Why do you need a business plan?
A business plan is an entrepreneur’s most crucial business document. Without a convincing, well-written business plan, no one will seriously consider your business idea. In addition, no one would build a house without blueprints, so why would anyone build a business without a “business blueprint?” However, while a house blueprint is often static, a business plan is an evolving document that changes over time (Ward, 2016).
The economy has undergone substantial changes in the past few years, investors are much more cautious and realistic about their investments, and the demands on entrepreneurs are higher than ever before. None of this should deter you from creating or expanding your business. It is still a great time to start or grow a business. Changing economic times create many openings for new companies in old markets as well as opportunities for established companies to fulfill new, more cost-effective niches for their customers. In addition, new technologies have opened up many possibilities and reduced costs in old industries, making the world your global marketplace (Adams, 2002; Ward, 2016). However, these changes and opportunities also require forethought and planning to help ensure the business you have decided to create or expand has the best chance to succeed. Your business plan will help you accomplish this.
A business plan is a written statement that describes and analyzes your business, providing clear strategies and projections about its future (McKeever, 2012). A business plan is an essential document for any successful business. Events that usually prompt the need to create a business plan include the following (Shelton, 2014):
- Testing the feasibility of your business idea.
- Starting a new business (the most common reason)
- Funding a new (or growing) business or attracting investors
- Growing an existing business through new products, new channels of distribution, and/or new markets
- Acquiring a business or franchising your existing business
- Exiting from a business, thus needing to provide potential buyers with information about the company
While ideas are great, they don’t really matter if there is no plan to put the ideas into place. Execution of ideas does matter! Approximately 70% of new businesses survive at least 2 years, but that number drops to 50% by the 5-year mark, with just 25% lasting 15 years or more. Business failures are caused by a combination of operating and financial factors (Hirsh, 2017). For example, approximately 35% to 40% of people currently in business do not know how their money flows through their business (McKeever, 2012). Many of these factors could be proactively eliminated if the business owners developed an effective business plan.
It is often difficult to attract people to a new product or service, and just because you have a great product or service doesn’t mean people will switch their buying habits and buy/use your product or service. To get them to do business with you, you have to do more than attract customers to your business. You often have to get them to leave their current provider (Adams, 2002). How can you accomplish this? By creating a business plan that examines the current market and lays out strategies to compete in that market.