Nigeria: SMEs Chat - Why You Need a Business Plan

We are already half-way through the first month of 2016. Do you have a plan for your business for the year? Here are reasons why every business must have a written plan:

To test the feasibility of your business idea

Writing a business plan is the best way to test whether an idea for starting a business is feasible. Rather than going out, doing it and finding out the hard way that the idea is unworkable, the business plan provides your safety net. It saves you precious time and money. Often a business idea is discarded at the marketing analysis or competitive analysis stage, freeing you to move on to a new and better idea.

To give your new business the best possible chance of success

The business plan writing process ensures that you pay attention to both the broad operational and financial objectives of your business and the finer details of budgeting and marketing planning. Taking time to write the business plan will give your new business a smoother start-up period and fewer unseen problems as your business grows.

To secure funding

For a new business that intends to get money from an investor or other start-up financier, the only hope of success lies in having a well-developed business plan. Existing businesses often need money too, for such things as buying new equipment and working capital to cushion against cash crunches. Having a business plan gives you a much better chance of getting the money you need to expand or keep on operating.

To manage your business

Viable businesses are dynamic, changing and growing all the time. A business plan is essential in setting goals, action plans, keeping track and maintaining control. Businesses without a plan can easily get off target, and revenues will suffer as a result. Reviewing the business plan helps you see what goals have been achieved, what changes need to be made, or what new directions your company's growth needs to take.

To attract investors

Whether you want to bring in new investors, venture capitalists or new partners as your business grows, you need a solid business plan. A presentation may arouse their interest, but for them to sign up, they will need a well-written document they can take away and study before they make any investment commitment.

To focus your strategy

Successful businesses have a strategy for winning. The business planning process will help you come up with a clear winning strategy. Strategy is a focus on specific target markets using specific products or services. Your strategy is based on some strength or characteristic that links you to your preferred buyers and the solutions you offer them. It defines how you want to set your business apart from the competition.

Writing a business plan is time consuming, but it is essential if you want to have a successful business that is going to survive the start-up phase.

The quality of the plan matters

Just having a plan does not guarantee faster growth. It is the kind of plan you have and how you use it that really matters.

It turns out that start-ups, especially ones building highly innovative businesses, should create shorter, less detailed plans. That is because these innovative start-ups are learning new things about their product and customers at a very fast pace and their strategies change more frequently.

Simpler plans -- lean plans that can fit on a single page -- get updated more frequently and are more helpful to these companies because they can review their strategy at a glance.

Meanwhile, more established companies know a lot more about their products and customers and can craft more detailed strategies that are less likely to change as quickly. For these companies, more detailed planning is generally more helpful.

The content of your plan is very important. A successful plan is one that helps you define and articulate your value proposition and what customer needs your product or service will meet.

Having a plan is less about accurately predicting the future, and more about setting regular goals and making changes to your business as you learn more about your customers.

Being prepared matters when you are seeking funding. Although financiers and investors emphasise the importance of the team in your business, what will really impress them is passion -- how much the entrepreneur believes in the idea.

When you meet a potential investor, having done some business planning will prepare you to talk intelligently about your idea, the target market, the sales and marketing strategies, and so on.

Research shows that entrepreneurs who started the business planning process early were better at what the scientists call "establishing legitimacy".

That is a fancy way of saying that these entrepreneurs used business planning to start the process of talking with potential customers, working with business partners, starting to look for funding, and gathering other information they needed to start their enterprises.

Until next time, keep on accelerating your growth.

AT OBMS-NG, We help SMEs and entrepreneurs build sustainable businesses.