Launching a small business is easier today than ever before. Anyone with dedication can launch a website within an hour, and with simple services like LegalZoom, you can become an official LLC by the end of the day. But while starting a small business is a much more attainable goal than it used to be, it’s also more difficult to succeed amidst the competition.
The United States of America is a country that encourages entrepreneurship and support for small businesses. This encouragement, coupled with the acceleration of technology, has encouraged many Americans to start businesses of their own.
The business plan serves as the foundation for a company, but many business owners aren’t sure whether they need one, why they need one, or what they should do with it. Some small business owners have fared well starting out and believe a business plan would be an unnecessary addition to their to-do list. If you’re considering whether or not you need one, here’s what you need to know:
Get Financial Funding
One of the main uses of business plans is to secure funding from banks and investors. Small business owners rarely have the cash on hand to start and grow their businesses during the first few years, so they need help from external sources to fund critical growth stages. Without a business plan, it would be impossible to get a loan from a bank.
Your business plan shows banks and investors that you know what you're doing and have the potential to continue doing it well. Strong sales isn’t enough to secure a loan; a lender needs to know that you’re prepared, have a plan, and can act responsibly with money. On the same token, a well-written and thoughtfully executed business plan can convince a lender to back you even if you don’t have sales yet. As such, a business plan is a lender’s first glimpse into the crux of your business.
Build a Roadmap
In addition to funding, business plans can also offer business owners an invaluable road map. Writing a business plan naturally forces you to think critically about your company, its mission, and its future. While starting a business is simple enough, statistics show that half of all businesses fail, and many companies fail because they don’t have proper planning in place. Any great business owner should be able to analyze the market, translate that data, assert their position in the marketplace, and use those findings to peek into the future.
For example, consider the executive summary. The executive summary exists to summarize all other parts of the business plan, condensing each section to provide its most valuable points. Typically, the executive summary is written last. As you write the executive summary, you’ll need to think about your mission statement. Why do you exist and what’s your purpose? There’s a strong chance you may not have committed these thoughts to paper just yet, and writing a business plan gives you a meaningful purpose to do so.
Take a look at a business plan template pdf to give you a better idea of what you need to include in your business plan and how other companies secure funding using their business plans.
Connect the Dots
Running a business involves multiple moving parts. At any given moment, there’s several things to do and your business is collecting dozens of different data points. Writing a business plan allows you to connect those dots and look at your company from a holistic perspective. Does your marketing plan align with your operations plan? Does your market research sync with financial forecasts? Rarely is there an opportunity to have so many important elements in one document; a business plan offers this opportunity.
Far too often, small businesses owners lose sight of long-term financial goals because they’re caught up in growing revenue month by month. But business plans help you gain a deeper understanding of cash flow and its complexities and contributing factors. Keeping tabs on profit isn’t enough.
When it comes to taking on debt, planning and management of cash flow is crucial. The “Financial Plan” section of your business plan details your company’s revenue and profitability model. It not only explains how you generate revenue, but how you’re spending money and how you’ll spend borrowed cash. Your financial plan will also offer insight into how additional funds will positively impact the growth of your business.
Business plans hold you accountable for your milestones and mission. Once you’ve written your milestones, marketing plan, and other details, you’re much more likely to hold yourself accountable and use it as a frame of reference. When you put so much work into developing a comprehensive document, chances are you’ll stick to it. Once completed, your business plan will serve as a foundational document for which your business stands upon.
Creating a business plan shows that you’re committed to helping your business grow. There are many benefits to creating a business plan, but there are no drawbacks. Even if you aren’t prepared to ask for a loan just yet, business plans can help you in these various aforementioned ways. At the end of the day, having a business plan sets you apart from the many businesses that fail, and increases the chance that you don’t become another failed business statistic.
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