If you're applying for a loan or seeking outside investors for your business a business plan is a must-have document. But you don't have to be raising money to benefit from having one.
A business plan helps you identify and deal with potential business problems early on—before you've spent money, leased space, or hired employees. It also lets you realistically assess your business idea and set concrete goals.
Starting a business without a business plan is a little like driving without a map—you may get where you're going eventually, but you're much more likely to make mistakes and have problems along the way.
Here are five reasons every small business needs a business plan:
Put Yourself In an Investor's Mindset
An investor's goal is to make money, and a business plan shows how and why a business investment is likely to make a profit. Your business is your investment—of time, of money, of emotional energy. If your business idea simply can't be profitable, a business plan will help you find that out. And it's far easier to walk away in the planning phase than it is after you've sunk two years of your life into an unworkable idea.
Avoid Magical Thinking
It's easy to ignore inconvenient truths when you're passionate about an idea. But a business plan forces you to address issues in a concrete and realistic way. Who has the skills, experience, and energy to run this business? How much money will you really need and how much can you expect to make? Who are your competitors and how will you deal with them? By tackling these challenging questions early on, you help ensure that your business is built on a strong factual foundation, not just hopes and dreams.
Set and Attain Goals
A business plan can function as a road map for running your business. It can include plans and goals for employees, locations, budget, marketing, and expansion. You'll have to answer important questions like what products and services you'll offer and how much they'll cost. When you get caught up in the hectic day-to-day tasks of starting and running a business, your business plan will remind you of what you want to accomplish, what the next steps are, and whether you are on track with your goals.
Puts Everyone on the Same Page
Business partners often disagree on company goals and how to reach them. The business plan process puts a spotlight on these differing views and gives the partners a chance to develop a shared vision. Your vision and goals then become easier to communicate to managers, employees, and customers. Even if you're a solo entrepreneur, you likely have family members who will be more supportive if they understand your goals and see that you have a realistic plan for achieving them.
Find Creative Solutions
All new businesses face obstacles, whether it's too much competition, a lack of interest in your products or services, or a supply chain problem. A business plan helps you identify these issues early, while you have maximum flexibility to explore creative solutions. It's easier to tweak product offerings, change locations, or adapt your marketing strategy when you haven't committed any money to your original idea, as opposed to when you're six months into a five-year lease with a stockroom full of products you can't sell.
Writing a business plan is much more than a technical requirement for a small business loan. A good business plan will show whether you have a viable business idea, help you with planning, and keep you and your team working toward the same goals.