benefits of business planning to an entrepreneur

14 Reasons Why You Need a Business Plan

10 min. read

Updated May 10, 2024

There’s no question that starting and running a business is hard work. But it’s also incredibly rewarding. And, one of the most important things you can do to increase your chances of success is to have a business plan.

A business plan is a foundational document that is essential for any company, no matter the size or age. From attracting potential investors to keeping your business on track—a business plan helps you achieve important milestones and grow in the right direction.

A business plan isn’t just a document you put together once when starting your business. It’s a living, breathing guide for existing businesses – one that business owners should revisit and update regularly.

Unfortunately, writing a business plan is often a daunting task for potential entrepreneurs. So, do you really need a business plan? Is it really worth the investment of time and resources? Can’t you just wing it and skip the whole planning process?

Good questions. Here’s every reason why you need a business plan.

• 1. Business planning is proven to help you grow 30 percent faster

Writing a business plan isn’t about producing a document that accurately predicts the future of your company. The  process  of writing your plan is what’s important. Writing your plan and reviewing it regularly gives you a better window into what you need to do to achieve your goals and succeed. 

You don’t have to just take our word for it. Studies have  proven that companies that plan  and review their results regularly grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to become one of those woeful failure statistics, or experience  cash flow crises  that threaten to close them down. 

• 2. Planning is a necessary part of the fundraising process

One of the top reasons to have a business plan is to make it easier to raise money for your business. Without a business plan, it’s difficult to know how much money you need to raise, how you will spend the money once you raise it, and what your budget should be.

Investors want to know that you have a solid plan in place – that your business is headed in the right direction and that there is long-term potential in your venture. 

A business plan shows that your business is serious and that there are clearly defined steps on how it aims to become successful. It also demonstrates that you have the necessary competence to make that vision a reality. 

Investors, partners, and creditors will want to see detailed financial forecasts for your business that shows how you plan to grow and how you plan on spending their money. 

• 3. Having a business plan minimizes your risk

When you’re just starting out, there’s so much you don’t know—about your customers, your competition, and even about operations. 

As a business owner, you signed up for some of that uncertainty when you started your business, but there’s a lot you can  do to reduce your risk . Creating and reviewing your business plan regularly is a great way to uncover your weak spots—the flaws, gaps, and assumptions you’ve made—and develop contingency plans. 

Your business plan will also help you define budgets and revenue goals. And, if you’re not meeting your goals, you can quickly adjust spending plans and create more realistic budgets to keep your business healthy.

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• 4. Crafts a roadmap to achieve important milestones

A business plan is like a roadmap for your business. It helps you set, track and reach business milestones. 

For your plan to function in this way, your business plan should first outline your company’s short- and long-term goals. You can then fill in the specific steps necessary to reach those goals. This ensures that you measure your progress (or lack thereof) and make necessary adjustments along the way to stay on track while avoiding costly detours.

In fact, one of the top reasons why new businesses fail is due to bad business planning. Combine this with inflexibility and you have a recipe for disaster.

And planning is not just for startups. Established businesses benefit greatly from revisiting their business plan. It keeps them on track, even when the global market rapidly shifts as we’ve seen in recent years.

• 5. A plan helps you figure out if your idea can become a business

To turn your idea into reality, you need to accurately assess the feasibility of your business idea.

You need to verify:

• If there is a market for your product or service
• Who your target audience is
• How you will gain an edge over the current competition
• If your business can run profitably

A business plan forces you to take a step back and look at your business objectively, which makes it far easier to make tough decisions down the road. Additionally, a business plan helps you to identify risks and opportunities early on, providing you with the necessary time to come up with strategies to address them properly.

Finally, a business plan helps you work through the nuts and bolts of how your business will work financially and if it can become sustainable over time.

6. You’ll make big spending decisions with confidence

As your business grows, you’ll have to figure out when to hire new employees, when to expand to a new location, or whether you can afford a major purchase. 

These are always major spending decisions, and if you’re regularly reviewing the forecasts you mapped out in your business plan, you’re going to have better information to use to make your decisions.

7. You’re more likely to catch critical cash flow challenges early

The other side of those major spending decisions is understanding and monitoring your business’s cash flow. Your  cash flow statement  is one of the three key financial statements you’ll put together for your business plan. (The other two are your  balance sheet  and your  income statement  (P&L). 

Reviewing your cash flow statement regularly as part of your regular business plan review will help you see potential cash flow challenges earlier so you can take action to avoid a cash crisis where you can’t pay your bills. 

• 8. Position your brand against the competition

Competitors are one of the factors that you need to take into account when starting a business. Luckily, competitive research is an integral part of writing a business plan. It encourages you to ask questions like:

• What is your competition doing well? What are they doing poorly?
• What can you do to set yourself apart?
• What can you learn from them?
• How can you make your business stand out?
• What key business areas can you outcompete?
• How can you identify your target market?

