Why Business Plans are Important
At The Kortkamp Group, we believe in the value of a good business plan, and strongly suggest that every business should write one or have one written for you. It’s a given that business plans are a crucial part of obtaining financing, but why else are they important?
A well-written business plan gives business leaders a method to identify, formulate and write down their long and short term goals for all stakeholders to see, and provides a way for management or business owners to track their progress as the business moves forward. Like plotting a course on a map, you need to know where you want to end up. Identifying the milestones and paths to get there, preparing well for the excursion ahead, and visualizing a successful journey makes the trip easier, let’s everyone knows what’s expected, and keeps the destination in sight.
Business plans help guide you and they help everyone see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success. The best plans should include detailed information designed to improve the business’ chance of survival and success. Items such as a market and competitive analysis, marketing, logistics and operations plans, cash flow projection and how to achieve long-term growth are some topics to include in a comprehensive business plan.
Many entrepreneurs believe that a good plan is primarily necessary when conceiving or beginning a new business; however, too many underestimate the necessity of refining and updating your plan throughout the life of your business to adjust for changes in market conditions and the business landscape.
Decision Making
Although useful for many things, a good plan helps make the countless and ongoing decisions involved with your ongoing business a little easier to do. By knowing the core values, purpose and goals of your business, making ongoing decisions that can impact your course become clearer.
Avoiding mistakes
Many business leaders “don’t know what they don’t know” and many businesses fail for reasons that may be avoided by knowing what can and has happened to other similar companies and having action plans to avoid the same mistakes. Business creators are often so consumed with their industry, concepts or ideas that they can’t see the proverbial forest for the trees. Allowing an outsider to create or participate in the creation of the business plan often uncovers less industry specific but very important business challenges.
- Is there a need? Does anyone want what you’re selling.
- Lack of capital: Cash flow issues or businesses simply run out of money. How do you mitigate this?
- The right team: This underscores the importance of hiring the right people to help you run your business.
- Competition: It’s tougher to generate a steady profit when you have a lot of competitors in your space. Knowing how to offer a competitive advantage and craft a value proposition is important.
- Pricing: My personal favorite and something to which most entrepreneurs fall victim. Pricing products or services too high or too low and failing to allow for the countless variables that can and do impact profits.
Reduce trial and error
Because hard questions must be asked and answered while writing a business plan, the process of creating it requires considering the pros and cons of imagined strategies and their potential outcomes.
Set better objectives and milestones
How will you know the steps required or the order in which to take them to reach your goal without a guide or plan? A good plan keeps you focused on a specific point on the horizon. Mid-course corrections can be made but the desired goal remains in sight assuring any necessary corrections are done with purpose
Communication
Any team larger than yourself requires the understanding and knowledge of your company’s values, goals and expected milestones to stay the course and measure progress. A well-conceived and shared plan allows those around you to feel more confident when making decisions in your absence or within their own departments on an ongoing basis. Having access to your plan provides insight to know what, how, when or why you might make certain decisions giving your management staff, other employees, advisors and partners confidence in the business.
Outside contractors
Whether it’s marketing, management, sales, accounting or legal support, having a plan in place allows those supporting your business from the outside understand your vision and course better and create better information and systems to support it.
Reduce risk and market awareness
Understanding your competition and considering or anticipating possible trends, disruptions or other situations or events helps better prepare your business for the unexpected. Risk is always present in business, but risk becomes significantly more manageable if revenue and expense projections, logistics and operational plans, market conditions and competitors have been identified and considered.
Don’t leave your business to chance. Take the time to map out and create a thorough business plan that you review and update consistently. It will allow you to make better decisions, visualize success, and enjoy the clearest possible view of the future of your company.