The Importance of a Business Plan For Startups

A business plan is an indispensable tool for an entrepreneur and not only because of its importance to the fundraising process, but because of how it helps businesspeople crystallize their strategy and evaluate their process. These are the three major reasons to create a business plan if you are a hopeful entrepreneur.

Fundraising

Most literature on business planning focuses on the need for a plan to encourage external investment into the company, whether it is through loans or equity investment. Most funders will not consider putting money into a company without seeing a well-written, convincing business plan. An entrepreneur must make sure the plan speaks in terms the funders will understand, and meets their requirements for the qualifications of the management team, funding requested, and financial return.

Strengthening Strategy

When strategy is an amorphous concept, existing in the minds of the various company founders, it is loose and perhaps even contradictory. It also does not necessarily make use of the best research on the market, customers, and competitors. The process of creating a business plan requires the entrepreneurial team to go through this research and analysis systematically, creating a better foundation for strategy. Having to write down the strategy also creates an opportunity to make sure all of the founders are literally on the same page about what they intend to do. If they are not, fruitful discussions can be started which are better to get out of the way at this early stage while plans are still much more flexible.

Evaluating Progress

Finally, while the action plan outlined in the business plan is being implemented over the first months and years of operation, the business plan is both a guide and a means to see how well the results of the business stack up to the projections made early on. The pro forma financial statements can make this type of evaluation very easy. Make sure that the original pro formas are kept in spreadsheet format so that actual financials can be laid out alongside them. If your budgeted targets are saved in your accounting software, such as Quickbooks, this kind of comparison can be even easier and variances can be measured automatically.