Some people think that drawing a business plan is some optional luxury. What they don’t seem to understand is that starting a business without a sound business plan is like departing for an unknown destination. Accordingly, this article highlights a few reasons why you should think of a business plan before you venture into any business start-up. Read on to discover why you need a meticulously drawn business plan before plunging into any commercial enterprise.
First, the business plan is your compass as you steer your business ahead. It is not necessarily about sourcing the funding but a vital aid that will help you market your business more effectively. When you put your thoughts to paper, you chart particular courses of action that should be undertaken to improve your business at different specified times. A good business plan offers alternatives for future scenarios, goals to be achieved within particular timelines, and the resources required to achieve both and where they will be sourced.
While lending opportunities get very competitive, the business needs to have a sound business plan in order to win the approval of the funding institutions. Whereas your financial statements may highlight the past of your business, the business plan gives them an idea about the future of your start-up. They will use it to determine your future success and subsequently, your ability to pay.
By the same token, a business plan helps you develop and communicate some course of action. The reason why you hear some tycoon’s beneficiaries engaging in legal battles all over the news is because some guys succeed in business without elaborate business plans. When such people die, it becomes very hard for the heirs to determine why the businessstarted, how it should be run, and the particular goals it should address. As a result, they start sharing the business instead of continuing the idea of the original owner.
Finally, a business plan enables you to manage cash flow. Note that cash flow is a fundamental requirement for any business out there. Remember that many start-ups do not die because they are not making money. They die simply because they are insolvent – that is, they are unable to pay their debts. Although the break-even point (where the revenues equal the costs) is a highly important figure in business, it becomes quite immaterial once the enterprise is up and running profitably. It is when your start-up is doing exceptionally well that you should think about a business plan because that’s when most people make grievous mistakes that cost them their businesses.