According to a journal published in the Applied Economic Letters, entrepreneurs who had a business plan received higher growth in sales and higher gross revenues than those who didn’t.
So, what is a business plan? Well, a business plan is an important document that possesses:
- A company/business’s primary objectives
- The techniques or methods to be used for the achievement of those objectives, and
- The time duration required for achieving them.
5 Reasons Why Every Entrepreneur Needs a Business Plan
Just like every architect requires a blueprint to make sure every visual detail of their building is executed to perfection, every budding entrepreneur needs a thorough business plan before diving headfirst into starting a business.
Here are 5 reasons why you should seriously consider creating a business plan:
1. Turning Vision into Reality
Business ideas may sound excellent in theory but may prove completely impractical when implemented. Every entrepreneur possesses the passion for making their business dreams come true; however, passion is not always enough to make a business successful.
An average of 25% of startups with no business plans fail in their first two years. This means a business plan ensures that:
- the idea you’ve set out to achieve holds certain value and can be executed thoughtfully
- gives you the stamp of approval for your business, and
- validates your entrepreneurial ideas.
2. Driving Better Communication
Once you’ve started your business, your employees need to know their roles clearly. A business plan helps employees know of key aims and objectives your company strives to achieve. Hence, creating a business plan will foster better communication between you and your employees, as they consult it to make difficult decisions and develop a long-term understanding of the company’s most important goals and vision.
With 71% of fast-growing companies possessing a business plan, there’s no doubt that performance and efficiency are bound to improve if you create one before starting a business.
3. Attracting Investors
Every business needs financing. This can either come from your pocket or an investor’s. If it’s the latter, you will need a thorough business plan detailing everything about your business and its objectives to attract potential investors.
A business plan can convince an investor by:
- Outlining your market research, by informing about competitors and target market
- Proving the practicality of your business and what it aims to achieve
- Detailing financial projections for the next five years
By having a comprehensive business plan, the odds of attaining funding from investors increase by 2.5%. Therefore, having a solid business plan should be a top priority.
4. Anticipating Problems
Business plans offer you a realistic way of making things possible by taking your idea and turning it into a functional business. Through a business plan, you can think pragmatically and take practical steps as you start your business.
Being pragmatic means learning about the hurdles or challenges you will face. Hence, a business plan can help you anticipate potential problems with your business before you dive into action and meet them.
5. Sourcing Better Advice
Before starting a business, many entrepreneurs consult friends, family, or other business experts to determine whether their business idea is worth the effort. This advice can sometimes be a make or break for a business.
When people have more information about your business expectations, goals, and needed resources, they can think more clearly. With a detailed business plan in hand, the people you choose to consult with can advise you much better.
Now that you have a solid understanding of the importance of a business plan, you better start drafting one. Here’s a short video to help you out.
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