Preparing a business plan brings many benefits to an entrepreneur. Although it takes time to prepare, the document helps the business start in a more organised way and gives it a higher chance of success.
Main importance
- Gives direction — the plan acts as a guide so the entrepreneur knows what to do at each stage.
- Eases financing — banks and investors need a clear plan before lending or investing.
- Sets goals — clear goals make it possible to measure progress.
- Reduces risk — by planning early, the entrepreneur can anticipate problems and be ready for them.
Key idea
A good business plan is a guide, a tool for raising capital, and a benchmark for comparing actual performance with the target.
Other benefits
A business plan also helps the entrepreneur use resources such as money, labour and time more efficiently. It becomes a communication tool for explaining the idea to partners, employees and suppliers. Before investing, the entrepreneur can judge whether the business idea is viable.
Importance to stakeholders
A business plan is important not only to the entrepreneur but also to other parties. For the bank, the plan is the basis for judging the borrower's ability to repay a loan. For investors, it shows the potential return on their investment. For employees, a clear plan gives a picture of the company's direction and the role they are expected to play.
With one shared reference document, all parties can work together towards the same goal. Many businesses fail in the early stage because there was no orderly planning, whereas businesses with a written plan tend to be more focused and disciplined in their daily operations.
Example
Mrs Aina plans to open a café. Through her business plan, she finds the rent is too high compared with expected sales. She decides to choose a cheaper location instead, and so avoids a large loss.
Remember
A completed business plan should be reviewed from time to time because market conditions keep changing.