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Is Creating a Business Plan Essential? How does it Affect Businesses’ Financing Options?
Business plans (and their importance) is often discussed when considering the early-stage and planning processes of companies. Having said that, their relatively time-consuming (and perhaps tedious) nature commonly means that starting entrepreneurs tend to generally avoid them.
This is a mistake, as the available evidence strongly suggests that having a thorough and coherent business plan can bring in a plethora of exclusive benefits for your business (both in the short term and in the long term) as it can greatly affect your likelihood of attaining adequate financing in the future.
Whilst many individuals tend to have innovative business ideas over the course of their lives, not many of these actually manifest into actual businesses. This is usually because other concerns (such as day-to-day personal and professional obligations) tend to take over.
Quite fascinatedly, government statistics indicate that creating a business plan can significantly increase your chances of following up with your business idea. The Panal Study of Entrepreneurial Dynamics, for example, found that persons were roughly two and a half times more likely to follow through with their business idea if they had previously created a business plan.
Obviously, this trend proves correlation only, and a direct causative relationship is unequivocally hard to pin down; nevertheless, the relevant research available has shown that persons that draft business plans tend to increasingly ‘’walk the walk’’. This means they are more likely to research markets, prepare any required projections. Also, make any consequent plans that will holistically increase their chances of following through with their idea in the future.
Below we will discuss additional (and more tangible) benefits that drafting a business plan can bring for starting entrepreneurs- particularly in relation to acquiring future financing.
Improved Corporate Executive Satisfaction
One of the most crucial elements of business plans is the way in which they can provide indirect (yet concrete) support to every single member of a business entity. This is by providing them with a specified structure, strategy, and vision going forward.
This tends to increase corporate executive satisfaction significantly, with a study conducted by McKinsey & Company reporting that formal strategic-planning processes (such as creating a business plan) play a vital role in ‘’improving overall satisfaction with strategy development’’.
In the study, approximately 80% of surveyed corporate managers claimed that: formal planning processes play a crucial role in adequately creating and developing business strategies. Also, they were personally satisfied with the strategic approaches adopted by the businesses they worked in.
Contrarily, a bit more than 20% of respondents (21%) argued that such processes do not play a significant role in the long term.
Obviously, the level of planning also plays an important role, as not all planning is equally efficacious. Many starting entrepreneurs can find themselves making a business plan. “Just for the sake of planning’’ without actually putting the required time and dedication into it; this seldom (if ever) has the desired effects.
This is in the McKinsey report. Approximately 45% of the individuals that were of the survey, were claiming that they were holistically of satifaction with their strategic planning process.
The increasing importance of business plans is also illustrated by the fact that entrepreneurs are increasingly starting to rely on the best business plan software so as to ensure that they correctly structure their business plan in a timely manner.
Business Plans and Are Valuable to Venture Capital Firms
The vast majority of business owners will need to apply for some sort of financing in the future. This is regardless of whether it involves VC firms, banks, or public loans. This is because adequately expanding one’s business usually requires a very high amount of capital.
Most strategy consultants highly recommend companies looking to acquire funding to draft a business plan retrospectively. As this can significantly increase the chances of attracting external investment sources easily and quickly.
Indubitably, raising capital and properly planning your business’s future go hand-in-hand; individuals without a business plan that are looking to attract venture capital will unlikely be successful according to government statistics.
This is because a coherent and comprehensive business plan: allows your potential investors to thoroughly understand your business. Also, illustrates that you have allocated a sizeable degree of time to think about your company’s future. Also, any long-term problems that may arise.
Overall, creating a robust plan is undoubtedly one of the most important steps. Especially, starting entrepreneurs can take in order to proliferate their chances of success.
We hope you enjoyed reading.