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What is the purpose of a business plan?
James tillotson fca explains why you should use an advisor to establish a viable plan for your start-up..
How can you formulate an idea, create an entity in the form of a business and then run it if you haven’t any specific plans to work from?
Such rudimentary questions should already provide some clarity as to what is the purpose of a business plan . Worryingly, a number of small businesses don’t have anything documented in this manner.
It’s absolutely vital you do this prior to launch (or at latest in the very early days) because if you don’t then your start-up will:
- Lack clear objectives
- Struggle to monitor and communicate progress
- Be rudderless with activities reactive in nature and lacking any clarity of purpose
In this post we cover:
A business plan is used to help manage an organisation by stating ambitions, how they will be achieved, and exactly when. The plan will also help summarise what the business is about, why it exists, and where it will get to.
Your business plan will serve as a key point of reference for investors, partners, employees and management to gauge progress against objectives.
Provide a road map
A detailed plan will help you as the owner and founder to manage your business effectively. Writing down and illustrating both your ideas and tactics will establish a path and course of action, akin to a road map. This will give you something concrete by which to monitor and assess the progress you make.
It may seem like an odd suggestion but you should look to work with your accountant on this task even at an early stage. Why? Well, a quality professional advisor will have helped many early stage businesses. Given how close a good accountant is to the operations and strategic direction of a company, they’ll be able to draw upon their experience of what’s worked and what hasn’t with other clients.
This means they’ll be well placed to help you test your assumptions. Remember you want your business concept to be as well thought through as possible. Having a fresh set of eyes reviewing your ideas from a different perspective could make all the difference as to the viability of your business model . An accountant will know what success looks like along with what’s required and when to achieve it.
In charting a potential course of action you may find your business is faced with multiple different potential paths. It would therefore be wise to plot the most likely scenarios and strategies for these different circumstances. If, for example, your business is heavily reliant upon exporting then you may need to consider potential global and political events. How would that impact on currencies in your chosen markets in the near future?
What does a 10% currency appreciation or depreciation mean for sales, revenues, profits and cashflow? Working through this with your accountant will ensure you can ascertain the impact of such events from a financial perspective. You’ll then be able to craft solutions accordingly to deal with such events.
Developing a clear plan and strategy will focus your mind. What resources will you need and when to achieve each of your goals? This provides you with clarity as to how much needs to be invested at each stage of the business lifecycle . You'll then know when you're going to need cash injections based on likely cashflow.
Understand what to focus on
As an entrepreneur, where should your efforts and concentrations be centred on? It’s a common issue. The early days of starting out can be very chaotic. There’s so much to set up, think about, implement and develop. It’s an emotional roller coaster of mass excitement and sharp shots of anxiety. Amid all this and with an ever mounting in-tray of to do’s, you can fast lose track of what’s important.
When writing a business plan you’re defining exactly what your organisation is today and then intends to become tomorrow. This coherence concerning the purpose of your business and direction in which you’re heading is invaluable. Doing this means you’ll understand what needs to be implemented to move forward.
As an example, your plan should describe your ideal customer and include their needs and wants. Then you’d expand on this as to how your products or services address their requirements. How are you going to market to these potential customers? How will you get your name out there? What approach will you adopt to make sales and generate revenue?
These are vital matters to address early on. Growth primarily comes through new customers and achieving repeat custom. This then determines your progress towards profitability. By mapping this all out on paper you’re giving yourself yardsticks to work towards. This means all tasks that you as the entrepreneur should focus on should be geared towards achieving your next goal. In a nutshell that’s where your focus should be.
Projections and the need for an accountant
The likelihood is to support your growth will require an injection of funding. That's unless you have an extremely cash generative business model. More often than not you probably won’t have enough customers and thus free cash flow to finance the next opportunity. You'll have a working capital requirement and thus need investment beyond the reach of your business.
You’ll likely have to approach potential sources of finance and they’ll want to assess the your income statements/profit and loss statements, and business plan. If you’re still at concept stage, or haven’t begun making sales, then their decision will rest solely on the strength of you and your business plan.
The statements help prospective lenders and investors understand the history of the organisation to date. The business plan provides them with a view of your future direction. They’ll look for many things in your plan. Ultimately their interest will focus on whether the expansion or development of your business will generate sufficient cash to both operate effectively while also fulfilling debt obligations.
This means you’re going to need to detail both profit and cashflow projections. Good forecasting and planning is seen as a way of understanding income and expenditure. This is particularly useful as a means to prevent payment issues over things like suppliers and staff wages. Many businesses close when such issues arise.
The likelihood is unless you’ve done this before, and know what you’re doing, then you’re going to need the help of an accountant. They’ll work with you to model the probable amount of cash in the business over time. This will then act as evidence to potential investors and financiers. They'll see if sufficient money will be generated by the activities of the business, to both fund future growth, while meeting financial commitments.
Manage your business effectively
The usefulness of a cashflow forecast doesn’t end there though. Managing your cash position , as you may have already gathered, is fundamental to the long term future of your business. There’s a common quote that “most businesses fail because they run out of money”. This means they’re no longer able to pay their debts when they’re due.
You should reference your cashflow projections in your business plan regularly. When you invest in your business, there will be significant out flows of money before any cash comes in. The timing of your investments thus needs to be considered against your projections and statements. Consider trading patterns, seasonal variations and the likely impact on cash flows.
If, for example, you sell through a credit extension then you’re going to receive payment in the future. That means after the goods or services have changed hands. The likelihood then is you’ll have to make payments in relation to the usual operations of your business before that income comes in from your customer.
So you can then see how poor cash management creates real issues. Make sure you work with your accountant, in the creation of your business plan and monitoring performance in relation to it. The documentation of well thought through ideas, combined with a shrewd strategy, and carefully planned projections will markedly improve your chances of long term survival and growth.
This post was created on 03/11/2016 and updated on 24/02/2022.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.
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What Is a Business Plan?
Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, the bottom line, business plan: what it is, what's included, and how to write one.
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.
- A business plan is a document describing a company's business activities and how it plans to achieve its goals.
- Startup companies use business plans to get off the ground and attract outside investors.
- For established companies, a business plan can help keep the executive team focused on and working toward the company's short- and long-term objectives.
- There is no single format that a business plan must follow, but there are certain key elements that most companies will want to include.
