What is a business plan and why do I need one?

A business plan is essentially a document that describes what your business does, where your business intends to be in the future and how you, plan to achieve this. A well-produced business plan is crucial for all new companies and can determine whether a much-needed investment is secured.

The vast majority of business plans are devised by new companies to portray their vision to prospective investors. However, they may also be produced by established companies looking to diversify into new markets, attract new business, secure contracts with new suppliers or to entice highly sought-after senior personnel. For whatever reason a business plan is created, probably the most important is the fact that it gives you, the business owner, a step by step guide to how you start your new business and how it is going to evolve over the next few years.

Broadly speaking, a business plan comprises of three distinct sections. Firstly, it focuses on the actual business concept, which includes your service or product, business structure and how you are going to make sure it succeeds.

Secondly, the plan covers the marketplace, target market and competitors. And the final part focuses on the financial aspects of your business, these include cash flow, balance sheet and financial projections. We will be looking in greater detail about what you need to include in your business plan in our article “A step by step guide to writing a business plan.”

Recent figures released suggest that 30% of new businesses in the UK fail in the first year and 50% fold within three years. Therefore, it is imperative that you give your business every opportunity to succeed whilst minimising the risks of failure.

These alarming statistics for new businesses can be attributed to two factors: firstly, cash flow, or a lack of, and secondly, failure to plan. The obvious solution to a cash flow problem is an injection of capital and the lack of planning is resolved by extensive research and meticulous preparation. Now, because business planning and securing capital from prospective investors are two of the fundamental purposes of devising a business plan, the importance of such a document takes on even greater importance.

There are no guarantees in business but at least with an accurate and well-researched business plan you are starting off on the right foot and optimising the chances of your business succeeding in a very competitive commercial world.

For help with creating a business plan, or for any queries you have regarding the subject, please click here.