importance of a business plan to an entrepreneur pdf example

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importance of a business plan to an entrepreneur pdf example

America has always had a unique reputation as a nation of entrepreneurs. Nations around the world look up to us as the nation where everything is possible. As an example, Silicon Valley is replete with the story of the immigrant entrepreneur who starts a tech company that makes it big. The problem with fulfilling your entrepreneurial dream is that you might have no idea where to get funding for your business.

Getting business capital is essential because capital, along with labor and land, is an essential factor of production. Indeed, many small businesses around the country fail because they are under-capitalized. That is not the only reason that small ventures fail, but it’s one of the avoidable ones.

Many new businesses require a capital outlay to cover fixed costs such as plant and equipment, industrial licensing, or product-related research and development. Business capital funding allows you to carry out operations using external funds until the business matures to the point where it generates enough funds to sustain itself.

Government Funding Sources for Your Business

Did you know that you can get funding from the government for your business? Business funding tends to have some of the lowest costs in terms of interest, but you will need to jump through a few hoops to get it. In fact, for many businesses, it is downright impractical, because the government is only interested if your business is in an industry that is seen as strategic. In addition, special government initiatives may open the window to government financing, but, again, you will have to ascertain if you qualify.

Two broad categories of government funding exist: federal funding as well as non-federal funds. You can search for federal funding on the Catalog of Federal Domestic Assistance (CFDA) website as well as the US government’s Grants website. Non-federal programs offered by individual states will typically be advertised through the various state houses as well as your local chamber of commerce.

Funding Your Business Through Issuing Equity

You can also look for business funding through bringing on one or more equity partners into your business. An equity partner makes an investment in your business in exchange for an equity stake.

For example, an equity partner can purchase, say, a 10% stake in your business for a $500,000 investment. The actual amount of the investment and the share of equity the new partner gets varies widely depending on your negotiation.

If you have a highly profitable business where the investment represents low risk for the investor, you can afford to dole out less in equity. If, however, your business venture is highly speculative and there’s a heightened risk of the investor losing their principal, then they will demand a higher share of equity. The more you can prove the viability of your business, and that you have a proven business background, the easier it will be to raise equity funding.

The Best Business Funding Sources

Another excellent business funding source is financial institutions. Financial institutions include banks, building societies, community trusts and local investment trusts. Banks comprise a broad market that makes their profits on issuing loans at interest. True, banks will typically engage in a truly diverse range of activities, but issuing loans from deposits is one of their bread and butter profit centers. This puts you and your business in a good position, but only if you have good credit.

If you are completely new in business, it will be harder to convince the banks to take a risk on you. You might have to put up loan collateral in the form of personal property such as a car or immovable property. The great, big advantage to bank loans, however, is that the interest cost could end up being far cheaper than giving up part of your business equity. This, alone, makes business loans from banks and financial institutions perhaps the best source of commercial funding for your business.

Business Acquisition Funding

If you need a huge sum of money, say, to fund an ambitious expansion plan, you might have no option but to seek a merger or acquisition. In a merger, you and another business combine into one entity. If you are merging with a business with lots of free cash flow, the combined entity can then reinvest those cash flows into your ambitious expansion plan.

If, on the other hand, your business gets acquired by a huge corporation, you will typically get a huge windfall in cash and stock options. If you stay on in your position at the acquired business, you can be responsible for helping chart the future part of the company. The business, as a unit of a much larger business, will have access to the parent company’s much higher funds in order to invest in its operations.

The importance of a business plan

Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.

Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.

What is a business plan?

A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.

Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success. ‍

Why is a business plan important?

A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business is on the right path and worth putting money into.

Business plans typically include detailed information that can help improve your business’s chances of success, like:

10 reasons why you need a business plan

I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.

The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.

To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.

1. To help you with critical decisions

The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.

Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.

Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.

Send invoices, get paid, track expenses, pay your team, and balance your books with our free financial management software.

2. To iron out the kinks

Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.

3. To avoid the big mistakes

Only about half of small businesses are still around to celebrate their fifth birthday . While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.

According to data from CB Insights , some of the most common reasons businesses fail include:

The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s cash flow forecasts or a product-market fit analysis , every piece of a business plan can help spot some of those potentially critical mistakes before they arise. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!

Get a jumpstart on your business plan by creating your own cash flow projection .

4. To prove the viability of the business

Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.

Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.

A graphic showing you a “Business Plan Outline.” There are four sections on the left side: Executive Summary at the top, Company Description below it, followed by Market Analysis, and lastly Organization and Management. There was four sections on the right side. At the top: “Service or Product Line.” Below that, “Marketing and Sales.” Below that, “Funding Request.” And lastly: “Financial Projections.” At the very bottom below the left and right columns is a section that says “Appendix.

A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.

Want to prove there’s a market gap? Here’s how you can get started with market research.

5. To set better objectives and benchmarks

Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.

6. To communicate objectives and benchmarks

Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.

Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.

7. To provide a guide for service providers

Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.

8. To secure financing

Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.

Learn what you need to get a small business loan.

9. To better understand the broader landscape

No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.

10. To reduce risk

Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.

Understanding the importance of a business plan

Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.

Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.

Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

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Business Plan: Importance of Quality

2015, Business Plan: Importance of Quality

The purpose of a business plan is to test the feasibility of a business while simultaneously providing a path for the entrepreneur to take to reach fulfill the goals and objectives of the business . The business plan has many other purposes however, such as securing funding for the business. Having a well-developed business plan is vital to the success of a business.

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