Investopedia / Ryan Oakley
Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.
Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."
Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.
There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.
Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.
While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.
While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.
Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.
The length of a business plan can vary greatly from business to business. Regardless, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.
These are some of the most common elements in many business plans:
- Executive summary: This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
- Products and services: Here, the company should describe the products and services it offers or plans to introduce. That might include details on pricing, product lifespan, and unique benefits to the consumer. Other factors that could go into this section include production and manufacturing processes, any relevant patents the company may have, as well as proprietary technology . Information about research and development (R&D) can also be included here.
- Market analysis: A company needs to have a good handle on the current state of its industry and the existing competition. This section should explain where the company fits in, what types of customers it plans to target, and how easy or difficult it may be to take market share from incumbents.
- Marketing strategy: This section can describe how the company plans to attract and keep customers, including any anticipated advertising and marketing campaigns. It should also describe the distribution channel or channels it will use to get its products or services to consumers.
- Financial plans and projections: Established businesses can include financial statements, balance sheets, and other relevant financial information. New businesses can provide financial targets and estimates for the first few years. Your plan might also include any funding requests you're making.
The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.
2 Types of Business Plans
Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.
- Traditional business plans : These plans tend to be much longer than lean startup plans and contain considerably more detail. As a result they require more work on the part of the business, but they can also be more persuasive (and reassuring) to potential investors.
- Lean startup business plans : These use an abbreviated structure that highlights key elements. These business plans are short—as short as one page—and provide only the most basic detail. If a company wants to use this kind of plan, it should be prepared to provide more detail if an investor or a lender requests it.
Why Do Business Plans Fail?
A business plan is not a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections to begin with. Markets and the overall economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All of this calls for building some flexibility into your plan, so you can pivot to a new course if needed.
How frequently a business plan needs to be revised will depend on the nature of the business. A well-established business might want to review its plan once a year and make changes if necessary. A new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.
What Does a Lean Startup Business Plan Include?
The lean startup business plan is an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.
Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.
A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.
Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."
U.S. Small Business Administration. " Write Your Business Plan ."
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- Business Ethics: Definition, Principles, Why They're Important 2 of 46
- Business Plan: What It Is, What's Included, and How to Write One 3 of 46
- Organizational Structure for Companies With Examples and Benefits 4 of 46
- Which Type of Organization Is Best For Your Business? 5 of 46
- What Are the Major Types of Businesses in the Private Sector? 6 of 46
- Corporate Culture Definition, Characteristics, and Importance 7 of 46
- What Is an S Corp? Definition, Taxes, and How to File 8 of 46
- LLC vs. Incorporation: Which Should I Choose? 9 of 46
- Private Company: What It Is, Types, and Pros and Cons 10 of 46
- Sole Proprietorship: What It Is, Pros & Cons, and Differences From an LLC 11 of 46
- Bootstrapping Definition, Strategies, and Pros/Cons 12 of 46
- Crowdfunding: What It Is, How It Works, and Popular Websites 13 of 46
- Seed Capital: What It Is, How It Works, Example 14 of 46
- Venture Capital: What Is VC and How Does It Work? 15 of 46
- Startup Capital Definition, Types, and Risks 16 of 46
- Capital Funding: Definition, How It Works, and 2 Primary Methods 17 of 46
- Series Funding: A, B, and C 18 of 46
- Small Business Administration (SBA): Definition and What It Does 19 of 46
- Upper Management: What it is, How it Works 20 of 46
- What is the C Suite?: Meaning and Positions Defined 21 of 46
- Chief Executive Officer (CEO): What They Do vs. Other Chief Roles 22 of 46
- Operations Management: Understanding and Using It 23 of 46
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- Brand: Types of Brands and How to Create a Successful Brand Identity 25 of 46
- What Is Brand Personality? How It Works and Examples 26 of 46
- What Is Brand Management? Requirements, How It Works, and Example 27 of 46
- What Is Brand Awareness? Definition, How It Works, and Strategies 28 of 46
- Brand Loyalty: What It Is, and How to Build It 29 of 46
- Brand Extension: Definition, How It Works, Example, and Criticism 30 of 46
- What Is Social Networking? 31 of 46
- Affiliate Marketer: Definition, Examples, and How to Get Started 32 of 46
- What Is Commercialization, Plus the Product Roll-Out Process 33 of 46
- Digital Marketing Overview: Types, Challenges & Required Skills 34 of 46
- Direct Marketing: What It Is and How It Works 35 of 46
- Marketing in Business: Strategies and Types Explained 36 of 46
- What Are Marketing Campaigns? Definition, Types, and Examples 37 of 46
- How to Do Market Research, Types, and Example 38 of 46
- Micromarketing Explained: Definition, Uses, and Examples 39 of 46
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- Product Differentiation: What It Is, How Businesses Do It, and the 3 Main Types 41 of 46
- Target Market: Definition, Purpose, Examples, Market Segments 42 of 46
- Outside Sales: What They are, How They Work 43 of 46
- What Is a Sales Lead? How It Works and Factors Affecting Quality 44 of 46
- Indirect Sales: What it is, How it Works 45 of 46
- What Is Inside Sales? Definition, How It Works, and Advantages 46 of 46
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The importance of a business plan
Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.
Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.
What is a business plan?
A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.
Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success.
Why is a business plan important?
A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business is on the right path and worth putting money into.
Business plans typically include detailed information that can help improve your business’s chances of success, like:
- A market analysis : gathering information about factors and conditions that affect your industry
- Competitive analysis : evaluating the strengths and weaknesses of your competitors
- Customer segmentation : divide your customers into different groups based on specific characteristics to improve your marketing
- Marketing: using your research to advertise your business
- Logistics and operations plans : planning and executing the most efficient production process
- Cash flow projection : being prepared for how much money is going into and out of your business
- An overall path to long-term growth
10 reasons why you need a business plan
I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.
The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.
To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.
1. To help you with critical decisions
The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.
Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.
Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.
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2. To iron out the kinks
Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.
3. To avoid the big mistakes
Only about half of small businesses are still around to celebrate their fifth birthday . While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.
According to data from CB Insights , some of the most common reasons businesses fail include:
- No market need : No one wants what you’re selling.
- Lack of capital : Cash flow issues or businesses simply run out of money.
