10 Reasons Why Every Business Needs a Business Plan

Can you build a house without a plan? No, right? Similarly, starting a business without a plan is a big mistake. A business plan is a blueprint for your business. 

Most entrepreneurs write a business plan without even knowing the real benefits of having one. They just do it because they have heard other people saying it’s important.

However, the real value of a business plan emerges when you know exactly why you need it and for what reasons.

Below are the top 10 reasons why every business needs a business plan.

1. To test the feasibility of your business

How sure are you that your business idea would work out? What would you do when you find out that the demand for your product/service is much smaller than you expected and you can hardly make any profit from your business, after spending a lot of time and money?

If you don’t want to end up in situations similar to the one above, craft a business plan before going out and actually starting your new business.

When writing a business plan, you will understand whether your business idea is feasible, or in other words, possible or not.

Research the market and the demand for similar products/services. If your competitors are not earning much, chances are, you will not too.

If the results are disappointing, brainstorm another idea. You will save yourself a lot of time and money at way and most importantly, there won’t be any regrets.

2. To establish business milestones

Without milestones your business won’t get anywhere and you won’t see any real improvement in profit and sales.

A business plan will help you determine the long-term milestones of your business such as achieving one million dollars worth of sales in the next 12 months or 100K Twitter followers before the end of this year.

These milestones will immensely contribute to the success of your business since it keeps the business focused and on track.

3. To better understand your competition

Unless your business idea is really (and I mean really) unique, you will face some sort of competition from either direct or indirect competitors.

A business plan forces you to analyze your competitors to get an idea of the marketing strategies and pricing models they use.

Not only that, you can assume the population and the buying frequency of your target market by looking at the number of monthly sales your competitors are getting.

To be honest, you shouldn’t start a business in a market where no well-performing competitors can be seen.

You can also gain a competitive edge by pricing your products/services based on the pricing models of successful competitors.

4. To identify your target market

Who are your customers? If your answer is “everyone”, you are dead wrong. You should be able to explain who your customers are in terms of their geographical location, age, gender, wealth and background.

For example, a business which sells school shoes in California should target girls and boys who are between 5-19 years of age in California and should probably conduct business near a well-recognized school.

A business plan will also help you answer the following:

• Why should people buy your products/services?
• How much are they willing to pay for your products/services?
• Are they already buying similar products/services from your competitors? and for how much?
• What will make them buy from you instead?

and much more.

5. To determine the best revenue model(s)

How is your business going to make money? Is it from direct cash transactions only? Or will you faciliate card payments as well? And what about online payments?

Here you determine how your business is going to make money. There are so many ways to earn money from your business and they differ from one business to another.

So it’s your responsibility to brainstorm all the possible ways of generating more income.

Maybe you can launch a website and start selling to your customers online or you can facilitate home delivery service with a small delivery fee. You can even start selling secondary products/services apart from the main ones to make a small side income.

No matter the revenue model you choose, make sure it’s feasible and you have sufficient resources to execute it.

6. To determine the financial needs of your business

How much money will you need to operate the business for the next 2 years? Can you afford it? From whom are you getting the remaining money; investor, bank or family? How long will it take for you to give it back?

These are the questions you need to answer to determine the financial needs of your business.

Without a business plan you will panic and get depressed when you are running out of funds since you didn’t plan things out beforehand.

A business plan prepares you to stay calm and focused in these kinds of situations because u will already know how much money you have and need, and whom to get them from.

Make sure you don’t ask for more than what you can pay back.

7. To secure funds from financial institutions

You need capital to start any kind of business, even an online one.

So what if you don’t have enough money to start your dream business? or what if you need to buy some new machinery for your existing business but your capital is just not enough to cover it?

Just get a bank loan, right?

Sorry to break it to you but, banks and all other financial institutions out there will require you to submit a well-written business plan before approving any of the requested loans.

A business plan makes your business trustable and dependable.

8. To attract investors

Business loans are indeed helpful but if you require a large sum of money, you will have to seek an investor.

No matter how good your elevator pitch and visual presentation may be, investors will still ask for a well-written, extremely-thorough business plan which they can take home and study before making any investments.

They will examine the document very carefully so don’t leave any room for errors.

9. To have an idea of the end-game

What will you do in the unfortunate event of your business leaning towards bankruptcy?

It’s time to liquidate the investment so that you and other investors can cash out, right? That’s great but how will you accomplish this and how long would it take?

A business plan will help you answer all these questions beforehand so that you will know exactly what to do in such situations. You need to pick an exit strategy which can generate the most amount of money over the least amount of time.

The most common exit strategies are;

• Initial Public Offering of stock (IPO’s)
• Acquisition by competitors
• Mergers
• Family succession
• Management buy-outs

Including an exist strategy in your business plan and explaining why you chose it will give confidence to potential investors and will increase the likelihood of them actually investing. It will also prepare the business to perform well in those situations.

For example, if you plan on selling your business to a certain competitor, it’s good to take present day decisions which would affect the business in favorable way for that competitor.

10. To be emotionally stable

An entrepreneur’s life is hard, brutal and emotionally unstable. At certain times you will be blinded by fear, doubt or exhaustion. Sometimes you might even feel like quitting.

Try reading your business plan at such times. You will remember why you started the business, how you wanted it to develop and etc. It will help you overcome your negative emotions.