What is the purpose of a business plan and why are business plans so important for your business. Below are our top eleven reasons on why you need a business plan.
To run a profitable business
A business plan will help you understand what your operating cost is monthly and yearly, your total revenue and what you have left after covering all your operating costs, this then brings you to your profit.
You can have huge sales and still have little or no profit if you don’t understand your financials and your break even point, this is something a business plan will help you with.
To attract investors
A formal business plan is the basis for financing proposals. The business plan answers investors’ questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s exit strategy? While investors will generally want to meet you in person before writing you a check, in nearly all cases, they will also thoroughly review your business plan.
To prove that you’re serious about your business
A formal business plan is necessary to show all interested parties ; employees, investors, partners and yourself that you are committed to building the business. Creating your plan forces you to think through and select the strategies that will propel your growth.
To better understand your competition
Creating a business plan forces you to analyze the competition. All companies have competition in the form of either direct or indirect competitors, and it is critical to understand your company’s competitive advantages.
To understand your customer better.
Why do they buy when they buy? Why don’t they when they don’t? An in-depth customer analysis is essential to an effective business plan and to a successful business.
Understanding your customers will not only allow you to create better products and services for them, but will allow you to more cost-effectively reach them via advertising and promotions.
To assess the feasibility of your business
The business plan process involves researching your target market, as well as the competitive landscape, and serves as a feasibility study for the success of your business. In some cases, the result of your planning will be to table the business. And it might be to go forward with a different business that may have a better chance of success.
To document your revenue model
Documenting the revenue model helps to address challenges and assumptions associated with the model. And upon reading your plan, others may suggest additional revenue streams to consider. How exactly will your business make money? This is a critical question to answer in writing, for your business and your investors.
To determine your financial needs
This process is essential for raising capital for business and for effectively employing the capital. It will also enable you to plan ahead, particularly if you need to raise additional funding in the future. It answers the question on if your business need to raise capital? How much? One of the purposes of a business plan is to help you to determine exactly how much capital you need and what you will use it for.
To force you to research and really know your market
Creating a business plan will help you to gain a wider, deeper, and more nuanced understanding of your marketplace. It will also allow you to use this knowledge to make decisions to improve your company’s success.
To attract business partners
Partners also want to see a business plan, in order to determine whether it is worth partnering with your business. Establishing partnerships often requires time and capital, and companies will be more likely to partner with your business if they can read a detailed explanation of your company.
To position your brand
Creating the business plan helps to define your company’s role in the marketplace. This definition allows you to describe the business and position the brand to customers, investors, and partners. With the industry, customer and competitive insight you gain during the business planning process, you can best determine how to position your brand.
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