Starting a business without a business plan is like starting on a trip with no idea where you are going or how to get there. Unless you are addicted to risk or don’t care about the outcome, you would do some research and preparation before setting out on your journey. The same logic applies when starting a business. You might have a great idea for you new business but, before investing your time and money, it is much wiser to make the effort to scope the idea out. Is it feasible? What are the risks? How difficult will it be to establish yourself in the market?
A business plan is not a static document but should be a blueprint for your business as it grows and develops. It should be updated and modified as your business evolves, as the economic and industry landscape changes, and as your objectives are redefined.
There are a number if reasons why a business plan should be prepared.
- To test the feasibility of a business idea
A business plan allows you to test the feasibility of a business idea before you devote valuable time and money on it. Working through the business plan methodically and objectively, can help you identify at an early stage if the idea or business concept is impractical or unlikely to succeed. Often analysis of the market or competitive environment will reveal that your business idea or model is not robust enough to survive. Don’t ignore the warnings! Discard the idea and move on to another – and hopefully better – one.
- To identify opportunities and obstacles
Writing a business plan makes you focus on both the objectives and the details of your new business. It forces you to define and clarify both the operational and financial objectives of your new business, as well as the practical details, such as budgeting and market planning.
Furthermore, in creating the business plan you will be able to identify both potential opportunities and obstacles in advance, allowing you to formulate plans for dealing with them, meaning that you are better prepared for upsides, and downsides, when they arise. This means that your start-up phase should be smoother, with fewer unforeseen challenges.
- To secure funding
Most businesses need operational and start-up capital to fund their growth, usually in the form of bank loans. However, having a well-developed and robust business plan is usually a prerequisite before any established financial institution will even consider lending you any money. If you are not prepared to spend time on a business plan that lays out the idea behind the business, the market, the industry, the economic and competitor environment, the risks and opportunities, and to demonstrate that it is financially viable, then don’t expect any bank to risk their money lending to you. Banks have become very risk averse. The onus is on you to demonstrate that your business is a safe investment for them.
It is not just in the start-up phase that you may look for bank funding. You may need new equipment, want to offer a new service, or enter another and different market. In such cases you may well look to bank loans to help you achieve these aims. But again, without a business plan, don’t expect a bank to lend to you.
- To attract investors
Apart from banks or other financial institutions, there are other people who may choose to invest in your business, like venture capitalists or business angels. However, like the banks, they will expect there to be a solid, well-argued and robust plan for them to study before they consider investing in your business.
Expect them also to scrutinise your plan and quiz you in detail on it. Make sure that you can defend your assumptions and that you have spent enough time defining the market and analysing the competitors. A potential investor is going to need convincing that, not only is your business idea sound, but also that you have the necessary business acumen, understanding and commercial awareness to implement it.
- To facilitate business planning
Not only is a business plan an essential tool for a start-up, but it should also be an important planning mechanism for an established business. A viable business evolves, changing, growing (and sometimes contracting) as time elapses. A business plan needs to be dynamic, revised as new goals are set or the economic or competitive landscape changes.
Revising and updating your business plan on a regular basis helps you see what goals have been accomplished (and which have been missed), what changes need to be made, and what new opportunities may have arisen since you started the business.
- To aid with the sell or closure of a business
A business plan can also be very useful if you decide to sell your business, or close it – for whatever reason. A well thought-out plan can assist with the sales process, helping to ensure that you get as good a price as possible for the business, or helping to ensure that the transition to the new owner is as seamless as possible. And, if the decision is made to close the business, the plan can reflect the strategies and timelines for dissolution and withdrawal from the market.
Whilst writing a business plan can be time consuming, it should be regarded as an essential task if you want to have a business that will not only survive the start-up phase, but will go on to grow and prosper. Not only will a well developed plan help you determine the feasibility of your business idea, and identify opportunities and risks – and develop strategies for dealing with them – before they arise, but it will also help you plan for the future as your business evolves. It is also an absolute prerequisite if you want to apply for a bank loan or get outside investment from a venture capitalist or business angel.
If you are worried that you lack the financial skills or knowledge to construct an effective business plan, engage an experienced financial consultant to help prepare it for you. However,don’t neglect this very important task. If you don’t know where you are going, how do you expect to get there?