- Inadequate team : This underscores the importance of hiring the right people to help you run your business.
- Stiff competition : It’s tough to generate a steady profit when you have a lot of competitors in your space.
- Pricing : Some entrepreneurs price their products or services too high or too low—both scenarios can be a recipe for disaster.
The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s cash flow forecasts or a product-market fit analysis , every piece of a business plan can help spot some of those potentially critical mistakes before they arise. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!
Get a jumpstart on your business plan by creating your own cash flow projection .
4. To prove the viability of the business
Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.
Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.
A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.
Want to prove there’s a market gap? Here’s how you can get started with market research.
5. To set better objectives and benchmarks
Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.
6. To communicate objectives and benchmarks
Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.
Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.
7. To provide a guide for service providers
Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.
8. To secure financing
Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.
Learn what you need to get a small business loan.
9. To better understand the broader landscape
No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.
10. To reduce risk
Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.
Understanding the importance of a business plan
Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.
Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.
Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.
Do You Really Need a Business Plan?
The art of storytelling, from net margin to sales.
Why is a business plan important?
- Who will the reader be?
- What do you want their response to be?
Four Reasons to Write a Business Plan
1. To raise money for your business
2. To make sound decisions
3. To help you identify any potential weaknesses
4. To communicate your ideas with stakeholders
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How to Write a Business Plan for Your Small Business
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Written by Dave Lavinsky
What is the Purpose of a Business Plan?
The purpose of a business plan is to provide a clear roadmap for the company’s future. It outlines the vision, goals, and strategies of the business, guiding entrepreneurs and stakeholders in understanding its operations and objectives. A well-crafted business plan helps attract investors and funding by showcasing the potential for profitability and growth.
Top 20 Reasons Why you Need a Business Plan
1. 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.
2. To Establish Business Milestones
The business plan should clearly lay out the long-term milestones that are most important to the success of your business. To paraphrase Guy Kawasaki, a milestone is something significant enough to come home and tell your spouse about (without boring him or her to death). Would you tell your spouse that you tweaked the company brochure? Probably not. But you’d certainly share the news that you launched your new website or reached $1M in annual revenues.
3. To Better Understand Your Competition
Creating the 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. And if you don’t currently have competitive advantages, to figure out what you must do to gain them.
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4. To Better Understand Your Customer
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.
5. To Enunciate Previously Unstated Assumptions
The process of actually writing the business plan helps to bring previously “hidden” assumptions to the foreground. By writing them down and assessing them, you can test them and analyze their validity. For example, you might have assumed that local retailers would carry your product; in your business plan, you could assess the results of the scenario in which this didn’t occur.
6. To Assess the Feasibility of Your Venture
How good is this opportunity? 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 venture. In some cases, the result of your planning will be to table the venture. And it might be to go forward with a different venture that may have a better chance of success.
7. To Document Your Revenue Model
How exactly will your business make money? This is a critical question to answer in writing, for yourself and your investors. 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.
8. To Determine Your Financial Needs
Does 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. 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.
9. 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.
10. To Reduce the Risk of Pursuing the Wrong Opportunity
The process of creating the business plan helps to minimize opportunity costs. Writing the business plan helps you assess the attractiveness of this particular opportunity, versus other opportunities. So you make the best decisions.
11. To Force You to Research and Really Know Your Market
What are the most important trends in your industry? What are the greatest threats to your industry? Is the market growing or shrinking? What is the size of the target market for your product/service? Creating the business plan will help you to gain a wider, deeper, and more nuanced understanding of your marketplace. And it will allow you to use this knowledge to make decisions to improve your company’s success.
12. To Attract Employees and a Management Team
To attract and retain top quality talent, a business plan is necessary. The business plan inspires employees and management that the idea is sound and that the business is poised to achieve its strategic goals. Importantly, as you grow your company, your employees and not you will do most of the work. So getting them aligned and motivated will be key to your success.
13. To Plot Your Course and Focus Your Efforts
The business plan provides a roadmap from which to operate, and to look to for direction in times of doubt. Without a business plan, you may shift your short-term strategies constantly without a view to your long-term milestones. You wouldn’t go on a long driving trip without a map; think of your business plan as your map.
14. To attract 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 venture if they can read a detailed explanation of your company.
15. To Position Your Brand
Creating the business plan helps to define your company’s role in the marketplace. This definition allows you to succinctly 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.
16. To Judge the Success of Your Business
A formal business plan allows you to compare actual operational results versus the business plan itself. In this way, it allows you to clearly see whether you have achieved your strategic, financing, and operational goals (and why you have or have not).
17. To Reposition Your Business to Deal with Changing Conditions
For example, during difficult economic conditions, if your current sales and operational models aren’t working, you can rewrite your business plan to define, try, and validate new ideas and strategies.
18. To Document Your Marketing Plan
How are you going to reach your customers? How will you retain them? What is your advertising budget? What price will you charge? A well-documented marketing plan is essential to the growth of a business. And the marketing strategies and tactics you use will evolve each year, so revisiting your marketing plan at least annually is critical.
19. To Understand and Forecast Your Company’s Staffing Needs
After completing your business plan, you will not be surprised when you are suddenly short-handed. Rather, your business plan provides a roadmap for your staffing needs, and thus helps to ensure smoother expansion. Importantly your plan can not only help you understand your staffing needs, but ensure your timing is right as it takes time to recruit and train great employees.
20. To Uncover New Opportunities
Through the process of brainstorming, white-boarding and creative interviewing, you will likely see your business in a different light. As a result, you will often come up with new ideas for marketing your product/service and running your business. It’s coming up with these ideas and executing on them which is often the difference between a business that fails or just survives and one that thrives.
Business Plan FAQs
What is a business plan.
A business plan is a document that details your business concept and strategy for growth.
A business plan helps guide your company's efforts and, if applicable, gives investors and lenders the information they need to decide whether or not to fund your company. A business plan template helps you to most easily complete your plan.
Why Do You Need a Business Plan?
A business plan provides details about your company, competition, customers and industry so that you make the best possible decisions to grow your company.
What is the Importance of a Business Plan?
The 3 most important purposes of a business plan are 1) to create an effective strategy for growth, 2) to determine your future financial needs, and 3) to attract investors (including angel investors and VC funding ) and lenders.
Why is a Business Plan Important to an Entrepreneur?
