Why Have a Business Plan: Everything You Need to Know
A business plan is important in exploring the feasibility of a business idea, laying strategies for the operation of the business, and guiding managers.3 min read
Why have a business plan? A business plan is important in exploring the feasibility of a business idea, laying strategies for the operation of the business, and guiding managers. A business plan is also an important tool during the valuation of a business and when recruiting major employees to the business. Financial institutions and investors normally insist on evaluating a company's business plan before funding both startups and established businesses.
An Important Guide for Your Business
Many business owners only think of making a business plan when they are seeking funding from investors or financial institutions. However, a business plan is equally important for the benefit of the business owners:
- It can help you to visualize how your business will be operated. In the business plan, you can make operational strategies and distribute resources.
- The business plan will help you to know upfront what you need in terms of resources, what you need to do to make the business progress and prosper. The plan can help you to find out if you need to acquire certain assets and if so whether it is wiser to buy or lease such assets.
- The business plan should also guide the hiring process and it can indicate when to hire and the rationale of hiring.
- With a well-designed business plan, you can find out whether it is better to buy or rent space, and how much space you need.
- A business plan will help you to understand whether a potential business idea in your mind is feasible in practice. During the marketing analysis or competitive analysis, you might find out that your business idea will not work. This can save you a lot of time and money which you would otherwise have invested in an idea that is not feasible.
- Startups which make and stick to their business plans normally have a smoother initial operation period because the business plan helps the owners to preempt a lot of the problems that can spring up in the initial stages.
The Role of a Business Plan in Tracking Goals and Business Valuation
Making and following a business plan helps business in another key way: the plan can help you to monitor your company's progress in real time. It can help business owners to set objectives for management. These can be compared to the standards set out in the business plan. In case adjustments or interventions are needed, they can easily be effected. This can help you to account for and control the business' direction.
Sometimes a business plan may be needed to value the business. This is especially important when there is an anticipated change in ownership of the business. Valuation is sometimes needed during estate planning, divorce settlements, and when selling the business.
How a Business Plan Can Help You Obtain Funding
A business plan is one of the most important sales tools business owners use when they are seeking investors. But far from being just a tool for startups, a business plan is important at every stage even for an established business. Most investors including venture capitalists and angel investors insist on seeing the business plan before committing themselves to funding a business. A business plan intended for investors should be prepared rigorously as investors will normally do extensive research on the business plan to make sure that it is realistic. Most business use bank loans to get startup and operational capital. Just like investors, lenders will want to see the business plan before committing themselves to supporting the business. The plan should cover the major areas of the business. Most financial institutions will not process a business loan application which is not supported by a business plan.
The Importance of a Business Plan When Recruiting
With the current shortage in the number of competent people needed to fill mid-level and top-level management positions in companies, businesses are increasingly competing for the same people. To convince senior employees to work for your company, the traditional recruiting approach of appealing to their desire for big salaries and generous benefits is no longer enough to entice senior employees. A solid business plan might be what you need to wrestle a promising manager away from another company.
If you need help understanding why a business plan is important to your business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.