Business plan of a start up refers to the written plan of how the business will be established and developed. The biggest benefit of the business plan is in actually writing it because it allows an entrepreneur to consider all important areas to ensure success of the business, which otherwise may be overlooked. Research regarding whether business plans contributes to success of the new venture shows mixed results. The key factor is not if businesses have a business plan but if such a plan was carefully prepared and if it is being implemented.
In certain circumstances it may be not needed to have business plan. This can happen when it is vital to act immediately and there is just no time for planning or in situations where the business is very small and there are no plans for growth.
Objectives of a business plan
Most importantly, the goal of a business plan is to recognize and explain the new business opportunity.
Another objective is to present, in a written format, how an entrepreneur intends to take advantage of the business opportunity. Business plans need to describe which steps the entrepreneur intends to take to make his dream of a new business a reality. It should include various tools that the entrepreneur will be able to use in management of the business opportunity, such as the vision, mission, goals, budgets, financial forecasts and a description of target markets.
Business plans must provide descriptions of key success factors whose, achievement of, or occurrence and non occurrence of, will determine whether the business opportunity will be successful or not.
Therefore, part of the second objective of the business plan is to be a managerial tool to be used to ensure successful pursuit of the opportunity.
Yet another objective of a business plan is to allow entrepreneurs to obtain funds necessary to establish a venture. Suppliers of funds usually include banks as well as potential investors.
Business plans shows= to lenders of funds how well an entrepreneur thought about each aspect of the potential new business. Business plans also provide potential lenders with information that they require in making a decision about whether lending or investing funds into the venture is suitable action.
Benefits of a business plan
Financing: Business plans allow entrepreneurs to obtain financing for the new venture. Lenders and investors demand business plans from entrepreneurs before they would even consider lending or investing their money. In the past, business plans were mostly prepared by large businesses. In current times, business plans are prerequisites for entrepreneurs who seek funding from lenders and investors.
Indication of success: Business plans also provides an indication to the entrepreneur and other interested parties of whether a prospective new business will be a successful venture.
Writing a business plan allows entrepreneur to be certain that the prospective venture is really worth the entrepreneurs’ time and other resources. Writing a business plan also allows entrepreneurs to think through and decide on various key areas. A well written business plan is an indication that the entrepreneur researched the prospective venture well.
Identifies key success factors: Another benefit is the fact that it allows to identify key variables that will determine whether the business will succeed or not. This will ensure a more effective management of the business; as such variables can be closely monitored by interested parties.
Provides performance standards and milestones: It provides a roadmap that management can follow in implementing and establishing a new business. Business plans provide milestones and other performance standards against which actual performance can be measured.
Helps to build relationships: Well written business plan helps to build relationships with potential business partners, potential as well as current customers and suppliers. Many large companies will not even consider dealing with a small start up or small growing company unless a well written business plan is presented. Furthermore, the written plan can help small business to obtain trade credit from suppliers. Trade credit refers to suppliers providing product with agreement that payment will be made within certain period, usually 30 days or at the end of the month.
Helps to attract best employees: It piques the interest of worthwhile potential employees. It allows potential employees to see that the company may have a chance to succeed and is a promising place to build a career.
Improves motivation of employees. Business plans help to keep all employees informed and excited about where company is now, where it is going and how it is going to get there.