Business Plan

The Importance of Writing an Effective Business Plan

Whether you are planning to start a new business or expand your existing business, your first step is to develop a strong business plan. Why? Because the business plan is your blueprint for creating profitability and success. You wouldn’t build a house without a blueprint to follow and the same goes for your business! It’s important to note that you should not outsource the research or writing of your business plan. As the business owner, only you have the full vision.

Here are five important ways a business plan can help you succeed with your start up or expansion.

  1.  Establishes the viability of your project.

A well-constructed business plan requires you to think through and document a range of logistical requirements for your project in order to establish its viability and interpret its likelihood of success. Your business plan should answer certain market-related questions such as:

  • What is the location of your business and what are the demographics of the area?
  • What competition do you face in your market?
  • How do you plan to market your business?
  • Who’s your management team?
  • How much money do you need to complete your start up or expansion project?
  • What are the financial projections such as projected monthly income and expenditures for your business upon completion of your project?
  • How will you measure success?

By carefully researching and documenting the answers to these questions in your business plan, you gain an understanding of the true potential of your company and can initiate your project with greater confidence.

  1. Provides a basis for negotiating with lenders.

Most likely you will need to borrow a significant amount of capital in order to execute your plan to start or expand. The business plan forms the basis for negotiations with potential lenders or investors. It details your business objectives, market research, and plans for staffing, marketing, and cash flow management. A thorough plan provides a foundation for determining the potential value of your business and will help identify the level of risk your lender would be undertaking in funding your project.

When choosing your lender, look for a lending institution that is familiar with your industry, as they are more likely to understand your specific situation and financial needs. An experienced lender who specializes in your industry should also be able to spot potential flaws in your plan and project calculations, possibly saving you valuable time and money.

  1.  Creates a guideline for cash flow management.

The business plan is a living document that should be updated periodically to reflect changes in the company vision, economic challenges, competition and cash flow projections. A business plan also serves as a guideline for cash flow management. Understanding the cash flow of your business allows you to manage the seasonality of your business and respond more effectively to market trends and opportunities. You are also better positioned to plan your next stages of growth.

  1. Functions as a business communications tool.

Often, business owners discover that they need to effectively communicate the mission and expectations of their company to customers, suppliers, attorneys, distributors and other third parties. The business plan, partially or in whole, provides a thorough overview of your company’s vision for its future. Therefore, components of the plan can be a valuable tool for giving employees a broad view of the company, educating key partners and suppliers about the scope of the business, and informing financial supporters of your specific plans for future success.

  1.  Empowers you to determine your future.

Whether your objective is to run a small business or become a leading industry competitor, the only way to ultimately control the outcome of your business undertaking is to plan for it. By documenting your ideas and strategies–what you want to see happen and how you plan to get there–you are taking control of your future and placing the power to direct the final outcome in your own hands.

These are just a few of the most important reasons for creating a business plan. You might also consider the benefits your business plan can provide in outlining specific objectives for managers, key investment decisions such as whether to lease space or build, valuing your business for estate planning and tax purposes, or defining your personal exit strategy. Developing a thoughtful business plan can help you focus your vision for the future and positively impact your level of success.