Importance of a business plan when starting your business

That’s not to say that every venture starts with a business plan. Apple and Microsoft started without one, but they have become among the world’s biggest companies. While aspiring to be the next Steve Jobs or Bill Gates is great, it’s better to be prepared with a solid business plan. Below, the UK’s number one company formation agent1st Formations, explains why this is so important.

1. Test your idea

Research by Experian found that a third of new companies in the UK fail by the end of their second year, and a staggering 50% fail within their first three years. These figures can be alarming for a budding entrepreneur. That’s why it’s crucial to develop a business plan and see whether your idea has the potential to succeed.

You should consider your start-up costs, a break-even analysis, and the demand for your products or services. These crucial insights will allow you to visualise your first 24-36 months in business and determine how feasible the venture is.

Of course, a business plan isn’t 100% accurate, it’s an educated projection. Nonetheless, preparation is key to giving yourself the best chance of success. As the famous saying goes, “If you fail to plan, you plan to fail.”

2. Mitigate potential risks

Writing a business plan involves analysing your ideas from every angle. That way, you’ll uncover the potential risks that may come your way and be able to develop a suitable plan of action.

For instance, you could find that your start-up costs are higher than anticipated, showing you that you need to source additional funding. Or maybe it will take you a little longer than you thought to turn a profit, so you’ll need to bolster your personal savings before you’re able to draw a salary. That might then beg the question: is that sustainable, and for how long?

These are just a few examples of potential problems you could encounter. However, a business plan aims to illuminate those challenges so that you can overcome them appropriately and remain on a path to success.

3. Secure funding and attract investors

Every new business needs financial support. Whether you’re applying for a start-up loan, starting a crowdfunding campaign, or pitching to a private investor, having a business plan ready to go will show that you’re serious about entrepreneurship.

It will also demonstrate that you’ve thought your idea through in detail, encouraging lenders to invest in your company confidently.

Also, when applying for bank loans, many lenders’ requirements will involve presenting a business plan. This allows them to gauge how risky you are to invest in.

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But if you show that you’re organised, reliable, and prepared, they could offer you a wider range of products, making it easier for you to secure essential funding.

4. Identify business opportunities

Creating a business plan isn’t just about spotting what might go wrong; it’s also about identifying opportunities that will prepare your company for a prosperous future.

For example, during your market analysis, you might discover that there’s an appetite for a supplementary product you could launch in a couple of years. Or maybe there’s a pricing strategy your audience responds to particularly well that you hadn’t considered before. Or perhaps you’ve thought of an exciting product collaboration that could boost your brand awareness.

There are so many powerful ideas to discover. Writing a business plan allows you to hone in on them and plan an appropriate implementation strategy.

5. Set goals for your business

Goal setting is crucial when starting a business. It helps you map out exactly what you want to achieve and what you need to do to get there. It also puts you in control and gives your business a purpose.

Without understanding why you’re launching a business, the journey can feel aimless and random and far more difficult than it needs to be. So, it’s essential to set benchmarks and targets for yourself in your business plan. These will indicate your progress as your company evolves, highlighting the areas that need improvement and the milestones you should celebrate.

6. Create a backup plan

Understandably, you’ll be eager to start a business. Perhaps you’re turning your hobby into a career or excited to fill a gap in the market with an innovative product.

While these are all excellent motivations, it’s essential to acknowledge that things could go wrong. So, it’s always best to be prepared and create a backup strategy. This is where a business plan is vital.

You might face sudden market changes, fall out with your business partner, or encounter grave financial difficulties. And what happens then? You don’t want to put yourself in an unprepared situation, so you panic your way into making the wrong decision.

Remember the business failure rates we highlighted earlier? That’s why it’s essential to consider the worst-case scenario, devise a logical plan, and remain in control.

Even if things don’t pan out, it’ll be considerably easier if you’ve prepared for it by writing a business plan. Also, potential investors will want to see that you’ve considered what could go wrong and have a safety net in place.

7. Put your mind at ease

Starting a business can feel overwhelming—exciting, of course, but it’s a huge task, especially if you’re going into business on your own. It can all feel quite heavy and daunting. However, writing a business plan will help put your mind at ease and allow you to start your entrepreneurial adventure with full confidence.

We mentioned previously that a business plan is a projection. Naturally, there’s no way to know what will happen in the future, but preparing as best you can for the journey ahead will take a ton of weight off your shoulders and make starting a successful business much more achievable.

You’ll be surprised at how much difference adequate preparation can make to your quality of sleep, stress levels, and self-confidence. These are all crucial aspects to maintain as a new entrepreneur.

8. Always be ready to sell

While pitching isn’t always appropriate, it’s best to be prepared when the opportunity arises. And with a sound business plan, you’ll always be ready to sell.

Imagine going to a networking event or meeting a potential investor, and they ask if you can share your business plan with them. Saying you don’t have one could make you appear unprofessional and unprepared, causing them to lose confidence in you and your idea.

Don’t let opportunities pass you by—write a business plan.

Writing a business plan is easier than you think

We promise that writing a business plan is easier than you think. There are plenty of useful guides and professional services out there that can guide you through writing a business plan for a start-up and make the process far more digestible.

You have the freedom and flexibility to include as much or as little detail in your business plan as you wish—it’s your business, after all. However, to set yourself up for the best possible start and ensure you cover all bases, we recommend spending a few weeks on it.

Is your business plan ready to go? Start your company today with 1st Formations, the UK’s favourite company formation agent. Choose your ideal company formation package, starting at just £52.99, and bring your vision to life with their quick and and simple registration process.