Business plans help entrepreneurs take their visions and turn them into tangible action plans for success.
Since 1999, Growthink’s business plan experts have assisted more than 4,000 clients in launching and growing their businesses, and raising more than $2.5 billion in growth financing.
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Other Helpful Business Plan Articles & Templates
What is a Business Plan? Definition, Tips, and Templates
Published: June 07, 2023
In an era where more than 20% of small enterprises fail in their first year, having a clear, defined, and well-thought-out business plan is a crucial first step for setting up a business for long-term success.
Business plans are a required tool for all entrepreneurs, business owners, business acquirers, and even business school students. But … what exactly is a business plan?
In this post, we'll explain what a business plan is, the reasons why you'd need one, identify different types of business plans, and what you should include in yours.
What is a business plan?
A business plan is a documented strategy for a business that highlights its goals and its plans for achieving them. It outlines a company's go-to-market plan, financial projections, market research, business purpose, and mission statement. Key staff who are responsible for achieving the goals may also be included in the business plan along with a timeline.
The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.
What is a business plan used for?
The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.
Business Plan Template [ Download Now ]
Working on your business plan? Try using our Business Plan Template . Pre-filled with the sections a great business plan needs, the template will give aspiring entrepreneurs a feel for what a business plan is, what should be in it, and how it can be used to establish and grow a business from the ground up.
Purposes of a Business Plan
Chances are, someone drafting a business plan will be doing so for one or more of the following reasons:
1. Securing financing from investors.
Since its contents revolve around how businesses succeed, break even, and turn a profit, a business plan is used as a tool for sourcing capital. This document is an entrepreneur's way of showing potential investors or lenders how their capital will be put to work and how it will help the business thrive.
All banks, investors, and venture capital firms will want to see a business plan before handing over their money, and investors typically expect a 10% ROI or more from the capital they invest in a business.
Therefore, these investors need to know if — and when — they'll be making their money back (and then some). Additionally, they'll want to read about the process and strategy for how the business will reach those financial goals, which is where the context provided by sales, marketing, and operations plans come into play.
2. Documenting a company's strategy and goals.
A business plan should leave no stone unturned.
Business plans can span dozens or even hundreds of pages, affording their drafters the opportunity to explain what a business' goals are and how the business will achieve them.
To show potential investors that they've addressed every question and thought through every possible scenario, entrepreneurs should thoroughly explain their marketing, sales, and operations strategies — from acquiring a physical location for the business to explaining a tactical approach for marketing penetration.
These explanations should ultimately lead to a business' break-even point supported by a sales forecast and financial projections, with the business plan writer being able to speak to the why behind anything outlined in the plan.
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Fill out the form to access your free business plan., 3. legitimizing a business idea..
Everyone's got a great idea for a company — until they put pen to paper and realize that it's not exactly feasible.
A business plan is an aspiring entrepreneur's way to prove that a business idea is actually worth pursuing.
As entrepreneurs document their go-to-market process, capital needs, and expected return on investment, entrepreneurs likely come across a few hiccups that will make them second guess their strategies and metrics — and that's exactly what the business plan is for.
It ensures an entrepreneur's ducks are in a row before bringing their business idea to the world and reassures the readers that whoever wrote the plan is serious about the idea, having put hours into thinking of the business idea, fleshing out growth tactics, and calculating financial projections.
4. Getting an A in your business class.
Speaking from personal experience, there's a chance you're here to get business plan ideas for your Business 101 class project.
If that's the case, might we suggest checking out this post on How to Write a Business Plan — providing a section-by-section guide on creating your plan?
What does a business plan need to include?
- Business Plan Subtitle
- Executive Summary
- Company Description
- The Business Opportunity
- Competitive Analysis
- Target Market
- Marketing Plan
- Financial Summary
- Funding Requirements
1. Business Plan Subtitle
Every great business plan starts with a captivating title and subtitle. You’ll want to make it clear that the document is, in fact, a business plan, but the subtitle can help tell the story of your business in just a short sentence.
2. Executive Summary
Although this is the last part of the business plan that you’ll write, it’s the first section (and maybe the only section) that stakeholders will read. The executive summary of a business plan sets the stage for the rest of the document. It includes your company’s mission or vision statement, value proposition, and long-term goals.
3. Company Description
This brief part of your business plan will detail your business name, years in operation, key offerings, and positioning statement. You might even add core values or a short history of the company. The company description’s role in a business plan is to introduce your business to the reader in a compelling and concise way.
4. The Business Opportunity
The business opportunity should convince investors that your organization meets the needs of the market in a way that no other company can. This section explains the specific problem your business solves within the marketplace and how it solves them. It will include your value proposition as well as some high-level information about your target market.
5. Competitive Analysis
Just about every industry has more than one player in the market. Even if your business owns the majority of the market share in your industry or your business concept is the first of its kind, you still have competition. In the competitive analysis section, you’ll take an objective look at the industry landscape to determine where your business fits. A SWOT analysis is an organized way to format this section.
6. Target Market
Who are the core customers of your business and why? The target market portion of your business plan outlines this in detail. The target market should explain the demographics, psychographics, behavioristics, and geographics of the ideal customer.
7. Marketing Plan
Marketing is expansive, and it’ll be tempting to cover every type of marketing possible, but a brief overview of how you’ll market your unique value proposition to your target audience, followed by a tactical plan will suffice.
Think broadly and narrow down from there: Will you focus on a slow-and-steady play where you make an upfront investment in organic customer acquisition? Or will you generate lots of quick customers using a pay-to-play advertising strategy? This kind of information should guide the marketing plan section of your business plan.
8. Financial Summary
Money doesn’t grow on trees and even the most digital, sustainable businesses have expenses. Outlining a financial summary of where your business is currently and where you’d like it to be in the future will substantiate this section. Consider including any monetary information that will give potential investors a glimpse into the financial health of your business. Assets, liabilities, expenses, debt, investments, revenue, and more are all useful adds here.
So, you’ve outlined some great goals, the business opportunity is valid, and the industry is ready for what you have to offer. Who’s responsible for turning all this high-level talk into results? The "team" section of your business plan answers that question by providing an overview of the roles responsible for each goal. Don’t worry if you don’t have every team member on board yet, knowing what roles to hire for is helpful as you seek funding from investors.
