Why Do You Need a Business Plan, How To Create One And Its Advantages in Entrepreneurship

Whether you are a new startup or have been running your company for quite some time, without a business plan,  it’s easy to get lost in the daily activities and make expensive mistakes along the way. 

A good business plan takes your ideas and breaks them down into clear containers with actionable steps.

What is a business plan?

A Business Plan is a formal document that showcases the goals and objectives of the company, from which a general overview of the strategic direction can be drawn. 

The business plan basically outlines your plans for development and growth. Thus, it clarifies what the company will do to achieve its goal. The plan presents the vision of the business, giving an outlook into its long-term goals.

This business plan is used to convince investors and summarize the potential future of the company.

Objectives Of a Business Plan

A business plan is like having a Google map when you don’t know the right path to your destination. A good business plan tells you where to start from, where to go, the best route to take, and even an alternative route in case you get stuck. 

The basic objective of a business plan is to:

1. Make a Clear Direction and Roadmap

Even if you are running a business, a business plan will show how things should be set from how you work as a team to how you plan to grow. It will push you to think through all the important parts required for building a successful business.

2. Funding and Partnership Development

If you borrow from banks, or from angel investors or from venture capitalists, you must have a business plan. You will not be taken seriously unless there is a clear picture in your plan for how you intend to achieve success, and then how the investments will grow. A strong plan helps you secure the support you need.

3. Focus and Alignment

Even if you don’t need external funding, a business plan would keep you on track of specific goals, short- as well as long-term. It will give clarity in the minds of all team members on what the company is about and how everyone’s work is connected to the same vision. 

4. Testing the Strength of Your Idea 

Writing a business plan is more like putting your idea to the reality test. It forces you to inspect whether or not the idea is feasible and viable. It also helps you see the problems ahead of time, close the gaps, and make a stronger plan before really spending a lot of time and effort or actual money.

Types Of Business Plans

Business plans vary from business to business.  The format and level of details you require depend on the current stage of your business, how complicated it is, and why you are creating the plan in the first place.

I’ll start with the two most common types of business plans used by businesses. 

1. Traditional Business Plan

This format is used to create a detailed roadmap that helps to secure funding, set goals, track growth, plan expansion to secure big funding and to develop a detailed operational guide for the business. 

• A traditional business plan is like a complete blueprint for your business.
• It’s usually quite detailed and can go from 15 to 50 pages,  and often more.
• It covers points like business idea, research of the market, details of the product, marketing plans, projections of finance, and a few more points.
• Generally used when you want to raise funds from banks or investors.
• A traditional business plan takes a lot of time (weeks to months) and effort upfront. It’s not the type of thing you can rush.

2. Lean Startup Business Plan 

If you want to create a quick and simple plan for your business, a Lean Startup Business Plan might be just what you need. 

• It focuses on covering only the most important points and usually can fit within one page.
• It just takes an hour to one full day to build this business plan format.
• This is good for fast launches, simple business ideas, or if you expect to revise your plan continuously.
• This format describes your value proposition (what makes your product special), your key partnerships, main activities, resources you will need, customer relationships, customer segments, marketing channels, cost structure, and how you will make money.

A business plan can be modified to suit the focus and audience you are targeting. Here are a few more types of business plans. 

1. Internal and External Business Plans:

• Internal plans are made to guide your team and set daily operations. Usually, formal language is not needed here. 
• External plans are made for outsiders to your business, i.e. potential investors and lenders. Such plans should be detailed, polished, and in a professional tone. 

2. Strategic Plan

• A strategic plan is the road map for the long journey of your business. It includes details about where you want your business to go (your mission and vision) and what goals you want to achieve. 
• It includes a SWOT analysis around industry, competitors and products (Strengths, Weaknesses, Opportunities, and Threats) 
• This plan helps you to stay focused, and it allows your team, partners, and investors to know clearly what you are working towards.

3. Growth or Expansion Plan

• This plan includes your business growth objectives, like entering into new markets, anticipated costs, and expected revenue. 
• This is the plan that will show them the potential returns and get investors excited to come along with you.

Parts And Structure Of A Business Plan

Parts of a Business Plan	Description
Executive Summary	Outlines the business in brief, including identity, products, target market, capital needs, funding needs, and business history. Keep it short and focused (1-2 pages).
Company Description	It presents the company’s story, how it was formed, its mission and goals, and its positioning in the market.
Market Analysis	Shows detailed research of industry analysis, target market segmentation, and competition analysis. Helps identify opportunities and shape marketing strategies.
Organisation and Management	Presents an overview of the business structure, management, leadership team, hiring plan, and capital structure.
Products or Services	It explains what you sell, the benefits to potential buyers and how it differs from competitors.
Marketing and Sales Strategy	Explains how you will attract customers and sell them, and its marketing, pricing, and selling strategies.
Funding Request (If Applicable)	Specifies the amount of funding, what it will be used for, and the terms you are seeking.
Appendix	Adding extra docs (licenses, certificates, product photos, testimonials) to build trust.

The Advantages Of Having A Business Plan

1. Increased success and growth

A business plan gives your business a clear direction. 

Statistically, businesses with formal plans grow 30% faster than those without a business plan. These businesses are most likely to succeed & secure funding.

2. Finding weaknesses and reducing risks

A business plan helps you understand the existing challenges and future ones. 

So that, you can take preventive measures to manage the risks and address the weaknesses before they grow into big problems.

3. Updating decision processes

It gives you a clear framework to make decisions. It also helps to evaluate facts, figures, and the needs of the business.

