It cannot be stressed enough how important it is to write a business plan. Most people feel that if they plan to set up a small business or home based business, they need not write a business plan. Big mistake! Here are some important reasons why it is a must to invest your time and effort into writing a sound plan.
1. Back-up your application for funding
To make your dream business work, you might need external sources of funding like a loan from a bank or investment from Venture Capitalists or other funding agencies. For any of these establishments to invest in your venture, you need solid proof that your business idea is profitable and sound.
2. Re-establish viability
A business plan is not just to justify how great your idea is or to convince someone to back you up with funds. It is important to write one also to understand the viability of your business idea. A business plan will help you research the market and give you insights into how viable your idea really is and if it is the right one for you.
3. Deal with problem areas
A good plan will force you to do a complete SWOT (Strengths, Weakness, Opportunity, Threat) analysis of your idea. Once you do so, a lot of underlying realities will come to light, some of which you may have not thought of. Being prepared with the real picture will equip you to deal with eventualities.
4. Share your business objectives with your team
A well laid out business plan will outline the objectives with much more clarity and vision. Sharing these objectives with your new team will give everyone a fundamental idea of the common goals and set a platform for role clarity and expectations.
5. A clear financial analysis
A thought out plan will lay on the table, a lucid picture of your financial requirements, assets, cash-flows and future projections relating to expenses and profitability.
6. Chalk strategy for business growth
It is important for every business to have a clear plan of action as to how you shall market your business. It is imperative to identify the contributing growth factors to your venture. A clearer vision of the future is important so as to channelize your efforts in the right direction, at the very beginning.
7. Valuation of your business
A good plan will help you good an overall valuation of your business by giving you a summary of your assets, growth potential, book value etc. This is important for the future, in case you need to sell your business or want to exit the market.
Most people that they should write a business plan only if they plan to apply for a loan or require funding from venture capital funds etc. Others feel that writing a business plan is a waste of time as it takes a lot of effort to tell you what you already have figured out in your head. Now you know why writing a plan is crucial.