10. Funding Requirements
Remember that one of the goals of a business plan is to secure funding from investors, so you’ll need to include funding requirements you’d like them to fulfill. The amount your business needs, for what reasons, and for how long will meet the requirement for this section.
Types of Business Plans
- Startup Business Plan
- Feasibility Business Plan
- Internal Business Plan
- Strategic Business Plan
- Business Acquisition Plan
- Business Repositioning Plan
- Expansion or Growth Business Plan
There’s no one size fits all business plan as there are several types of businesses in the market today. From startups with just one founder to historic household names that need to stay competitive, every type of business needs a business plan that’s tailored to its needs. Below are a few of the most common types of business plans.
For even more examples, check out these sample business plans to help you write your own .
1. Startup Business Plan
As one of the most common types of business plans, a startup business plan is for new business ideas. This plan lays the foundation for the eventual success of a business.
The biggest challenge with the startup business plan is that it’s written completely from scratch. Startup business plans often reference existing industry data. They also explain unique business strategies and go-to-market plans.
Because startup business plans expand on an original idea, the contents will vary by the top priority goals.
For example, say a startup is looking for funding. If capital is a priority, this business plan might focus more on financial projections than marketing or company culture.
2. Feasibility Business Plan
This type of business plan focuses on a single essential aspect of the business — the product or service. It may be part of a startup business plan or a standalone plan for an existing organization. This comprehensive plan may include:
- A detailed product description
- Market analysis
- Technology needs
- Production needs
- Financial sources
- Production operations
According to CBInsights research, 35% of startups fail because of a lack of market need. Another 10% fail because of mistimed products.
Some businesses will complete a feasibility study to explore ideas and narrow product plans to the best choice. They conduct these studies before completing the feasibility business plan. Then the feasibility plan centers on that one product or service.
3. Internal Business Plan
Internal business plans help leaders communicate company goals, strategy, and performance. This helps the business align and work toward objectives more effectively.
Besides the typical elements in a startup business plan, an internal business plan may also include:
- Department-specific budgets
- Target demographic analysis
- Market size and share of voice analysis
- Action plans
- Sustainability plans
Most external-facing business plans focus on raising capital and support for a business. But an internal business plan helps keep the business mission consistent in the face of change.
4. Strategic Business Plan
Strategic business plans focus on long-term objectives for your business. They usually cover the first three to five years of operations. This is different from the typical startup business plan which focuses on the first one to three years. The audience for this plan is also primarily internal stakeholders.
These types of business plans may include:
- Relevant data and analysis
- Assessments of company resources
- Vision and mission statements
It's important to remember that, while many businesses create a strategic plan before launching, some business owners just jump in. So, this business plan can add value by outlining how your business plans to reach specific goals. This type of planning can also help a business anticipate future challenges.
5. Business Acquisition Plan
Investors use business plans to acquire existing businesses, too — not just new businesses.
A business acquisition plan may include costs, schedules, or management requirements. This data will come from an acquisition strategy.
A business plan for an existing company will explain:
- How an acquisition will change its operating model
- What will stay the same under new ownership
- Why things will change or stay the same
- Acquisition planning documentation
- Timelines for acquisition
Additionally, the business plan should speak to the current state of the business and why it's up for sale.
For example, if someone is purchasing a failing business, the business plan should explain why the business is being purchased. It should also include:
- What the new owner will do to turn the business around
- Historic business metrics
- Sales projections after the acquisition
- Justification for those projections
6. Business Repositioning Plan
When a business wants to avoid acquisition, reposition its brand, or try something new, CEOs or owners will develop a business repositioning plan.
This plan will:
- Acknowledge the current state of the company.
- State a vision for the future of the company.
- Explain why the business needs to reposition itself.
- Outline a process for how the company will adjust.
Companies planning for a business reposition often do so — proactively or retroactively — due to a shift in market trends and customer needs.
For example, shoe brand AllBirds plans to refocus its brand on core customers and shift its go-to-market strategy. These decisions are a reaction to lackluster sales following product changes and other missteps.
7. Expansion or Growth Business Plan
When your business is ready to expand, a growth business plan creates a useful structure for reaching specific targets.
For example, a successful business expanding into another location can use a growth business plan. This is because it may also mean the business needs to focus on a new target market or generate more capital.
This type of plan usually covers the next year or two of growth. It often references current sales, revenue, and successes. It may also include:
- SWOT analysis
- Growth opportunity studies
- Financial goals and plans
- Marketing plans
- Capability planning
These types of business plans will vary by business, but they can help businesses quickly rally around new priorities to drive growth.
Getting Started With Your Business Plan
At the end of the day, a business plan is simply an explanation of a business idea and why it will be successful. The more detail and thought you put into it, the more successful your plan — and the business it outlines — will be.
When writing your business plan, you’ll benefit from extensive research, feedback from your team or board of directors, and a solid template to organize your thoughts. If you need one of these, download HubSpot's Free Business Plan Template below to get started.
Editor's note: This post was originally published in August 2020 and has been updated for comprehensiveness.
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Professional Business Plan Specialists
News and articles, the purpose of a business plan summarised in 5 steps, table of contents.
- Thommie Burger
- July 24, 2023
When starting a new business, it can be hard to know where to begin. What should you do first? Where do you get started? How do you know if your idea will work? For most people, creating a new business is one of the riskiest things they will ever do. You have probably heard all the statistics about how much startup businesses fail. Many entrepreneurs still take that leap of faith and go for it anyway. Writing a business plan is one of the earliest and perhaps most essential steps in starting any new venture. But what is the Purpose of a Business Plan?
The Purpose of a Business Plan: Your Guiding Light in Starting a New Venture!
It’s not just about coming up with fantastic ideas and brainstorming; it’s about creating a realistic document detailing how to implement those ideas into a profitable business venture with a good chance of long-term success.
The Purpose of a Business Plan ― What is a Business Plan?
A business plan is a written document that outlines all aspects of your business in great detail. A business plan is essentially a roadmap for success. A good business plan will include the following:
- An Overview of the Business ― This is where you provide the readers with an overview of what the business is, what it does, who it is for, and the general nature of the company.
- Company Description ― This section gives readers an in-depth description of your business. You should discuss the products or services you plan to sell, how much you expect to charge for them, your target market, and your overall business strategy.
