What is the importance of a business plan?

What is the importance of a business plan?

Often, the start of a new year is when business owners sit back, assess the last year and look forward to the coming year. Just thinking about the next 12 months of your business and committing these thoughts into a cohesive plan can be the difference between staying on track or improving your business with your business or things taking a turn for the worse!

A well-developed business plan is fairly simple in principle, but many business owners do not place enough significance on business planning. New business owners often get a great business idea and launch into business without believing they need a business plan. Many small businesses write a business plan at the start of their business life to secure funding, but then allow it to ‘gather dust’ and it is never looked at again!

Many business owners believe that a business plan is either unnecessary or do not want to commit their ideas and goals in writing for fear of being seen as failing if they are unable to execute or achieve their goals.

What are the main components of successful business plans?

There is no set format to a business plan, but there are several key elements that many companies use, these include:

1. Executive summary
2. Company overview
3. Market analysis and size of opportunity
4. Customer analysis
5. Competitive analysis
6. Financial projections & financial plan
7. Marketing plan
8. Operational plans

What to consider during the business planning process

For many owners of new businesses, writing a detailed business plan can be daunting.

Well-established existing businesses often don't see the need to write a new business plan, or a business owner lacks the time to sit back and revisit their long-term objectives and key performance indicators and reevaluate the competitive landscape.

However, a well thought out formal business plan can not only start a company on the right footing but helps established business owners step back re-evaluate their business ideas, set new targets, understand new potential customers, attract investors, and understand existing competition in the marketplace.

A well-crafted business plan can be time-consuming. When writing a business plan, you should consider the following:

• Understand the purpose of your plan
• Be concise
• Undertake market analysis of your sector
• Understand your customers and target audience
• Understand your finances
• Include supporting documentation
• Use external reference data points & market research to back your plan
• Consider your USPs and differentiation
• Avoid industry jargon
• Use the plan and refer to it often
• Don't be afraid to change it

10 reasons to write a business plan

There are many good reasons to write a business plan, whether it’s the start of your business journey or you’re an established business.

Here are my top ten reasons to write a business plan:

1. Determine your future financial needs

Maybe your business is successfully growing, but to continue scaling up, will you need to raise more capital? If so, how much? One benefit of a business plan is being able to predict the capital or funding you will need in the coming year, based on forecasts. A formal planning process will be essential in deciding how much money you will need and when.

2. Raise money for your business

If you need to raise funds for your business, then most investors or lenders will not offer you funding without a business plan. Many small businesses fail, so just having a great business concept isn't enough to lend money.

Even if you are looking for grant funding, a written business plan will often still be necessary. Just having a loose description of your business and your overall goals is not enough. If you are looking at raising capital, you will need a thorough business and financial plan that demonstrates the likelihood of success and forecasts for sales, costs and profit.

3. Make better business critical decisions

Often, it is only by sitting down to commit your thoughts into words that you will make the time and headspace that you need to be able to consider the future of your business. It will help you define and focus your ideas and help you to plan all areas of the business such as people, financials, systems, processes, customers and suppliers and will help you to make better business decisions.

4. Identify gaps and weaknesses

The planning process may throw up potential issues in your business. Revisiting previous business plans can also help to identify areas where you didn’t hit targets, which can then feed into the next year’s business plan. If you identify weaknesses or gaps, it allows you the time to explore ways to overcome them. This may then prompt you to seek advice and talk through these challenges with others.

5. Communicate your plans with the rest of the business

A business plan can act as an effective communication tool to share your plans and goals with other key people in the business (other shareholders, management team etc.). It also can be a conversation point with future partners or lenders.

6. Keep you and your business on track

It’s often easy in the day-to-day of a business to ‘go off piste’ or be distracted by the next big thing. Whilst a business plan, shouldn’t stop you looking for business opportunities, it can often be a tool to keep you and the business on track, and avoid you spending time on things that don’t work towards your overall goals.

7. Assess the competition and the market

Going through a business planning process can force you to step back and reassess the competition in the same industry that your business operates. Is the market growing or shrinking? What is the overall size of the market? Who are your biggest competitors? Have new competitors entered the market? Asking these questions as part of the planning process will allow you to use this knowledge to make better decisions.

8. Identify new opportunities

By stepping back, brainstorming, sharing your plans and goals and communicating with others during the planning process can help you to uncover opportunities that you had not previously considered. Whether it’s new ideas for a product or service, diversifying the business or just a fresh marketing idea or channel, business planning can open your mind to new possibilities that would normally not cross your mind when you are engrained in the day-to-day of your business.

9. Minimise risk

As a business owner, risk and uncertainty can be par for the course. By developing a business plan, you can identify risks or challenges in the business, giving you the time to make contingency plans, and therefore enabling you to minimise those risks before they become a big problem.

10. Help with business sale

If you are considering selling your business now or in the future, a solid business plan can help to increase the value of your business. It will help potential investors to understand your business model, target market, growth plans and financial forecasts.

Looking for business planning and advisory? Contact Haines Watts

Here at Haines Watts, we help many businesses to create an effective business plan. We can help you with financial forecasts, and setting financial objectives and advise you on how to create a business plan to present your business in the best light for potential investors or to help you to secure funding for your business.

Conclusion

The importance of business planning should not be underestimated whether you are a new business owner or an established company.

Writing a good business plan does not guarantee your company's future, but it can go a long way toward reducing the odds of failure.

Even for owners of well established companies, taking time out of the day to day of your business and planning for the next 12 months can give you headspace to better consider the future, set objectives, communicate your plans and keep you and your business on track.

If you need help and advice on business planning, contact us, contact us at our offices in Chester, Wirral or Liverpool.