What is a business plan and why do you need one?

If you’re thinking of starting a business, there are certain things that are non-negotiable. Some of these pertain to core values and loyalty. Some sit in the legal space and relate to tax and finances. There’s one other thing that will play a part in defining your company’s goals and growth – a business plan. So, what is a business plan and why do you need one?

What is a business plan?

A business plan is a written document that essentially describes your business. It comprehensively states your business’s objectives, goals, strategies, and forecasts.

Why is it important to have a business plan?

Clearly defining your company’s goals means that you can set out a written roadmap for how you will achieve them.

Whether you need to focus on the financial, marketing or operational elements of your company, a business plan will set out a clear, actionable strategy.

The purposes of a business plan are varied. This means that your business plan may also include other information. You can write down the history of your business, its needs, and the demands it will supply in the future. It’s also a good place to put an overview of all your services and products as well as your customers and suppliers.

Who needs a business plan?

While they’re particularly essential for start-ups and small businesses, a business plan is also extremely beneficial to established businesses. In fact, 70% of business owners suggest writing one before you start. This is according to a Quickbooks small business survey conducted in 2020.

Established businesses

If you’ve been running your company for a number of years, it’s always good to go back to your business plan and review it, to see which goals have been achieved, what changes need to be made, and what new directions your business can take to achieve more growth.

New businesses

Whether you’re a small new partnership business, an entrepreneur or an individual with a start-up, a business plan is very important for strategy. It helps you to focus on what is necessary (with specific steps) to make your idea succeed. It also helps to meet long- and short-term goals.

Businesses that need a loan or start-up capital

If you’re looking for finance, a business plan is top priority. Most banks require it, and even those that don’t will expect to see it. It’s important that anyone who is considering lending you money can get an overview of your business, with some predictable key points.

This also means that the business plan needs to be well-crafted and professional.

Why is a business plan important?

There are many reasons for a business plan. Here are our top five reasons for why a business plan is so important, and why you need one.

1. To establish credibility

When you start a business, you’re going to come into contact with all kinds of stakeholders: investors, clients, employees and, at some point, potential partners. A business plan shows them that you’re serious about your business. It also forces you to think through all scenarios and strategies that will increase your growth.

2. To establish goals

This is one of the most exciting parts of your business plan. What are your long-, medium-, and short-term goals?

Building and publishing your website could be one. Making your first million may be another. But each belongs in a different category. When you’re clear on your goals, and the time you have to achieve them, you can start strategizing effectively.

3. Understand clients and the competition

Your customer is everything. It’s so important to understand their needs and behavior, including the times they buy, and why they buy what they buy. An in-depth analysis of your customer in your business plan will get you closer to creating better services and products for them, and it will inform your advertising and marketing strategies (including branding).

In the same way, when you understand the competition, you begin to see your own company’s advantages. If you don’t have any, your business plan will help you figure out and set down in writing what you need to do to gain them.

4. Get to grip with assumptions

Everyone makes assumptions when they start a business. A business plan helps you to test these and assess how valid they are. If you assumed something would happen, like a certain store would stock your product, and this ends up not happening at all, you need to assess the results of this.

5. Finances

The most obvious reason for creating a business plan, this is vital for the success of your business. There are many factors to consider when it comes to finances:

· Is your idea feasible? Researching your target market and customers will answer this.

· Document the revenue model. How exactly will your business make money?

· What are your financial needs? How much capital do you need to operate your business?

· How will you attract investors?

· Opportunities – are you pursuing the most profitable ones?

How to write a business plan

A well-crafted business plan will include specific elements. When done right, business plans have great payoffs. Remember, also, that a business idea or concept is not a plan.

One idea is to find a business plan template and business plan examples and base yours on those.

Initially, it might look like a complicated process, and it can be overwhelming. Take a look at our article for a full breakdown of each element and how to go about creating it.

If you’d like to find out more about the support we give to business in and around Washington DC, visit our website.