. You can check the financial numbers
Business plans include financial projections for your company. While the projections are not a peek inside a crystal ball, they do represent a forecast of your financial health. Planning for expenses will be important for keeping operations steady.
Cash flow projections help you see if your goals are possible. They also point out trends that could potentially harm your business. The faster you spot upcoming issues, the faster you can correct problems.
Be sure that your projections match up to your expectations. Have you set aside enough money to do the tasks at hand? Double-check your numbers so you are prepared to handle your finances in the future.
Business plan parts
Here are a few items you could include in your business plan:
- Company description telling how you will meet your customers’ needs.
- A market analysis that talks about your industry, target market, and competitors.
- Services or products you will sell.
- Marketing plans for generating sales.
- Funding requests with a budget outlined.
- Financial projections from your financial statements.
Your business plan could be anything between a basic outline to a 40-page presentation. If the plan is just to keep you on track, you can cover the areas you think need to be addressed. The benefits of a business plan are not limited to a specific length, but can be tailored to your needs.
If you write your business plan for lenders, you will want a more formal, detailed plan. Include a table of contents, a summary of your business, and an appendix with supporting documents.
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This article has been updated from its original publication date of February 19, 2016.This is not intended as legal advice; for more information, please click here.