A business plan is an extremely important document that helps to evaluate a business idea from an investor's point of view. It contains a detailed analysis of various aspects of the business.
Drafting a good business plan is not easy. Yet it forms a crucial part of business planning. Several business owners regret not having a business plan before jumping the business bandwagon.
Every business owner must have a business plan prepared by a professional. Here are a few reasons why it is worth making an effort to prepare a business plan.
It Helps the investors to evaluate a business idea
For a moment let's assume you require finance for your business. How will you convince your potential investor to invest in your company? An idea might seem great to you, but does it make sense commercially? If you approach a bank, it will not consider your application unless it is accompanied by a business plan. Banks or for that matter any investor take business plan very seriously.
A good business plan defines the character of the entrepreneur. It demonstrates that the entrepreneur is highly organized. He believes in detailing every aspect of the business. When you sit down and begin to draft a business plan, you will notice many aspects that you overlooked. It allows seeing things from different perspectives.
Many business owners want to prepare a business plan but they are terrified. The vast majority of them do not understand how finance works. This is not the thing that we do every day. Preparing a good business plan seems like a daunting task.
If you think from an investor’s point of view, you will realize that they are right in demanding a business plan. They want to see your confidence, your knowledge, and the ability to steer the company. An entrepreneur who knows where the money is coming from and how to spend that money invokes confidence. Investors want assurance that they are backing the right person.
To Stop or Proceed
Many business ideas sound great on paper but fail when actually implemented. If you ask a person to come up with a business idea, he may come up with a couple in a few minutes. Some might even be worth considering. The problem lies in execution. There are millions of ideas floating around, but less than 0.5% is turned into action. A business idea simply provides a picture of the potential. Writing a business plan helps you to verify if it is workable in a practical sense. You will develop a crucial understanding of how money flows into the business. While writing a business plan if you feel the idea is not feasible practically, you can drop it and focus on something that is worth.
A Business Plan Helps To Refine Your Idea
Many take their idea for granted. A business plan helps you to get an answer as to why you should a business in the first place. It gives you reasons for WHYS and HOWS. Often when we have an idea and even if it doesn’t sound practical, we lie to ourselves. We convince ourselves of its viability. Business is not something that you can experiment with. It consumes precious resources. Writing a business plan helps you to avoid such emotional traps. It enables you to see the things in their right perspective.
It Improves Your Chance Of success
Some products are so good that they can be successful with little marketing effort, while some require a great deal of effort convincing a customer. Planning helps your business to take-off in an efficient manner and reduces the chances of failure. A new business needs to make a lot of assumptions and this can prove fatal to the health of the business. A majority of the assumptions are biased. The process of writing a business plan critically examines those assumptions. It shreds those that are not practical or exaggerated.
If you look from the investor’s point of view, financing an idea is a pure gamble. A well-prepared business plan assures the investor that his odds of success are greater in financing the venture.
Helps The Business From Hitting The Speed-breaker
Everybody knows that most businesses fail within a year or two of starting. A businessman might not have experience in dealing with the bumpy ride. For example, if the business is importing raw material, they may not have planned for currency fluctuations. Wild currency fluctuation can upset the whole equation. Writing a business plan helps you to identify potential problems and plan for them. You can develop a clear road-map that takes such accidents into account.
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