According to statistics from the Small Business Administration, the United States has about 30.7 million small businesses. Not all these businesses, however, succeed or last long. Data from the Bureau of Labor Statistics reveals 80 percent of businesses stay open on their first year. This figure drops to 70 percent in the second year and 50 percent in the fifth year.
One reason businesses don’t prosper is the lack of a business plan, a document that contains a comprehensive description of the business, including an assessment of the main competitors, an analysis of the target market, financial forecasts, and marketing strategies.
Whether you’re running a brick-and-mortar pet shop, an online e-commerce company, or a commercial cleaning franchise company, you need a great plan to survive and thrive.
Here’s why writing up a business plan is vital to your success:
Helps You Obtain Funding
Entrepreneurs who want to turn their business idea into reality need money, specifically operating and startup capital. They can get the funding they need by attracting angel investors or venture capitalists and applying for debt financing at banks.
Unfortunately, you can’t win over investors or financial institutions without any kind of business plan. Investors want to study this well-written document before making any kind of investment commitment. Presenting a solid and comprehensive plan gives you a better chance of securing the funding you need.
Tests the Viability of Your Business Idea
The last thing you want to happen is to open up a business and realize later on that you’re pursuing the wrong opportunity. Coming up with a plan is an effective way to determine if your business concept is feasible — and will lead to your success.
Think of your business plan as a safety net. If the plan reveals that the concept is flawed or weak, you can tweak the idea or think of something else. You’ll save yourself money and time, as you won’t pour efforts into something that won’t bear fruit in the long run.
Allows You to Understand Your Customers Better
Customers are the lifeblood of any business. They affect every aspect of your business and are the key to your success. A business plan enables you to figure out who your customers are, how to attract them, and how you’re going to present your product or service to them.
Helps You Set Achievable Goals
Businesses that set up shop without any goal in mind are doomed to fail. They may easily go off-target and pursue short-term, ineffective business strategies. With a solid plan, you can create high-level milestones, which you can use to formulate meaningful and achievable goals for your company.
Aligns Everyone to Your Goals
Formulating a business plan is an effective way to make sure that every employee knows and understands the current and future plans of your company. This well-written document puts everyone on the same page on how to come together to achieve goals and move the business forward.
Although formulating a business plan may seem time-consuming, this step will help your business survive past the startup stage —and succeed. If you want to start a business or have just recently opened a business without a solid plan, now is the time to create this document.