- Company Management ― In this section, you briefly overview your management team’s key members and discuss each individual’s strengths and weaknesses. You should also include a short biography for each key management team member.
- Marketing Strategy ― In this section, you discuss how you plan to promote your business and generate new customers. You should discuss the methods you plan to generate new business and each technique’s expected cost. You should also consult your business’s positioning in the marketplace.
The Purpose of a Business Plan ― Why You Should Write a Business Plan?
A good business plan is an essential part of any new venture. It allows you to explore every aspect of your business idea and helps you anticipate potential problems before they happen. When writing your plan, you should adopt the same mindset an investor would have when reviewing your proposal. You should critically examine every aspect of your project and determine its viability. The purpose of a Business Plan can be summarised in the following five steps:
The Purpose of a Business Plan ― Step 1: Research Your Target Market
When writing a business plan, you should research your target market extensively. To be successful, any new business must first understand its customers. You need to know your target market and why they would buy from you. You must also be able to identify the needs of your target market and how your business satisfies those needs.
One of the best research methods is to interview your potential customers. Get in touch with people who fit your target demographic and ask them questions about their buying habits and what they look for when purchasing products and services like those you plan to sell.
You should also read online reviews and talk with current and potential business partners similar to the types of businesses you want to start. By conducting this research, you’ll understand your target market and what they are looking for in a product or service like the one you plan to offer.
The Purpose of a Business Plan ― Step 2: Determine Your Company’s Unique Value
Next, you should determine your company’s unique value. You must identify what makes your company different from all the others. What do you do that makes you stand out among your competitors? What value do you offer that others do not? You must fully understand what it is that makes your company different. This must be inherent in your business. You cannot rely on something superficial like a catchy slogan or a flashy logo. It must be genuinely inherent to the core of your business.
For example, if you plan on opening a coffee shop, your value might be in providing your customers with a high-quality coffee experience. You might also offer coffee-related products for purchase, such as coffee gift baskets or coffee-making appliances.
The Purpose of a Business Plan ― Step 3: Estimate the Costs of Running Your Business
After determining your company’s unique value, you must now estimate the costs of running your business. This includes overhead expenses like utility bills, payroll, and rent, more indirect costs like marketing and advertising, and research and development for new products or services. You must be completely honest with yourself and understand that any new business venture will incur some startup costs.
There is no way around it. There are some ways, however, that you can minimise these costs. One of the best ways to do this is to find a cheap place to rent and furnish it cheaply. You can also minimise your advertising costs using social media, cheap or free online advertising, and word-of-mouth marketing.
The Purpose of a Business Plan ― Step 4: Create a Marketing Strategy
Next, you should create a marketing strategy. This is the plan you will use to sell your product or service. This marketing strategy must be consistent with the image you want your company to portray. It must also directly relate to the value you offer your customers. No marketing strategy works for everyone, so you must find the marketing strategy that best suits your target market. You must also put in the time and effort to ensure your marketing strategy is successful.
You will not see an immediate return on your investment, so you must be willing to put in the time and effort it takes to make your marketing strategy successful over the long term. No amount of strategising or marketing will help your business succeed if you are unwilling to work and see the results over time.
The Purpose of a Business Plan ― Step 5: Conclusion
Finally, you must write a conclusion to your business plan. You should discuss what you learned from your research, how your unique value relates to your customer’s needs, and how your company’s costs affect your ability to turn a profit. You must also discuss the marketing strategy you plan to implement and how it will help you achieve the success you want for your business.
To write a good business plan, you must be sincere and understand that any new business venture will incur a particular risk. There is no way around it. There are some ways, however, that you can minimise this risk. One of the best ways to do this is to create a business plan and follow it as closely as possible. A business plan is your roadmap to success. It allows you to explore every aspect of your new business idea and helps you anticipate potential problems before they happen.
Something Extra! Why is a Business Plan Important to Your Startup’s Future Success?
Starting a business from scratch can be an intimidating process. With so many moving parts and details to manage, it’s easy for first-time entrepreneurs to get tripped up along the way. To help your new venture avoid roadblocks, it’s essential to have an organised plan. A business plan is a document that outlines the goals of your company, its market strategy, and financial projections. It also serves as a document you can refer to at any time to check your progress or track your growth. As you begin this new journey, here are some reasons why having a business plan is vital to your startup’s future success.
Why Business Planning is Important ― Set Course for Future Growth and Development
A business plan outlines the company’s future goals and helps you keep the company on track while growing. It outlines the company’s goals, target market, strategies to achieve those goals, and financial forecast. This information allows you to set a course for future growth and development. This document will help you stay focused in times of change. This is especially important for startups that may experience growing pains.
Why Business Planning is Important ― Create a Roadmap for Marketing Strategies
Determining which marketing strategies will help you achieve your long-term goals would be best. You may want to consider which avenues will be most beneficial for your company and which will reach your target audience. Sitting down and outlining these marketing strategies will help you stay on track and achieve your goals.
It will also make it easier to identify when to pivot or change your strategies as the business changes. When it comes to marketing strategies, it’s essential to keep in mind that these may change as the business grows. You may consider having several processes in place to change course as needed.
Why Business Planning is Important ― Help You Determine Product Mix and Offerings
Another important aspect of your business plan is outlining the product or service mix that you plan to offer. This will help you determine which products or services will be provided as part of your business. Depending on your industry and your target market, you may want to consider having various product offerings. These could include anything from physical products to services.
If you are considering offering various products and services, outline what each will entail. This will make it easier to determine prices and help you stay organised moving forward.
Why Business Planning is Important ― Serves as a Marketing Tool
One of the best things about having a business plan is that it can be a marketing tool. A business plan will make it easier to approach potential investors or lenders. It will also make pitching your business to customers and investors easier. One of the best ways to use your business plan as a marketing tool is to have it printed and bound. This will make it easier to read and reference when needed.
A printed business plan will also help you stand out among other entrepreneurs. It will make it easier to impress potential investors and lenders. Having a printed business plan also makes it easier to keep track of your progress as you move along in the process.
Why Business Planning is Important ― Establish your Company’s Financial footing.
A business plan is also essential because it will help establish your company’s financial footing. This will help you determine how much money you will need to start and operate the business in the early days. This will also help you determine how much money you need to break even. It’s important to note that the financial forecast you put in your business plan will not always be 100% accurate.
