Why is a business plan necessary if we want to start a business?

 

When we have a business idea, we usually need to carry it out as soon as possible. We are in a hurry, and we want to materialize it sooner rather than later. However, expert business consultants recommend that we "put on the brakes" and analyze the pros and cons of creating the business in question, considering the environment, the market situation, the competitors, experience in the sector, or the financing possibilities, among other issues.

So, following the advice of the experts, in this post, we are going to explain what a business plan is, why it is so important when it comes to starting a business, and we will recommend a guiding structure to be able to carry it out. Remember that its realization will require time and effort, but do not be discouraged since writing a business plan or company plan can help you begin to materialize the idea and carry out the necessary changes and corrections before "raising the blinds."

What is a business plan?

A business plan is a written document of no more than 30 pages that will serve to set the course for your journey as an entrepreneur. This document will help you start your entrepreneurial adventure without going blind.

Preparing a business plan is not a guarantee that your company will be successful; the smooth running of your business will depend on many factors, but, without a doubt, this document will be able to help you mature the idea; to set realistic goals; to have a clearer roadmap to be able to achieve them and to define the necessary financing. A business plan is a "guide," or as we said, a "road map" that will lay the foundations to transform your project or business idea into an increasingly palpable business reality.

Therefore, the ultimate goal pursued by this document is for the business idea to become a real company. You must carry out a detailed analysis of the business idea to determine its viability in different aspects. Technical, economic, and financial feasibility and social and environmental feasibility must be analyzed. Based on this analysis, we will define the procedures, strategies, and actions that we must carry out so that the company becomes a reality. It will help you have a clearer idea of ​​the real potential of your business, and you will prepare yourself to assume the risks derived from undertaking it.

It is about "testing" the possibilities before jumping into the pool to determine if the benefits outweigh the risks assumed by the entrepreneur. In this document, we must try to detail as much as possible the business project that we wish to launch on the market, and we must do so in an easily understandable way. Therefore, the business plan must be clear, attractive, concise, and realistic.

Some experts recommend adding at the beginning, in the first pages, an executive summary as the most relevant data and ideas accompanied by graphic information that clarifies the information contained in the document. Think that the business plan can be, in many cases, the vehicle to obtain financing. Therefore, you may have to present it to public institutions to obtain subsidies or to financial entities or private investors that finance it. So, you must make it as easy as possible for the person who reads it to "digest" the information.

Also, keep in mind that a business plan should be a document that we refer to throughout the business's life. It is a recurring and iterative process, so the business plan can be a good tool even to get back on track in times of crisis.

It is a recommended procedure for both large organizations and small companies. It can even be used to launch new business divisions in already consolidated companies or launch new products. If companies already working successfully in the market do it, it will surely be useful for starting a business, don't you think? We will see why it is important to have a business plan if we are determined to undertake it.

Why is it important to have a business plan if we want to start a business?

• It will help you define the business model.
• You will analyze your potential market, and you will be able to better understand the customer profile you are targeting.
• It will help you to assess your abilities.
• You will be more prepared to take risks that may arise when you start the activity.
• Thanks to the business plan, you will be able to define the objectives based on which to plan the strategies, actions to be carried out, and means to be used.
• You will have more clarity about your resources when starting a business and, therefore, the financing needs that your business initiative will have.
• You will be able to detail how you will invest the available resources.
• It will help you define the human capital necessary to carry out the activity and its specific functions.
• A business plan can be the ideal instrument to include the "contingency plan" that will allow you to face any eventuality with greater guarantees when you start the activity.
• It can be useful to attract investors in Business Angel's environments, for example, or to obtain financing from financial entities, demonstrating the viability of your project.

The structure of the business plan

First of all, you will need the help of a business plan consultant. Although it may seem complicated to do, it is not that bad. Once the first moment of fear of the blank page has been overcome, making a business plan is a matter of completing the phases that are usually common to all business plans. Although there are very different business plan structures, most of them share some large basic areas that we can specify in five:

• Presentation of the business: In this first phase of analysis, you must include the name of the company, describe the business concept, the specific offer you are launching on the market, the differential value proposition and competitive advantages of your business, in addition to the global objectives that chase. In this first phase, we will also include the mission (it defines our activity), the vision (specifies the goals we want to achieve), and values ​​(they are the principles that govern our daily activity and corporate culture).
• Analysis of the environment: in this phase, it is necessary to analyze the potential market that will affect the new company. In other words, we must understand the sector in which we will develop our activity, its evolution over time, its behavior, and new trends that influence it. It is also advisable to analyze the competition and potential customers. In this phase, the SWOT tool with which we analyze ourselves as a company and our environment can be very useful is about determining the weaknesses (of our company), the threats (of the environment), the strengths (of our company), and the opportunities (of the environment) of the business initiative that you are going to undertake. Finally, in this phase, we will also define the distribution channels.
• Commercial strategy: in this phase, we can define the most suitable location for the business, the price strategy, the sales and distribution strategy, and the product strategy. With all this, we will be able to specify the marketing and communication plan that we will follow to achieve the objectives that we have set for ourselves. In addition to the marketing strategies, it is advisable to define the actions we will develop in each strategy.
• Human resources and production: at this point, we can define the production process that we are going to follow, as well as the human capital that we are going to need, detailing its specific functions. Even if you start the project alone, working on this part will allow you to grow your company on paper and be prepared for the need to incorporate new members into the team.
• Economic-financial analysis: this is a key aspect that you should not fail to analyze as it will determine whether your company will be profitable or not. The part of the finances usually can give us the most headaches when writing the business plan, but it provides one of the most valuable information in the plan. In this phase, you must prepare different documents, among which we can highlight: a three-year projected balance sheet in which you will analyze the current assets of the company (premises, furniture, etc.) and the financing obtained by different means. Another important report is the cash flow or cash flow (also projected to three years). You can define your collection policies, your company's sales cycle, and the obligations in terms of payment terms contracted with your suppliers. The analysis of the break-even point and the internal rate of return are two indicators that should not be missing either. If you have doubts at this point, consult a financial manager.