Most of the times when you go through articles underscoring the importance of having a business plan. The usual norm is for people to only draft them when they intend to use them for sourcing funding. However, it is more than just a tool for sourcing funding. It also carries with it so many uses for you as an entrepreneur. In this article we discuss why it’s important to have a business plan plus the purposes for which it’s drafted.
The Importance Of A Business Plan
Many times we are told that failing to plan is planning to fail. It’s quite true and even the bible points out one must count the cost before embarking on venture. According to Startupbiz Global, Drafting and subsequently adhering to a business plan forces you to think objectively and critically. The components are interconnected and feed into each other. For example, your market segmentation informs your marketing strategy and in turn feeds into your cash flow projections.
So, neglecting one area ignites a chain reaction to results in failure. Therefore, having a proper action plan is important in that it causes you to employ disciplined thinking in planning and executing your operations. You’re essentially seeing the end from the beginning when coming up with a business plan and that obviously requires extreme discipline in your thinking. It helps do away with assumptions by testing your hypotheses so as to establish facts.
Refining Your Idea
Usually, when an idea strikes your mind you get excited. This is actually good because all great ideas start out as just mere thoughts. However, thoughts aren’t always in sync with the material world and this can usually be revealed once you start refining the idea. For instance, your idea might seem potent in your mind but as you work out your marketing plan (which is a component of the plan), you might realize that there’s no market for it.
So going through the paces of drafting a plan helps you refine your idea by subjecting it to rigorous real-life scenarios. In the process, you might even realize that you’ve to reimagine your whole approach. In a sense a plan gives meaning and structure to your idea. Once you’re through with it, you would have refined your business into something that wields substantial prospects.
Gets You Started
The late Dr. Myles Munroe once said that the richest place on this earth is the cemetery. The point he was expressing was that many people end up dying without doing what they were called or meant to do. I believe one of the causes of this sad scenario is procrastination. Most people have excellent ideas locked up in their minds and are either hesitant or reluctant to get started. Several surveys have shown that people who write business plans are about 3 times more likely to start off than those who don’t draft plans. So it’s quite apparent the effort one puts into drafting will gear them up into action. It’s usually the case that when you commit something to paper along with the thought processes that occur as you do that you increasingly get hyped to act.
Purposes Of A Business Plan
That was alluded to in the opening remarks how that most people write plans to source funds. Most prospective financiers require a comprehensive blueprint so as to make an informed decision on whether to fund your idea or not. Most financiers will have a keen interest in your product(s) or services offered, value proposition, marketing strategy and financial projections. The plan broadly addresses 2 issues namely, what you intend to achieve and how you’ll achieve it. So since financiers are mainly interested in those aspects they will need to see your plan which comprehensively covers those details. It’s almost impossible to get funding if you don’t have a good sketch. This is something every company must go through.
Detailing The Model
One of the most crucially important components of a business is its model. It lays out how material and immaterial resources will be used to generate revenue and earn ROIs (returns on investment). This is central to informing the financials which are usually very key in assessing viability. Issues such as scalability and sustainability can be easily judged by looking at a business model. So the plan is drafted in such a way that it goes at length to explain the model.
Let’s suppose you’ve done your plan and you’ve gotten the necessary funding to start working. It will serve as a reference point for key decision-making and operational issues that might pop up along the way. Remember that your plan stipulates your intended results and how you’ll attain them. So the process of monitoring and evaluation will be very easy to conduct because you’ve goals, activities, responsibilities and KPIs (key performance indicators), amongst several other variables. Especially in cases where you would have shared your finished product with stakeholders and shareholders you’ll definitely have to stick to it to achieve promised outcomes. In a way, you can say a business plan is your compass as you navigate your way in materialising your ideas.
So the word of advice is that you must come up with a plan before starting out. Most people just venture into businesses based on assumptions or simply because others are doing them. Based on that background they then think it’s unnecessary to have a written way of doing things. Just as unique as fingerprints are so it is with businesses; no two businesses are exactly the same. So it’s important to have a plan to help you define, make sense and structure your own pathway.