Why do you need a Business Plan?

23 Jan 2013

Business-Plan UsesThis might look apparently as a redundant article to “Usage of a Business Plan” but these two are different. This is mainly from your perspective, why you need a business plan. If someone assumes that a business plan is a management gimmick or a waste of time, they cannot be any farther from the truth. Business plan gives you the direction, the plan and many other vital decision making points discussed below.

1. Analyze the feasibility of your Idea: Helps You Decide to Proceed or Stop

This is the most important aspect. All ideas seem nice and great when thought of and discussed. But the real scenario is only revealed once the business plan is drafted. This is definitely the most important insight that business plans gives to entrepreneurs. It’s as simple as it is important. You, as the prospective business owner, are the most important person you must convince of the soundness of your proposal. You might not need a business plan for the belief but a well drafted business plan enhances your confidence towards your idea. With a business plan it is no more just an idea it is now backed up evidences and proofs. Therefore, much of the work you are asked to do here serves a dual purpose. It is designed to provide answers to all the questions that prospective partners, lenders and investors will ask. But it will also teach you how money flows through your business, what the strengths and weaknesses in your business concept are, and what your realistic chances of success are. Many experienced consultants including us, does a feasibility analysis of your idea. This is a very important step. A business plan gives you the tools to understand, uncover and correct flaws in your business concept. If this analysis demonstrates that your idea won’t work, you’ll be able to avoid starting or expanding your business or modify your strategy. It helps you being proactive and prevents you from certain uncalculated risks. This is extremely important. It should go without saying that a great many businesspeople owe their ultimate success to an earlier decision not to start a business with built-in problems.

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2. Planning Improves Your Odds of Success

Many people take a business venture as a gamble, a play of luck. I would not say luck has nothing to do with it but venture without a business plan is definitely a gamble. Business plans calculates your risks and rewards, makes you well informed of some of the obstacles you may face. Makes you well prepared. At every point of decision making you have the data, plan, figures to substantiate your decision.

Case: You open or expand a business and gamble your and the bank’s or investor’s money. If you’re right, you make a profit and pay back the loans and everyone’s happy. But if your estimate is wrong, you and the bank or investors can lose money and experience the discomfort that comes from failure.

Writing a business plan helps beat the odds. Most new, small businesses don’t last very long. And, most small businesses don’t have a business plan. Is that only a coincidence, or is there a connection between these two seemingly unconnected facts? According to my experience it helps to have a business plan.

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3. Valuable Insights: Helps you improve Your Business Concept

Writing a plan allows you to see how changing parts of the plan increases profits or accomplishes other goals. You can tinker with individual parts of your business with no cash outlay. If you’re using a computer spreadsheet to make financial projections, you can try out different alternatives even more quickly. This ability to fine-tune your plans and business design increases your chances of success.

Case: For example, let’s say that your idea is to start a business importing Korean leather jackets. Everything looks great on the first pass through your plan. Then you read an article about the declining exchange ratio of U.S. dollars to Korean currency. After doing some homework about exchange rate fluctuations, you decide to increase your profit margin on the jackets to cover anticipated declines in dollar purchasing power. This change shows you that your prices are still competitive with other jackets and that your average profits will increase. And you are now covered for any likely decline in exchange rates.

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4. Helps You Keep on Track

Many business owners spend countless hours handling emergencies, simply because they haven’t learned how to plan ahead. A written business plan gives you a clear course toward the future and makes your decision making easier. Some problems and opportunities may represent a change of direction worth following, while others may be distractions that referring to your business plan will enable you to avoid. The black and white of your written business plan will help you face facts if things don’t work out as expected. For example, if you planned to be making a living three months after start-up, and six months later you’re going into the hole at the rate of $100 per day, your business plan should help you see that changes are necessary. It’s all too easy to delude yourself into keeping a business going that will never meet its goals if you approach things with a “just another month or two and I’ll be there” attitude, rather than comparing your results to your goals. A properly written business plan with realistic projections gives you a benchmarking tool for your performance.

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5. Communicate your idea

Business plans are formal document with a definitely structure. You may have difficulties in explaining your idea to an investor or a prospective partner. Business plan formalizes the communications. It has everything a person needs to know about your idea. The scope of misunderstanding or attenuation of understanding is minimal. The structure of a business plan is made simple yet comprehensive. It is never a piece of literature but a informative document practical enough to convey the idea.

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