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What is the importance of a good business plan? How does a good business plan help me as an entrepreneur?

Mentor Gopal Addanki from MentorSquare defines a business plan, outlining the different types and their content while also addressing the importance of a good business plan.

As my professor once said, “Of what use is the knowledge of the wind's direction to the captain of a ship, if he does not know where he wants to go?” An individual may have a million-dollar idea which he believes could prove to be a successful business, but unless he effectively communicates the idea to others and convinces them of its viability, the idea will be rendered useless. This is where a business plan comes in.

A business plan is typically expected to guide a businessman or entrepreneur, to show him the destination and the means to get there. It is a well-thought-out document that spells out a clear plan of action.

A good business plan takes into account four important points:

It defines the products or services on offer, identifies the market and target audience and debates their need for the said product or service

Identifies competition and determines the company's advantages and USP

Estimates the start-up cost, revenue and expenses

Determines the idea's viability

Need and Importance

While a business plan is critical for every business, it is more important for start-ups and first time entrepreneurs. A business plan offers an individual a fixed goal within a fixed time frame as well as the means to achieve it. Without the forethought of the business plan, day-to-day operations of the organisation will be done without any planning or focus.

The first draft of any business plan determines the viability of the business idea. It helps an entrepreneur organise his thoughts by taking into account the key issues of implementing the business as well as addressing the fundamental building blocks of the idea.

A business plan also helps in identifying and understanding risks and preparing contingency plans to mitigate the same. Expected growth and profits are also determined by the business plan.

Types

Based on the target, a business plan can be classified into different types. For instance, first drafts of business plans are written for the benefit of the first time entrepreneur in order to help him determine the viability of his business idea.

On the other hand, there are business plans written to attract investment from either venture capitalists or potential partners. Such business proposals must highlight the enterprise value and offer financial projections such as the expected growth of the firm after five years, its valuation or return on investment. While approaching financial institutions for a loan, the business plan must highlight the cash flow of the firm and its ability to repay the loan as well as other financial details.

Contents of a Business Plan

While writing a business plan, it is important to keep in mind that ‘what cannot be measured, cannot be controlled.' Therefore, a plan must quantify as much as possible, projecting estimates as accurately as it can.

A good business plan must describe the fundamentals of your business idea while also laying out a clear strategy to achieve set goals. It should contain financial details such as return on shareholder funds, ROI and real cash flow.

The ‘Executive Summary' is an essential component of any good business plan. It talks about the products you are offering, the investment and production facilities required, market overview, sales and marketing strategy, financial projections as well as a thorough understanding of your competitors.

Another important component of a business plan is the promoter's brief. This talks about the background and qualification of the promoters and highlights their capability in running a business.

Of late, an organisation's corporate social responsibility is also mentioned in the business plan, highlighting the social and environmental benefits the project has to offer.

Whether it is organising your thoughts, acquiring funding or convincing others that you can take an idea and turn it into a viable enterprise, a well-written business plan is a tool for success.

Do send your queries to >hindubusinessline@mentorsquare.com

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