Things often take longer than anticipated or cost more than expected. A business plan helps you determine the general ballpark of these figures.
Why Business Planning is Important ― Conclusion
In short, a business plan is essential to any new business. It will help you outline your goals, determine the best strategies, and forecast your company’s financial situation. A business plan will help you stay organised and keep your company on track as it grows.
When starting a business, it can seem like there is a never-ending list of things you need to take care of. It is easy to get overwhelmed by the volume of tasks and invest time in market research because it doesn’t seem as crucial as other activities.
Something Extra! Market Research and Why it is Important to Have a Business Plan.
Market research isn’t as exciting as brainstorming ideas or developing fresh marketing strategies. However, this process is something that every entrepreneur needs. It is not enough to have brilliant ideas; they must be executed wisely to make a profitable venture. Market research provides critical insights about your target customers and the market in general. It gives you the information to make intelligent decisions about your business venture.
Why it is Important to Have a Business Plan ― What is Market Research?
Market research collects and analyses data about your target audience, the market landscape, and competitors. It aims to answer critical questions about your business idea, such as the demand for your product or service and potential roadblocks you may face. It is an essential part of the business planning process.
This data can then be used to make critical strategic decisions about your business model, marketing strategies, and more. Market research can be conducted through a variety of methods. The type of research you work on will depend on your business and industry, your goals, and the questions you want to be answered. There are several ways to conduct market research. They include conducting interviews, polls, focus groups, and surveys, performing secondary research, and using analytics and other data.
Why it is Important to Have a Business Plan ― Why is market research important for entrepreneurs?
Marketing strategies and business models are built on customer insights and market trends. This type of information cannot be made up or guessed at. It has to be researched and assessed with facts. This data helps you to understand your customers’ needs and expectations. It also lets you see how your business might fit into the marketplace and find out if there are any significant obstacles ahead of you.
Knowing these things helps you create a profitable business that will provide excellent customer value and have a strong chance at success. Without this information, you might be making a product or service that few people want or trying to sell your products in an unlikely effective way.
Why it is Important to Have a Business Plan ― Why is it hard for entrepreneurs to research the market?
Marketing and business trends change over time. This means that the data from a few years ago might not be relevant to your situation now. Therefore, it has to be up-to-date. However, many entrepreneurs tend to skip the market research step. They might be under the false assumption that it is unnecessary when they have a great business idea or that it will take a lot of time and effort.
In reality, market research should be done at the very beginning of the business planning process. It is an investment in the future success of your venture. A researcher cannot conduct research for you. You have to understand and follow their instructions carefully to receive accurate data. You have to be able to put aside biases and misconceptions to find the information that is most useful for your business.
Why is it Important to Have a Business Plan ― How to make market research easier?
If you have never conducted market research, the process may make you feel a little daunted. Don’t worry; you don’t need to be an expert to understand your customers. You need to follow a few simple steps. Before you begin collecting research, you need to decide what you want to know and why. What are your business goals?
What are the general trends in your industry? Which customers are you hoping to reach? How do they like to be communicated with? Once you have a clear idea of what you want to learn and why you can collect the data. There are various data collection methods, ranging from quick online surveys to in-depth interviews. You can choose the way that best applies to your situation.
Why it is Important to Have a Business Plan ― Problem identification through market research
While market research is about gaining insights that will lead to better business decisions, it can also be used to identify problems within your industry. For example, you can research your competitors if you are in the restaurant business. You can find out what meals they serve when they are busiest and how many customers they have on average. This can give you insight into what your customers want and how they like to be served. It can help you to avoid making costly mistakes.
For example, if your competitors are busy during lunch, you might consider offering a meal that takes less time to prepare. This can help you avoid long wait times and losing customers in a rush. Market research can also help you to understand how customers view your brand. Do they think highly of it? What do they like or dislike about it?
Why it is Important to Have a Business Plan ― Customer Insights from market research
Understanding your customers lets you know how to reach them best. You can see their preferences, how they like to be communicated with, and what pains they experience. This knowledge can help you to create a successful business model.
For example, if you are providing a financial service, you might find that most of your customers are older people who don’t have time to manage their finances. This can help you to focus your campaigns on that specific audience. It will help you to save time and money by avoiding marketing to people who are unlikely to use your services. Understanding your customers also allows you to avoid making mistakes. You can avoid offending people or creating products and services that no one wants.
Why it is Important to Have a Business Plan ― Discover your customers’ unmet needs.
Successful entrepreneurs continuously look for ways to improve their products and services. They recognise particular unmet needs among their customers and aim to solve them. Market research can help you to identify these needs. Let’s say that you work for a software company. You have a product that helps people organise their finances.
However, after researching, you discover that many of your customers would also like help saving for retirement. This unmet need is something that you can solve by including retirement planning tools in your original product. This will help you to retain customers and gain new ones.
Why it is Important to Have a Business Plan ― Business model identification through market research
Every business model has to be profitable. This means that you have to earn more than you spend, which lets you keep the company afloat. This is important because if you are constantly losing money, it is unlikely that you will be able to save your company open for long. Market research helps you to identify how your business model will work.
It can help you understand your operation cost and how you will earn money. This information helps you to make intelligent decisions and avoid costly mistakes. For example, if you want to start a bakery and sell muffins, you have a few options. You could sell muffins in person, make and sell them online, or offer a mixture of both. Each of these options has different costs. This data can help you to identify the best business model for your situation. It can help you to avoid costly mistakes, like trying to sell your muffins online when you don’t have the resources to do it properly.
There are many benefits to engaging in market research from the very beginning of the planning process. It allows you to understand customer needs, avoid common pitfalls, and create a successful business model. However, it is often a task that entrepreneurs prevent because they don’t know where to start or feel they don’t have the resources to do it properly. Remember that market research doesn’t have to be complicated or expensive. If you follow these guidelines and prioritise market research, you can avoid costly mistakes, better reach your intended audience, and create a profitable business model.
Established in 2006, we have successfully written hundreds of bankable and world-class Business Plans for clients across 25 countries. As South Africa’s Leading Business Plan Company , we are confident that we would be able to assist you too. Kindly note that we also offer “Investor Pitch Decks”, “Excel-based Financial Models”, and “Proposal/Tender Writing Services” in addition to our Custom Business Plan Writing Service . Please visit our Services page for more information.