4. Increase credibility and communications

A strong and detailed business plan increases the credibility of your business. 

It clearly conveys your vision and strategy to the investors, partners, and stakeholders. 

5. Clarity of goals and motivation

With a business plan, you set concrete, measurable goals. This helps you to stay on track and focused, which helps motivate you and your team to keep going. 

6. Crisis Management & Adaptability

A business plan helps you deal with sudden crises. It provides a framework within which you adapt and respond to challenges, thus ensuring the survival of your business.

Knowing the benefits of a business plan is the first step, but turning that knowledge into a plan is where the real challenge begins.

How To Create A Business Plan?

If you’re already in business and questioning, “Do I really need a business plan now?” the answer’s a big “yes!” 

An excellent plan will assist you in developing your existing business, keep you focused, and help with fundraising. Here is how to create one without getting too stressed:

1. Start with the Basics

• Know your market: 

Spend time to know your customers, competitors and what’s happening in your industry. Good research directs you in the right direction.

• Be clear about your business goal: 

Are you creating this business plan to get some funds? Or for growing your business? Make sure you know your purpose, and also think about who will read your plan ( investors, partners, etc.). 

• Collect all info: 

Gather all relatable numbers that influence your business (sales, profit, expenses), market facts, and product details.

• Choose a format: 

Find the suitable business plan type/format for your desired goal. For example, A funding plan might require much more financial information, whereas an internal growth plan would be less detailed.

2. Build Your Story

• Write in phases: 

You do not have to write everything in one go or in order. Keep on adding sections as you go. Save the Executive Summary (the first page) for the last. 

• Keep it simple: 

Use short and clear sentences. Use simple terms and words, avoid sophisticated words, which may create problems in understanding.

• Here’s what to cover – Executive Summary, Company Description, Market Analysis, Organisation & Management, Products/Services, Marketing & Sales, Funding Request, Financial Projections and Appendix

Examples Of A Business Plan

Restaurant Business Plan – What You Should Include:

• Company Description: 

Describe your restaurant concept well, what foods will comprise your menu, its mode of service (fine dining, casual, takeaway, etc.,), its ambience (look and feel), its capacity, size, and the number of people it can seat.

• Sample Menu: 

Tell what food will be offered at a price, giving some examples of dishes. It shows people what exactly you offer and how prices are set.

• Market Analysis: 

Analyse your location. Look into who your target customers would be, the traffic the area gets, and possible competition.

• Operations plan: 

How you will operate the food establishment: Number of employees, how payment will be done (like a POS system), payroll system, and vendor ordering and tracking inventory.

• Health and Safety Compliance: 

You have to mention how to follow all hygiene and safety rules.

• Financial Projections: 

Outline clearly all costs: food, drinks, salaries, rent, electricity, licenses, etc., that you expect to incur.

Tech Business Business Plan – What You Should Include:

• Problem and Solution: 

Describe briefly the problem that most people in the specific area are really facing and how uniquely your technology would offer a smart solution to it.

• Market Opportunity: 

Focus on both how big the market is and how your idea can improve or complicate things.

• Product Description: 

Explain what exactly your product does, both in functional terms and technical descriptions.

• Scalability: 

Discuss how the venture will grow without too much strain on the technology or business model.

• Intellectual Property: 

State if you have all the rights, patents and proprietary technologies that only you own.

• Marketing and Sales Plan: 

Describe how you will attract customers and what channels you’ll use (online ads, partnerships, etc.) and how you will measure success.

• Team Strength: 

Discuss your team’s skills and experience, especially regarding the technical area.

• Key Milestones: 

Describe key stages such as launches, user targets, and funding rounds.

• Financial Plan: 

Describe how much you would take to grow and build the business, and what you would provide to the investors later on.

Common Mistakes To Avoid In A Business Plan

1. Setting Unrealistic Financial Targets

• Mistake: Being overly optimistic about numbers without proper evidence.
• Consequence: Loss of trust from investors, dwindling cash flow, and internal plans going haywire.
• How to Avoid: Conduct in-depth market research. Document the basis for your estimates, and further prepare for various scenarios.

2. Neglecting Adequate Investigation of Your Market and Competition

• Mistake: Skipping proper research for the market, customers, and competitors.
• Consequence: You’ll end up targeting the wrong people or using marketing that won’t work. 
• How to Avoid:  Spend time on both online research and talking to people offline. Find out what your competitors are doing right(or wrong) and what your customers actually want.

3. No Clear Focus or Goals

• Mistake: Beginning with a vague idea and no clear direction.
• Consequence: Confusion arises in your team, money and time get wasted, and measuring progress becomes impossible.
• How to Avoid: Establish a well-defined mission and vision. Create SMART goals (Specific, Measurable, Achievable, Relevant, and Time-bound).

4. Ignoring Cash Flow and Day-to-Day Operations

• The Mistake: Thinking only about profits and ignoring cash flow and actual daily operations.
• Consequence: You have cash shortages that ultimately put a halt to operations and miss deadlines.
• How to Avoid: Create a clear cash flow plan. Know how much working capital you will really need. Set realistic timelines for your projects.

Final Thoughts

Once you create a business plan, it should be reviewed frequently so you can update it with market and business changes. The frequency with which you review your plan would depend on the needs of your business. If your business is stable, an annual check may be adequate.  

However, with fast-moving changes, you may have to review more often. 

So, you can find areas in need of improvement and adjust your strategies by comparing your real performance with what you have planned.

A business plan has many moving parts, but the most important question is: which area of your business needs attention first?