Business planning is still a very important tool for any entrepreneur. Planning your business lessens the risks of failure.
The five main reasons why planning is important to an entrepreneur are for your loan or investments, financial management, it will help you grow faster, minimizes risks, and get better advice. Heading into the unknown is quite scary for many people. But with planning, you will be more goal-oriented and it can help you track your progress and it will help you make good sound decisions for future challenges.
Having a business plan will make your business better, it will make your life better. You will set the steps for your business to achieve those goals. On your journey, you will find that some steps will be more expensive than the others. But creating just one business plan will not be enough. Every month you need to review and revise it so you would end up with a better outcome. It will for sure make your life easier.
A business plan will be your map or your compass. You’ll be able to know where you are right now and where you need to go and how will you be able to get there. You’ll be able to make choices easily. There are still many benefits to creating it. In addition, a great quote from Brian Tracy is that “Every minute you spend in planning, saves 10 minutes in execution”.
Here are the 5 main reasons why you need to have a business plan:
1. Loan or Investments
Most of the new businesses need capital to start. A business plan helps you to secure an investment or loans from financial institutions. Raising funds will become easier and undemanding. This can also be a tool to communicate with possible investors. Of course, financial institutions won’t easily lend a loan if you don’t have a concrete and credible plan for your business. To persuade these investors and loan companies, present them a plan that can attract not only them but future referrals.
Your plans can also attract people to work for your venture or attract customers. Your business plan will be the foundation for your strategies and how will you be able to execute them. Remember that no matter how great your idea is, you will always need sufficient funding to start and grow your business.
According to Forbes, there are five funding options for your startup company.
- Angel Financing– Angel investors are most likely to be rich individuals who invest in small firms in exchange for an equity ownership interest. The range of an Angel investment is from $25,000 to $100,000 per company. A couple of Angel investing in startups with high-profile success stories are Uber, WhatsApp, and Facebook. The most effective way to find an Angel investor is from a colleague or friend of an Angel. Angel investors like to invest in areas they know very well, so try starting there. Even try from other entrepreneurs, lawyers, accountants, and AngelList
- Crowdfunding– This is a fundraiser through multiple funders, often via popular websites like Kickstarter, GoFundMe, Patreon, and Indiegogo. On the other hand, this kind of setup is not very complicated. You just set up a profile for your company on a crowdfunding site, describe your business, give the amount of money you’re planning to raise and that’s it. Interested people will be able to donate to your startup.
The key to success in this is to have a great story for your business. Standout to other companies. There are some startups that were able to raise thousands or even millions of dollars just by crowdfunding. Your campaign can also be a community of people who are interested in your business, and they can now encourage other donors to add funds to your company.
- Small Business Credit Cards– There are also credit card issuers specifically for small businesses. But there’s a downside to this. Unlike others, interest on unpaid balances can be quite expensive, ranging from 5% to 19.9%. So it’s much better to pick from issuers that offer a low or even no-interest introductory charge for the first few months. But there are a few new credit card issuers that don’t require personal guarantees and will not impact your personal credit score.
- Venture Capital– Furthermore, these are the firms that can provide capital, strategic assistance, introduction to potential customers, partners, or employees. Venture capitalists usually want to get involved in startups that have high growth potential. They focus their investments on Specific Industry Sectors, Stage of Company, and Geography. You must have a great pitch to attract venture capitalists. Keep in mind that this process takes a lot more time than the others. Meeting with a principal of a Venture Capital firm can take weeks, which usually follows up with more meetings, then a presentation to the partners, then the negotiation of a term sheet.
- Small Business Loans– These types of loans are available from several traditional and alternative lenders. These loans can help fund your startups, they can help you expand your business and enhance sales and marketing efforts. There are plenty of types of Small Business Loans but they vary on your business needs, length of the loan, and other specific terms of the loan like :
- Small business line of credit
- Accounts receivable financing
- Working capital loans
- Small business term loans
- SBA small business loans
- Equipment loans
2. Financial Management
For starters, you will need to manage the cash flow of your business. It can be a guide for your budget, to make sure that your investments connect to your end goals. Most businesses fail not because they’re not getting enough profits, it’s because they’re unable to pay their debts. Financial management will make you a much better macro manager. Several advantages for learning financial management are:
- Easy approval on your business debts
- Investing your money wisely
- Maintaining inventory and accounts receivable
- Setting goals for sales
- Planning your taxes
Profit doesn’t always mean success, your growth will determine the success of your business. Look at your financial metrics and identify which specific metrics affect your company. Identify where is wastage of money is so you can avoid it in the future. With your business plan, you won’t have to drop capital by mistake. A few tips for inexperienced entrepreneurs are:
- Make an organized budget plan – create your budget plan and remember to stick to it. Always trust the process.
- Keep learning – Educate yourself more and be informed about every part of your business. Remember to keep reading.
- Save up – On the other hand, trusting the process is not enough in managing your money. Learn how to save for future challenges.
- Never forget about your taxes – Use an accounting software but it would be much better to consult a professional consultant.
- Always check your credit score. – Remember to check your credit score and try to improve them. Investors will more likely to invest in businesses with high credit scores.
3. Grow Faster
You need to be precise on your objectives. Having a business plan makes you focus more on your intentions and achieve your goals. With your business plan, you can track your progress and quickly adapt to challenges that may arrive. Your plans can identify your weaknesses and by sharing your plan with experts or professionals, they will be able to give you great advice to push through. You will be able to see what went right from your plans and do more of that.
