Why Do You Need a Business Plan?
Starting a new business is always a gamble. It can cost you a lot of time and money, not to mention stress on you and your family. That’s why it’s so important to consider vital information before diving into a new venture, such as why do you need a business plan and whether or not you have the necessary funds in place for success.
What is a Business Plan?
A business plan is a written document with proper SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). Pair this with financial projections, and you can make a non-bias, clear decision of whether the business should launch or not.
A document like this is not just for presenting to potential investors. A business plan can turn an abstract goal into concrete plans. It can be used as a guideline to keep you, and your employees, on track to success.
Why do you need a Business Plan?
Having a business plan doubles the chances of success of a new venture. One US study found that with around 500,000 new businesses starting every month, only half made it to the five-year mark. Those that survived had a strategic business plan in place which they followed diligently. Another study found that larger businesses with a formal business plan showed a 30 percent chance of growth, with some of the companies doubling in size and finances.
A proper business plan will also show any potential investors, such as new partnerships or financial institutions, that you’ve done your due diligence as a business owner. This can help to persuade these potential investors to work with you, proving that you are serious about your company and its potential.
A good business plan should also analyze your competition and your potential customers, so you have a better understanding of both. This will allow you to create advantages over your competition and better products and services for your clients. Ultimately, your business plan will help you uncover new opportunities for growth.
What do the experts say?
Building a financial model keeps your company on target. It’s not just a business plan that you will help you decide whether or not your business idea is feasible, but a financial model with profit and loss projections of three to five years is recommended to all new and potential business owners. A full financial model includes cash flow statements, profit and loss, and a balance sheet. Having all of this in place can help you make sure you’ve saved enough investment and/or know how much to ask for with a loan, or if you should create a partnership with a financial investor.
A proper financial model can help you streamline expenses, increase profitability, and quicken ROI (return on investment) through a lower monthly burn rate. A burn rate refers to the amount in which your business’s regularly recurring monthly expenses add up.
These financial documents (cash flow statements, profit and loss, and balance sheet) will also help you determine fixed versus variable expenses.
Business Consultant Kathryn Gordon, MBA and owner and founder of Costa Consultants, says businesses should consider what can fluctuate and how much to save for incidentals.
“I like to call it ‘The Oh Shit Fund’. I recommend 15 to even as high as 25 percent savings, depending upon how asset-heavy the business model is. For example, construction equipment breaking down or ATV maintenance for a tour company.”
After launch of your company, use the same financial model (cash flow statements, profit and loss, and balance sheet) to reflect and analyze any points of opportunity and growth.
“Ask yourself, ‘how can we lower expenses and increase revenue? Are we still aligned with our core values and mission statement?’” explains Kathryn.
Finally, when you review the business plan, plus the financial projections, you can make a non-bias and clear decision of whether the business should launch or not.
Business Consultant Kathryn Gordon and Costa Consultants can help you determine whether or not your business dream is feasible with all the planning and proper financial projections. Check out our business consulting and financial consulting services. You can even schedule a free consultation to determine your needs.