We look forward to being of service to you. Please feel free to contact our Founder, Dr Thommie Burger, on +27 79 300 8984 should you have any questions. He is also available via email and LinkedIn .
JTB – Your Business Planning Partner.
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Nine reasons why you need a business plan
Building a great business plan helps you plan, strategize and succeed. Presented by Chase for Business .
Making the decision to create a new business is an exciting yet stressful experience. Starting a business involves many tasks and obstacles, so it’s important to focus before you take action. A solid business plan can provide direction, help you attract investors and ensure you maintain momentum.
No matter what industry you plan on going into, a business plan is the first step for any successful enterprise. Building your business plan helps you figure out where you want your business to go and identify the necessary steps to get you there. This is a key document for your company to both guide your actions and track your progress.
What is the purpose of a business plan?
Think of a business plan like a roadmap. It enables you to solve problems and make key business decisions, such as marketing and competitive analysis, customer and market analysis and logistics and operations plans.
It can also help you organize your thoughts and goals, as well as give you a better idea of how your company will work. Good planning is often the difference between success and failure.
Here are nine reasons your company needs a business plan.
1. Prove your idea is viable
Through the process of writing a business plan, you can assess whether your company will be successful. Understanding market dynamics, as well as competitors, will help determine if your idea is viable.
This is also the time to develop financial projections for your business plan, like estimated startup costs, a profit and loss forecast, a break-even analysis and a cash flow statement . By taking time to investigate the viability of your idea, you can build goals and strategies to support your path to success.
A proper business plan proves to all interested parties—including potential investors, customers, employees, partners and most importantly yourself — that you are serious about your business.
2. Set important goals
As a business owner, the bulk of your time will mostly likely be spent managing day-to-day tasks. As a result, it might be hard to find time after you launch your business to set goals and milestones. Writing a business plan allows you to lay out significant goals for yourself ahead of time for three or even five years down the road. Create both short- and long-term business goals.
3. Reduce potential risks
Prevent your business from falling victim to unexpected dangers by researching before you break ground. A business plan opens your eyes to potential risks that your business could face. Don’t be afraid to ask yourself the hard questions that may need research and analysis to answer. This is also good practice in how your business would actually manage issues when they arise. Incorporate a contingency plan that identifies risks and how you would respond to them effectively.
The most common reasons businesses fail include:
- Lack of capital
- Lack of market impact or need
- Unresearched pricing (too high or low)
- Explosive growth that drains all your capital
- Stiff competition
Lack of capital is the most prevalent reason why businesses fail. To best alleviate this problem, take time to determine how your business will generate revenue. Build a comprehensive model to help mitigate future risks and long-term pain points. This can be turned into a tool to manage growth and expansion.
4. Secure investments
Whether you’re planning to apply for an SBA loan , build a relationship with angel investors or seek venture capital funding, you need more than just an elevator pitch to get funding. All credible investors will want to review your business plan. Although investors will focus on the financial aspects of the plan, they will also want to see if you’ve spent time researching your industry, developed a viable product or service and created a strong marketing strategy.
While building your business plan, think about how much raised capital you need to get your idea off the ground. Determine exactly how much funding you’ll need and what you will use it for. This is essential for raising and employing capital.
5. Allot resources and plan purchases
You will have many investments to make at the launch of your business, such as product and services development, new technology, hiring, operations, sales and marketing. Resource planning is an important part of your business plan. It gives you an idea of how much you’ll need to spend on resources and it ensures your business will manage those resources effectively.
A business plan provides clarity about necessary assets and investment for each item. A good business plan can also determine when it is feasible to expand to a larger store or workspace.
In your plan, include research on new products and services, where you can buy reliable equipment and what technologies you may need. Allocate capital and plan how you’ll fund major purchases, such as with a Chase small business checking account or business credit card .
6. Build your team
From seasoned executives to skilled labor, a compelling business plan can help you attract top-tier talent, ideally inspiring management and employees long after hiring. Business plans include an overview of your executive team as well as the different roles you need filled immediately and further down the line.
Small businesses often employ specialized consultants, contractors and freelancers for individual tasks such as marketing, accounting and legal assistance. Sharing a business plan helps the larger team work collectively in the same direction.
This will also come into play when you begin working with any new partners. As a new business, a potential partner may ask to see your business plan. Building partnerships takes time and money, and with a solid business plan you have the opportunity to attract and work with the type of partners your new business needs.
7. Share your vision
When you start a business, it's easy to assume you'll be available to guide your team. A business plan helps your team and investors understand your vision for the company. Your plan will outline your goals and can help your team make decisions or take action on your behalf. Share your business plan with employees to align your full staff toward a collective goal or objective for the company. Consider employee and stakeholder ownership as a compelling and motivating force.
8. Develop a marketing strategy
A marketing strategy details how you will reach your customers and build brand awareness. The clearer your brand positioning is to investors, customers, partners and employees, the more successful your business will be.
Important questions to consider as you build your marketing strategy include:
- What industry segments are we pursuing?
- What is the value proposition of the products or services we plan to offer?
- Who are our customers?
- How will we retain our customers and keep them engaged with our products or services and marketing?
- What is our advertising budget?
- What price will we charge?
- What is the overall look and feel of our brand? What are our brand guidelines?
- Will we need to hire marketing experts to help us create our brand?
- Who are our competitors? What marketing strategies have worked (or not worked) for them?
With a thoughtful marketing strategy integrated into your business plan, your company goals are significantly more in reach.
9. Focus your energy
Your business plan determines which areas of your business to focus on while also avoiding possible distractions. It provides a roadmap for critical tradeoffs and resource allocation.
As a business owner, you will feel the urge to solve all of your internal and customers’ problems, but it is important to maintain focus. Keep your priorities at the top of your mind as you set off to build your company.
As a small business owner, writing a business plan should be one of your first priorities. Read our checklist for starting a business, and learn how to take your business from a plan to reality. When you’re ready to get started, talk with a Chase business banker to open a Chase business checking or savings account today.
For Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.
JPMorgan Chase Bank, N.A. Member FDIC. Equal Opportunity Lender, ©2023 JPMorgan Chase & Co
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