The Importance of a Business Plan for Entrepreneurs: 18 Reasons You Need One

A business plan is essential as an entrepreneur. It helps you set clear goals and guidelines for how you will manage your business. A business plan may also be needed to set employee goals, obtain funding or even to sell your business one day. In this article, we discuss the importance of a business plan for entrepreneurs, as well as a few main reasons why you need one.

What is a business plan for entrepreneurs?

A business plan for entrepreneurs is a document that lists the objectives and goals of the business. It includes information on how the business will specifically achieve its goals, including sales, marketing and product development. It may outline each individual goal for the business, including where funds will come from, how employees will contribute to the goals and how the business can profit.

Starting a business can be risky, but also rewarding. By creating a business plan ahead of time, you can determine the steps you need to take, as well as the intended goals of the business. When you create a business plan, this is your opportunity to consider the requirements and potential of your business idea. A business plan can help you pinpoint specific goals and tasks.

Many consider a business plan to be a blueprint for a business.

Why a business plan is important for entrepreneurs

There are many reasons why it is important for entrepreneurs to have a business plan. A few of these reasons include:

It puts a plan in place when starting a new business

A lot goes into starting a new business. In addition to coming up with a business idea, you also need to solidify the specifics of the business, like what services or products you will sell, where you will do business and who will work for the company. A business plan can help provide guidance in this process, which can also help avoid mistakes along the way. It can offer you insight into the steps you need to take to open your business, as well as the resources you will need to obtain.

To conduct the necessary research

You might create a business plan before even deciding to open a business. Writing a business plan requires that you conduct the necessary research, which can be helpful in deciding if starting a business makes sense. You might also create a business plan if you intend to take your existing business in a new direction. By writing out the details and finances of the new plan, you can determine if a shift will be profitable. This includes defining your market, pinpointing who your customers are and how you will reach them.

To evaluate competitors and find your audience

Another part of creating a business plan is researching the current companies in the industry in which you want to work. By identifying competitors and where they are not currently reaching customers, you can better predict how you will reach them. It can also help you choose your target audience.

Sets objectives for employees and managers

Setting and measuring objectives will ensure that employees and managers are clear on their duties. This can also help you choose the right staff for your business by setting clear expectations and objectives. You might also use this information to help with training new employees and managers. A business plan sets the expectations of the business from the beginning. If you change or update your goals, a business plan can help share these new objectives, providing structure and accountability.

Sets goals for you as an entrepreneur

Setting clear goals is also helpful for you as an entrepreneur. You can use a business plan to list specific goals that you want to achieve, along with target dates. This can provide you with a guide to structure your daily responsibilities, while also providing you with accountability as an entrepreneur.

To determine when new employees are needed

As you expand your business and increase your revenue, you will need additional employees to assist with the daily tasks. But, hiring people before you're ready to expand can reduce your profits. A business plan can help you evaluate the right time to bring on additional staff. It can also help with setting clear duties and expectations for each position. You can also use your plan to determine what skills to look for when hiring.

Assists you in making important business decisions

Decision-making is an important task as an entrepreneur. Some decisions, like when to rent a new space or expand the business, are not always easy to make. With a clear business plan in place, you can determine the specific times or goals you must meet to make these important decisions.

To know when to sell your business

You may decide to sell your business and move onto other ideas. But, deciding when to sell can be a difficult decision. Setting clear guidelines for what goals and achievements you would like to reach with your business can help you set a timeline, knowing when it is the right time to sell. The information in your business plan can also be helpful when selling, as it lays out the achievements, as well as the plans for the business, which can contribute to its value.

To determine how you will find funding

You may decide to take out a business loan or invite investors to be a part of your business. New businesses often require funds and a business plan can help you present your ideas to potential investors. If you apply for a business loan, you may need a thorough business plan to demonstrate your business idea to the bank lender too. A business plan can also help you decide how much money you will need to start, and operate, your business.

To understand when/how you will profit

Salary is not always clear as an entrepreneur. But, whether you are providing investors with an estimate of when they can expect a return on profit, or you want to know how long until you will profit, you will need a business plan. A business plan lists the expected costs of the business, as well as the revenue. As long as you meet the financial goals listed in the business plan, you can predict when and how you will make a profit.

Help you predict problems

A business plan can also help you predict potential problems, like slow seasons or changing customer trends or habits. You may be able to prepare and overcome these challenges ahead of time with a business plan.

Provides a valuation for the business

Placing value on a small business can be difficult, but it is sometimes necessary. Whether you want to include it in your estate, list it for sale or you need a value for taxes, a business plan can be a valuable resource. Providing your business plan to an accountant can also help them calculate an accurate value for your business.

13. To share your business plans with coworkers and family

When you open a business, you will likely get a lot of questions about what you do from previous coworkers and family members. Drafting a business plan can help you answer these questions, sharing your goals and plans with them.

To provide you with guidance during difficult situations

As an entrepreneur, you may have to deal with things like employee conflict or even legal difficulties. A clear business plan can help you deal with these issues, identifying the purpose of your business and what you hope to achieve.

To create an effective marketing strategy

Once you have a business, you will need to reach customers through marketing. Setting clear goals for the business can help you pinpoint not only who your customers are, but also the best way to reach them. This can help you maximize your marketing budget and increase your revenue.

To give you the best chance of success

The goal of entrepreneurship is to own a successful business. While no business idea is guaranteed, having a clear business plan in place increases your chances of success. Returning to the business plan from time to time can also help remind you of why you became an entrepreneur and can help you refocus on the mission statement of the business.

Manage cash flow for the business

Once profits begin coming in, you will need to decide how to spend them. You may use profits to take a salary, reinvest in the business or find new products or services to sell. Listing your cash flow plans in your business plan can make this decision easier.

To determine the success of the business

A business plan sets clear goals, which can help you measure success. Including key performance indicators allows you to know how to measure your progress toward your goals. You can use this information to determine what areas of the business are doing well, versus which areas need improvement. You can also use it to help identify the need for new goals or plans.

Written by Indeed editorial team