At one point or another, most people have entertained the idea of starting their own business. It’s an appealing thought. You get to be your own boss (or the boss), calling the shots and pocketing most of the revenue. However, most people’s dream of building a business fizzles at the business plan stage. To say a business plan is a lot of work is an understatement; however, they are vital to getting any company up and running.
If you’re wondering what a business plan is used for, you’ve come to the right place. Business plans do many things, but they have four main purposes that we will elaborate on.
To attract capital
Starting a business takes a substantial, if not massive, investment. Depending on the company, there are tons of costs like building, licensing, labor/production, materials, and many others to consider just to get it started. This capital is hardly ever supplied in full by the business founders. Business owners reach out to either lending institutions or investors to provide the money for these costs.
To convince either banks or investors to give you all this money, you’ll need to convince them it’s a sound investment. This is the first vital task of the business plan. Investors and banks need to see data backed up with proof on things like projected earnings, overhead costs, customer demographics, competitor analysis, the future vision for the business, and much more.
To attract partners and management
Once you’ve secured capital to start your company with your business plan, the next step is to attract partners and management. By having a clear vision for your business outlined within the business plan, you can attract top-tier talent to help achieve your goals. Investors can often become working partners at the starting phase of trying to attract capital because they believe in your business goals.
When hiring managers to do the hard, day-to-day work, it’s a good idea to be transparent and share your business plan with them. By doing this, management can see your data-driven business projections and know what success looks like. If management clearly understands what they’re working towards, the likelihood of reaching those goals is much higher.
It acts as a barometer of success
The hours of meticulous forecasting and research you put into creating your business plan aren’t just to attract capital. By sticking to the milestones set in place by the business plan, you can use it to measure success.
If you go back and look at your estimated earnings for five years in business, and they are way off the mark, you should probably do an audit to find out why. Understandably, projections can be off, and there are always factors that aren’t taken into account. But if you put in the work and did it right the first time, you should be able to pinpoint why you missed the mark. It’s is highly unadvisable to go back and change your business plan to match your current numbers.
To build off the last point, you use a business plan to see if you hit your target goals and identify new opportunities for your business. As time goes on, it’s essential to return to the business plan to reexamine (not change) the projections and see what is different. Within these differences could lie opportunities.
For example, perhaps your demographics projections stated that the dominant age group for your region would be 45-60 years old for the next ten years. Instead, you find that younger people have moved into the area (25-38). Herein lies opportunities for new marketing strategies, product development, price adjustments, and many more.
Although a primary use of a business plan is to secure investment, it should never be filed away, never to be seen again after achieving that goal. Your business plan should be at the forefront of every business decision. It should also be referenced frequently to measure your success and identify new opportunities.
Business plans, however, aren’t set in stone. Sometimes companies make drastic changes to their leadership or ownership structure, and the business mission statement can change. In these instances, leadership should make addendums to the original business plan, but the original should never be entirely scrapped. Only when a company changes completely, like going from selling donuts to dump trucks, should it create an entirely new business plan. It’s vital not to completely abandon the original business strategy you built your initial customer base upon.
- Why branding matters when starting a restaurant
- Legal issues all startups encounter, and how to avoid them
- 5 successful businesses that launched during the pandemic and are thriving
- Here are some useful tools for a business owner
- Start your own business with these 5 devices