Estimated reading time: 5 minutes
A good business plan is crucial because this plan guides you through each stage of building a business. In fact, your business plan should be used as a roadmap for how to structure, run, and grow your new business. It’s a way to think through the key elements of your business.
Additionally, business plans can help you get funding or bring on new business partners because investors want to feel confident that they will see a return on their investment. Simply put, your business plan is a tool to convince people that working with you — and investing in your company — is a very smart choice for entrepreneurs.
Below are frequently asked questions when it comes to business plans:
1. What is the purpose of a business plan? The main goal of your business plan is to convince you – and potential investors – that your business idea is a good one. As a result, a solid business plan should be a blueprint for a successful business and can give you a competitive advantage. It should highlight your strategic planning, develop marketing strategy and sales plans, create the foundation for smooth operations, and persuade a lender or investor to take a closer look at your company. Your planning process should do the following:
*Offer concrete evidence showing your business idea is sound and has a good chance of success
*Consider the competition, your funding, and the market
*Create a blueprint for company leaders to follow
*Communicate the company’s vision, highlight management responsibilities, and evaluate the competition in the marketplace
*Examine your capital needs, products/services, and potential to make a profit
*Develop the foundation of a financing proposal for investors and lenders to use to evaluate the company
2. What’s the best way to develop a business plan? Every new business needs a written business plan. This roadmap—which provides direction and attracts investors and potential business partners—is vital to an organization’s success. Even if you don’t plan on obtaining funding for your new business, it is important to create a business plan to help you strategize for future business growth and profitability. An effective plan will help you clarify your objectives and develop a marketing roadmap, which can help you achieve success.
The Small Business Administration recommends that every business plan include the following:
–Executive summary – a snapshot of your business
–Company description – describes what you do
–Market analysis – research on your industry, market and competitors
–Organization and management – your business and management structure
–Service or product – the products or services you offer
–Marketing and sales – how you will market your business and your sales strategy
–Funding request – how much money you will need for the next three to five years
–Financial projections – information, such as balance sheets
–Appendix- an optional section that includes credit histories, licenses, résumés and permits
3. Who should the business plan target? Your plan needs to focus on the following:
—Possible investors and business partners: Many investors, such as angel investors and venture capitalists, typically request a business plan in order to understand and assess your business. Because lending money involves a great deal of risk, investors are always looking to quantity their risk. And a business plan can help others visualize your future business and decide whether or not they want to be involved.
—Possible financing sources: Business owners seeking seed money from friends/family or a bank can use a business plan to showcase the strength of their business. A business plan’s financial projections can help make a great case for funding.
—Prospective employees: Building a business takes a great deal of time and vision. As a result, prospective employees can use your business plan to understand the goals and vision of a business, as well as grasp how they can be integral in helping the company meet its current and future goals.
—Possible joint ventures: A joint venture involves two or more businesses combining their resources and expertise to meet a specific goal. There are several reasons that companies decide to form a joint venture, such as business expansion, increased resources, development of new products, enhanced technical expertise, and access to established markets and distribution channels. Sometimes, a joint venture with another company can be a very good opportunity to grow your own business – without needing to purchase another company.
There is no question that every business owner should write a formal business plan. Not only does a successful business plan provide you with a way to explore the viability of your potential business, but it helps you avoid costly mistakes, forces you to think through every single aspect of your new business, pushes you to consider how you will run each part of your business, highlights potential problems, prepares you to actively seek financing, and helps you explain your business concept.
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