When starting a business, it is important to have a plan in place. Having a business plan can help you stay organized and make sure your business is heading in the right direction.
Business plans are an integral part of many businesses. Most people assume that a business plan is only created by an entrepreneur who wants to start a new business but a business plan serves more purposes than being just a foundation for a startup.
To know more details on what a business plan is, we have another article on what a business plan is. In this article, we will discuss the difference between a business plan and a business strategy, the importance of a business plan, its benefits, etc.
How Is A Business Plan Different From Business Strategy?
Many people get confused between a business plan and a business strategy and believe the two to be the same. Some people even use the two words interchangeably to mean the same thing but they are two different concepts.
A business plan is a formal written document that contains details on all aspects of the business including its goals, objectives, and how it aims to achieve them.
Business strategies, on the other hand, are long-term guidelines that are used by the business to achieve its goals and objectives. The strategies provide guidance for different departments of the business such as marketing, finance, human resources, etc. It forms a part of the business plan.
Importance Of A Business Plan
A business plan is often one of the most important documents for running a business successfully.
The following are some of the important reasons why a business needs a business plan:
1. Target Your Problems
A business plan details all aspects of the business, its business strategies and goals. When the business is not working in the right direction, a business plan helps to find out the target problem area that might be the reason for the problem.
An entrepreneur can also have the business plan read by an expert or a business consultant who can help find the problems with the business and help solve them or find better strategies to overcome them.
2. To Help You With Critical Decisions
A business plan helps the entrepreneur focus on what is important. It gives you guidelines and strategies to follow for specific goals. It also encompasses the vision and mission of the business.
When faced with the situation to make a critical decision, the business plan provides the entrepreneur with all the necessary information to consider such as financial data, marketing data, market research, etc. before making the right decision that will help the business grow in the direction that will help achieve its goals.
3. Helps You Get Better Advice
Sometimes when it comes to novel or complex situations the entrepreneur may not be able to solve a problem and create unique solutions. In such cases, the entrepreneur can have the updated business plan presented to a relevant expert, consultant, or person who has experience with such novel situations and have it reviewed and provide proper advice that will help the business grow.
4. To Avoid The Big Mistakes
According to studies, out of the many small businesses that begin their journey only half of the businesses last for more than 5 years. Some of the main reasons why a small business fails to include the following:
- The business sells a product that nobody wants to buy
- There is not enough cash flow available for the business to continue functioning
- The management team does not have enough personnel or have people with the right skills to run the business
- There is a lot of competition in the business
- The pricing for the product or service provided by the business is too high or too low
Some of these common mistakes can be avoided by creating a business plan. A business plan helps to find out all the weaknesses in the business system and help plan the business in a better way in order to combat these weaknesses.
5. Organize Your Resources
One of the key aspects of a business plan that makes it so important for new and small businesses is resource planning or management.
A business resource can include anything that is required to operate the business such as staff and employees, raw materials for the products, equipment to produce the products, etc.
When a business has to complete a particular project or produce a number of products within a particular time frame, resource planning is very important.
When starting a business, the resources available may usually be limited and the business may not have enough capital to look for new resources.
A business plan will help the entrepreneur get a clear idea on what are the resources they currently have that they can use to complete the project or what resources they can afford to get using the funds they already have. In the absence of a business plan, the entrepreneur often has to make guesswork which may lead to making incorrect decisions for the business.
6. To Prove The Viability Of The Business
Many people start a business when they feel passionate about something and want to spread it to other people. But being passionate about something doesn’t always mean that the passion will be enough to make a good business.
Creating a business plan helps entrepreneurs analyze if the business idea is good enough to become a real business and if it is really viable enough to function and provide profit. This also helps when an entrepreneur wants to create a new product or enter into new unknown territories.
💡 “A goal without a plan is just a wish.” — Antoine de Saint-Exupéry
7. Create Milestones
Many people who start businesses may not think about creating any goals or milestones for themselves. Creating a business plan helps the entrepreneur think of goals and milestones that it wants to achieve.
This helps the business create strategies and activities that will help the business move in the right direction to achieve these milestones.
8. To Provide A Guide For The Service Providers
A business is made up of many people doing different services in order to achieve the goals of the business and get sales. Without a proper business plan to guide the people, they may just be doing monotonous work.
A business plan helps all the people involved in the business or a particular project know about the goals and objectives of the business, its values, and what it stands for. This helps them take better decisions in their everyday work and achieve a greater level of success and growth than when without a business plan.
9. Approach Investors
One of the most important purposes for creating a business plan is to look for investment for the business.
Entrepreneurs may look for investment from private investors, bank loans, private institutions, etc. People who want to invest in businesses would want to know about the business in detail such as what the business is about, what are the products and services it sells, what are the goals it aims to achieve, and how it aims to achieve them, etc. In such a case, a good business plan does the job of explaining all these necessary details to the investors and helping the investor make a decision on whether to invest in the business or not.
The investor can also refer to the business plan later on as a reference and make a decision to invest in the business.
10. To Reduce Risks
Writing down the layout of a business plan helps in finding out the strengths and weaknesses of the business. This can be done through SWOT analysis.
SWOT analysis helps in finding the strengths and weaknesses within the organization, and the opportunities and threats in the external industry. This helps in taking proactive decisions that will help better equip the business and reduce risks in the decision-making process.
Performing competitive analysis for the business plan also helps in reducing risk. Competitive analysis helps in finding out who the competitors are and how they are positioned in the market. It also helps in finding out what strategies they are using and who their target audience is.
A new business can use this data to find out if they can survive in such competition in the market, and if their business will be viable enough to gain profits and gain loyal customers. If the entrepreneur finds that it is not feasible to survive in such a competitive environment the entrepreneur can then look for a different pathway to take, thereby reducing the risk of incurring losses later on.
Creating a business plan usually takes a lot of time, effort, and data. Many people do not want to go through the hassle to create a long and detailed document, not realizing the importance it carries and the various purposes it serves.
Having a business plan in hand is a way of reducing risks and also helps small businesses have a better chance of surviving in a highly competitive marketplace that will otherwise be too difficult and uncertain without one.