To many they’re a hassle, time consuming, confusing and get in the way of day-to-day business. Having written many over a wide and varied career, I confess I've often thought the same thing. However the benefits of a robust business plan greatly outweigh the negatives, and I can honestly say I would never run a business without one.
So why do you need a business plan?
1. Your business plan is your road map.
Business can be a difficult road to navigate, with plenty of strange, and sometimes dangerous, places along the way. There are two things you need before you start any journey…knowing where you are now, and knowing where you want to get to.
Without those two points you will never be able to plot your course, and the likelihood of ending up in one of those dangerous places is far greater.
A good business plan will explain where your business is right now.
Many businesses, both small and large, just bumble along without any real direction. If success comes along, it’s often more by luck than judgement, and rarely lasts because there is nothing in place to maintain it. The truly successful businesses never bumble. they have a plan and the strategies they put in place are all aligned to that plan.
By going through a business planning exercise, and committing it to paper, you will have a far better understanding of your business and the market you are working in. A full analysis of your business will highlight all the good points as well as the areas which need to be addressed. It’s surprising how many times this process throws up problems which may seem insignificant but could lead to larger problems further down the road.
By understanding your market, you will know where the opportunities and the challenges lie. Not only does it give you the opportunity to grow in your own segment, you may well find other markets that you hadn’t previously considered.
By understanding your competitors, you will see how you stack up against them. You will be able to define not only their strengths and weaknesses, but also your own. In doing so you can shape your future plans to optimise your chances of success.
By understanding the financial picture for your business, including costs and cash flow, you will be in a far better position to allocate resource in the right places and at the right time to grow the business and avoid getting into difficulties.
A good business plan will define where you want to get to, and your route to getting there
Many businesses would define their target as ‘growing’, often with no forecasts or plans on how they are going to do it. A robust business plan will challenge you to set targets for your business, and put your marketing, digital and social media strategies in place to meet them.
With a better understanding of your business and the market you operate in, you will be in a far better position to ensure long term success.
2. Securing investment
At some point in the life of most businesses, external investment is required to allow it to grow. In order to secure funding from a prospective lender you will need to provide financial details such as Profit & Loss statements together with an up-to-date business plan.
The reason for this is that all investments carry an element of risk, and the lenders need to minimise that risk as much as possible.
By providing financial statements and your business plan, you are providing evidence not only of the current stability/profitability of the company but also give them confidence that you have a healthy future.
The TV show Dragons Den is a great example of investment risk assessment in action. The ones who really impress the Dragons always have the facts at their fingertips. They know their company and their market inside out, they have their financials in order, and they can convey a profitable future based on sound forecasting, As a result, the risk taken by the Dragons is minimised, greatly increasing the likelihood of investment. Those businesses are also far more likely to get the investment at the terms they want.
Business planning is preparing for your future, and as the old adage goes...
If you fail to prepare, be prepared to fail
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