A great business plan will be able to help you organize your resources. You will have no problem with how will you structure your resources. Planning will make the organization more effective. You’ll be able to see how attainable your goals will be. Your business plan will also be your plan of action. Create milestones to get for in the short or long-term plans. You’ll be able to see if you can get an office, hire employees, equipment and supplies.
Moreover, in this new generation, I think it’s essential to include a Social Media account in your business plan. Social Media is a very useful tool to promote your business to attract potential customers and maybe even attract future investors. Other few tips to grow your business effectively:
- Know your customers – Let them feel like you’re their friend. Understand their needs and hear their feedback about your products or services. With this, you’ll be able to improve or give better services
- Always go the extra mile for your customers
- Host events – Events or even small giveaways will help gain more engagement for possible new customers
- Always update your Business Plan – Monitor and write what works and what doesn’t.
4. Minimize Risks
Writing a business plan is the best way to start your business. Without a business plan, you’ll just be making decisions randomly or unsystematically and this may lead to problems. As a result, having a plan minimizes risks. When starting your business, there’s so much you’re not familiar with. What will your target market be? Who are your competitions? How will you execute your operations? There are too many uncertainties when you’re just starting. Having a business plan will not be enough, you should also review it once in a while to lessen the risks of failing. It will also identify and enhance your flaws. Your business plan may also contain a contingency plan for future possible events.
With being able to identify your strengths and weaknesses. Try to compare yourself with your competitors, focus on what differentiates. Always be honest in accessing your weaknesses or even let colleagues point out your flaws. Make a plan for those weaknesses and start improving. Your Business Plan will act as a blueprint. Business planning also opens up multiple opportunities like producing new products and improving the quality of your products. It will also act as a shield as it can stop us from making fatal mistakes. It can also point out some loopholes in our business.
Furthermore, creating a business plan increases the possibility of success. Making a business plan will make you focus more. You will be more attentive to even the slightest detail of your business. Try researching about businesses that are similar to yours, what products or services are prominent in the area, who is the audience you reaching out to, where are the areas that are accessible to these audiences when products or services are in demand, or is it seasonal.
5. Receive Better Advice
A business plan is important because it can also be a way to get advice too. You’ll get feedback on what kind of help you really need. It will act as a way of communication, not for just future investors, but also by telling a friend or a mentor.
For example, you saying that you’re starting with 20 employees is not a detailed statement. They will probably need more in-depth information. This is where a business plan comes in handy. You’ll be able to show the responsibilities and the exact amount of salary of one specific employee. With your business plan, your mentor or colleague can now give not just better advice, but the right advice for you.
All of this can lead you to new opportunities. Furthermore, here are a few tips on how to become a better entrepreneur:
- Create business plan – I cannot stretch this enough, but go get yourself a business plan. Define your skills, what you offer, or how unique is your product from the market.
- Mental Toughness – Prepare yourself for anything that could go wrong. Be mentally tough because being an entrepreneur is a lot harder than you think. What would you do if a pandemic strikes?
- Find a trusted mentor – a mentor could be a friend, an old boss, or a colleague. Find a mentor that knows the market. A person that can give you unbiased advice.
- Build Dream Team – as your company grows, you might need to hire employees. Here, take the time to thoroughly interview and make sure that you’re on the same page or share the same vision for your business.
- Educate yourself – Never stop learning because starting a business is a continuous process of growth and learning. There are now plenty of free or low-cost online courses.
What even is business planning for entrepreneurs?
Business planning is the first step entrepreneurs take to start their businesses. It would be better for an inexperienced entrepreneur to have a plan to name the business, find potential customers, knowing your target market, or even setting up a website for it.
Try to ask yourself these questions when creating your business plan:
- How much money will you be spending on your startup business?
- What will you be selling?
- Who is your target audience?
- Who are your competitors?
These are just a few questions that you’ll be needing in your business plan. Researching and writing will for sure be time-consuming. But it will be the best decision you’ll ever make when you’re in the startup.
Entrepreneurs’ Template for a Business Plan
- Executive Summary – Firstly, making an executive summary will give the reader a significant view of the company and the market. It provides a short and optimistic overview of your business.
- Company Description – Secondly, give an overview of your company. What your company does, your location, your goals, your details.
- Marketing Analysis – Thirdly, this part will determine your market’s conditions. Create an analysis of the target market. Explain how will you be able to stand out from your competitors.
- Marketing Plan – In addition to your Market Analysis, create a sales strategy that will cover how are you planning on selling the product.
- Product Description – Here you get to discuss the details on what you will be selling or offering, in addition to how will you be selling it. Describe your product on how will it differ from others. What will be the price and how will it play in the market versus other competitors.
- Management and Organization – Describe the ownership, operations, and management roles.
- Operating Plan – This will target the physical aspect of your business, such as an office, warehouse, equipment, inventory, and supplies.
- Financial Plan – Indicate your potential business growth and profits. Illustrate how your business is going to perform well in the future.
- Appendices – This contains a summary of all that you wrote above with an appendix so that possible investors, you or, your employees will have easy access to move forward.
Are there different types of business plans?
There’s no such thing as a wrong business plan but there are two different categories. The first one is the Traditional business plan which is the most common one. It is the standard plan that is more detailed in every section. It is much more longer and takes up a lot of work.
Unlike with Lean Startup, which is the shorter one. It can be as short as one page. These kinds of business plans are not as common as much as the traditional ones as they have fewer details.
Think about it this way, you’re planning a road trip with your friends to a place where all of you have never been before. Would you rather just guess the routes? Will you be just mapping it out? Will you be using a GPS for it? All of the answers will have different kinds of outcomes. Some will be time-consuming and some choices might require more budget. And that’s where planning comes in. Moreover, making choices will be a lot easier. And your business will be a lot better.
