Fail to plan, plan to fail: Why do I need a business plan?

I come across a lot of prospective entrepreneurs who constantly ask me why they need a business plan. Furthermore, I find that a lot of prospective entrepreneurs would rather not invest time and or money to prepare a comprehensive business plan. They would rather go ahead to start up a business which would most likely fold up. As such, I decided to write an article on the importance of having a comprehensive business plan.

What is a business plan?

In simple terms, a business plan is your company’s first resume or the blueprint of your business. Essentially, it is a document which details what you do, how you do it and why you do it. It includes everything from how you plan to fund your business, who your target customers are, who your competitors are, business risks and how you intend to promote your business. It also includes details of how much money you need to finance the business, how much money you will make in return, when you would make the returns and how you would raise the capital.

The purpose of the business plan would determine the amount of detail and quality of the document.

Furthermore, business plans are not only vital for start-ups but are also important for established businesses that are in the expansion phase or responding to a move by a competitor.

Why do I need a business plan?

There are many reasons why it is important to have a business plan. A few are listed below.

1. First and foremost, a business plan tests the viability of your business idea. A lot of ideas sound great on paper or even in discussions. However, in the process of developing the business plan, you can determine whether your idea will work as a business or not. This helps you avoid making costly mistakes and saves time, energy and money. 
2. Developing a business plan gives your business a greater chance for success. This is because it provides the opportunity to set priorities, establish goals/objectives and measure performance.  It provides clarity, enables you establish benchmarks, know your customers better as well as your competition. It provides a map that allows for operational and organizational direction.
3. In order to raise capital, prospective investors or debt financiers would request for a comprehensive business plan as a starting point in their assessment of the viability of the investment opportunity.
4. A business plan is also important for established businesses and not just start-ups. Successful businesses are dynamic as they continuously respond to changes in their operating environment. As such, business plans need to be reviewed and revised as new goals are set. Most successful entrepreneurs revisit their plans every six months or so, adjusting forecasts, changing objectives, evaluating new threats and identifying new opportunities.
5. In the event of a business sale, prospective buyers would request for a business plan. It enables the buyers to understand what you have, what it is worth and why they want it.

In reality, the business plan for any business, changes over time as the business develops. Businesses may have multiple business plans as objectives change. Developing a business plan may be time consuming and expensive but it is a vital part of a business whether a start-up or an established business. 

Whilst a business plan does not always guarantee success, it does however increase the odds of success in your favour. If you fail to plan, you plan to fail.