If you are starting a new business or considering ways to grow an existing enterprise, writing a business plan is a crucial step. You may think that it’s a waste of time, but it’s the most effective way to check the viability of your business idea or expansion before investing valuable time and money. Moreover, research shows that most entrepreneurs have a better chance of success if they write a business plan, so it’s certainly worth it.
In this blog, we will discuss the importance of writing a business plan as one of your first tasks in starting a business. That is, before forming a company, building a website, or making any financial commitments to the project.
What is a business plan?
A business plan is essentially a roadmap to success— a formal written document that explains in detail where you want to go, how you’re going to get there, and how much time and money you’ll need to invest.
Typically, a business plan should define the purpose of your business, set out clear objectives and strategies, and describe exactly how the business will operate and achieve its goals. It will help to guide your decisions and keep you on the right track.
You can write a business plan yourself, gathering information and guidance from online resources such as GOV.UK, the Prince’s Trust, and Bplans. But this can be challenging if you lack experience or if you’re generally feeling overwhelmed at the prospect. In these instances, it’s best to get help from a business advisor or accountant.
The format of a traditional business plan is extensive but concise. It should always start with an executive summary, include several different sections that clarify every aspect of your business idea, and conclude with an appendix of supporting information.
1. Executive summary
Your executive summary should give a brief overview of your business and the reasons why it will be a success. It’s best to write this section after you’ve completed the main part of your business plan.
If you’re applying for funding from financial institutions, the government, or investors, you need to make a really good first impression in this summary. If you don’t, they are unlikely to read any further.
2. Business description
This section will provide key details about your business. You should include:
- your business name and address
- legal structure (e.g. sole trader, limited company, partnership)
- a brief description of what the business does
- information about the owners/directors/shareholders, including their proposed responsibilities and what they bring to the business
3. Vision and goals
This is where you will clarify your business idea and the market needs it will solve. You should provide details of the products/services you will sell, how and where you plan to sell them, who you will sell to, and why your business will appeal and be of benefit to these target customers.
Explain what makes your business unique or different. Discuss what you plan to achieve within specified periods of time, and describe the actions you will take to reach these goals.
4. Market research and competitor analysis
In this section, you will demonstrate that you have carried out detailed market research and an analysis of the industry in which you’ll be operating. These findings must support your vision and goals.
Who are your target customers and what are their needs? How do you know this? How will you reach them? Who are your competitors? What are their strengths and weaknesses? Discuss the opportunities available, as well as the potential challenges you may face along the way.
5. Financial information
This is where you will discuss how much it is going to cost to set up and run your business, how you plan to finance it, exactly how these funds will be allocated, and how much money you expect to generate in certain timeframes.
You will also need to include information about your pricing strategy. How much will you charge for your products or services? How did you reach these figures? How do your prices compare to the competition?
Clarify your costs and markups to show what your profit margin will be, include realistic financial projections, and show how you reached all of the figures stated in this section.
6. An appendix
The appendix should comprise essential supplementary information, such as detailed financial forecasts, budgets, charts, product diagrams, research findings, patents and licences, and anything else that supports your business plan.
Why a business plan is essential
Writing a business plan will be of great benefit to you on a day-to-day basis whilst setting up and running your business. It will force you to prepare, focus, think strategically, and anticipate – all of which will keep you on track for success.
But more than that, a good business plan is essential if you’re seeking loans, grants, investment, or executive talent. Therefore, you must ensure that one is in place before applying for funding or approaching business investors and executives.
However, don’t just take our word for it. Research reveals that creating a business plan makes you more likely to start a business, improves overall business performance, and accelerates growth. So, evidently, it pays to plan—in more ways than one.