A business plan is a flexible and continual guide to attaining business goals and objectives by following internal and external strategies. Components of business plans differ from one entrepreneur to another. The importance of business plan in entrepreneurship proves dominant in the entire business cycle from launching to decline.
The components of a business plan differ from one company to another. A business plan with fewer elements does not make it less meaningful. The essence of a business plan is to use it and attain success.
Importance of Business Plan in Entrepreneurship
1. Facilitate decision making
As a guide, a business plan is relied upon to enhance the clarity of decisions. When making decisions, an entrepreneur assesses the conformity of decisions to the business goals and objectives. Entrepreneur enforces proper decision-making based on what supports attaining targeted goals and objectives.
For instance, in the case of financing, a business plan can identify when a company needs external funding. On taking loan facilities, valid reasons and criteria to seek external financing have to support such a decision.
2. Minimize risk
A business plan helps entrepreneur state ethics and identify intellectual properties. On identification of such, they are considered a company’s high value and confidential inputs. Intellectual properties are protected from leaking to the external environment, thus minimizing the risks of losing the competitive edge to competitors.
Concerning ethics, a business plan guides staff to do what is ethically correct and what would not attract market backlash.
3. Used in attracting investors
A business plan details how a company operates and competes with competitors. This information lets investors gauge the possibility of outdoing competitors and creating more value for their money. A business plan should be rich in market projection to convince investors that an entrepreneur has a strong strategy to tackle and thrive amid competition.
Otherwise, only a few investors will be willing to invest in a less competitive venture. They will opt for strong competitors who will likely withstand competition and create more value for their equity.
4. Used in loan acquisition
Entrepreneurs opt for external sources when they cannot raise the required capital. If they cannot issue shares, seeking a loan from bans and other lenders becomes a viable option. Such external financiers will require a business plan that a company uses or plans to use.
The financier assesses the possibility of success for the business in question. The financier also evaluates the type and level of risks involved in a company’s business. Based on these, among other factors, the financier determines the ability of an entrepreneur’s venture to pay the loan on or before due.
5. Useful in talent acquisition
A business plan helps an entrepreneur to structure their business in departments. An entrepreneur determines which skillset is needed for each department and business function. In talent acquisition, entrepreneurs use their business plan in the hiring process.
It becomes easy for an entrepreneur to use the business plan and judge whether certain skills will help steer their vision ahead. It also helps them avoid recruiting someone whose skills, talent, and competencies are out of sync with the entrepreneur’s specifications.
6. Used to forecast business trajectory path
A business plan tries to predict a venture’s timeframe progress. Entrepreneurs use this projected timeframe to assess whether their business is on the right trajectory. A business plan can also contribute to identifying where a company has outperformed predictions. This knowledge helps in the informed adjustment and modification of a business plan.
7. Detailing the exit plan
This is an often overlooked importance of business plan in entrepreneurship. Business ventures fail and may go under with investors’ money.
Investors want to be assured of a refund if a business venture fails. Since an entrepreneur wants to build confidence in potential investors, detailing an exit plan is inevitable. With an exit plan, an entrepreneur can ensure no necessary cost is spent during the exit.
8. Useful in aligning resources allocation to goal and objectives
It is practically impossible for an entrepreneur to always remember vast information about the dependencies of their business success. To avoid resource allocation mistakes, a business plan acts as a tool to counter-check the process. It reminds an entrepreneur how resources must be allocated for a business to grow along the projected trajectory.