Finding answers to these questions helps you solidify a strategic market position and identify ways to differentiate yourself. It also proves to potential investors that you’ve done your homework and understand how to compete. 

• 9. Determines financial needs and revenue models

A vital part of starting a business is understanding what your expenses will be and how you will generate revenue to cover those expenses. Creating a business plan helps you do just that while also defining ongoing financial needs to keep in mind. 

Without a business model, it’s difficult to know whether your business idea will generate revenue. By detailing how you plan to make money, you can effectively assess the viability and scalability of your business. 

Understanding this early on can help you avoid unnecessary risks and start with the confidence that your business is set up to succeed.

• 10. Helps you think through your marketing strategy

A business plan is a great way to document your marketing plan. This will ensure that all of your marketing activities are aligned with your overall goals. After all, a business can’t grow without customers and you’ll need a strategy for acquiring those customers. 

Your business plan should include information about your target market, your marketing strategy, and your marketing budget. Detail things like how you plan to attract and retain customers, acquire new leads, how the digital marketing funnel will work, etc. 

Having a documented marketing plan will help you to automate business operations, stay on track and ensure that you’re making the most of your marketing dollars.

• 11. Clarifies your vision and ensures everyone is on the same page

In order to create a successful business, you need a clear vision and a plan for how you’re going to achieve it. This is all detailed with your mission statement, which defines the purpose of your business, and your personnel plan, which outlines the roles and responsibilities of current and future employees. Together, they establish the long-term vision you have in mind and who will need to be involved to get there. 

Additionally, your business plan is a great tool for getting your team in sync. Through consistent plan reviews, you can easily get everyone in your company on the same page and direct your workforce toward tasks that truly move the needle.

• 12. Future-proof your business

A business plan helps you to evaluate your current situation and make realistic projections for the future.

This is an essential step in growing your business, and it’s one that’s often overlooked. When you have a business plan in place, it’s easier to identify opportunities and make informed decisions based on data.

Therefore, it requires you to outline goals, strategies, and tactics to help the organization stay focused on what’s important.

By regularly revisiting your business plan, especially when the global market changes, you’ll be better equipped to handle whatever challenges come your way, and pivot faster.

You’ll also be in a better position to seize opportunities as they arise.

Further Reading: 5 fundamental principles of business planning

• 13. Tracks your progress and measures success

An often overlooked purpose of a business plan is as a tool to define success metrics. A key part of writing your plan involves pulling together a viable financial plan. This includes financial statements such as your profit and loss, cash flow, balance sheet, and sales forecast.

By housing these financial metrics within your business plan, you suddenly have an easy way to relate your strategy to actual performance. You can track progress, measure results, and follow up on how the company is progressing. Without a plan, it’s almost impossible to gauge whether you’re on track or not.  

Additionally, by evaluating your successes and failures, you learn what works and what doesn’t and you can make necessary changes to your plan. In short, having a business plan gives you a framework for measuring your success. It also helps with building up a “lessons learned” knowledge database to avoid costly mistakes in the future.

• 14. Your business plan is an asset if you ever want to sell

Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. 

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• Writing your business plan

By taking the time to create a business plan, you ensure that your business is heading in the right direction and that you have a roadmap to get there. We hope that this post has shown you just how important and valuable a business plan can be. While it may still seem daunting, the benefits far outweigh the time investment and learning curve for writing one. 

Luckily, you can write a plan in as little as 30 minutes. And there are plenty of excellent planning tools and business plan templates out there if you’re looking for more step-by-step guidance. Whatever it takes, write your plan and you’ll quickly see how useful it can be.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• 6. You’ll make big spending decisions with confidence
• 7. You’re more likely to catch critical cash flow challenges early

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Reasons Why a Business Plan Is Important for Entrepreneurs

Editor's Note: This post was originally published in September 2018 and has been updated with new content that highlights the importance of proper business planning in 2021's economy.

What is a business plan? For people who are just starting out and forming their own company, whether it's a small freelance business at home or a new venture with an office and a starting pool of employees, there's a lot of importance to a business plan. It is a road map, an outline, a document that explains what your business is, what the goals of the enterprise are, and how exactly it will set about achieving those goals. So beyond being a document that identifies your business, what else does such a plan do for you?

1. Target Your Problems

2. Get Better Advice

The importance of a business plan to entrepreneurship can also be in the way it crystallizes just what kind of help you need. Merely telling a friend or potential business mentor you're aiming to start with ten employees, for example, is not an exceptionally detailed statement. Showing a business plan that outlines the exact duties, salaries, and expectations you have for employees gives far more information for people to provide advice about.

3. Organize Your Resources

A business plan is also essential as the primary guide for how you will structure and allocate your resources. It's here that you will see just how feasible it is to open an office, hire employees, and look at operating costs. The business plan can quickly show you whether you will be making a profit or running at a loss, and it shows how much those losses may be every month.

4. Approach Investors

For some, this may be critical. Investors want to know that you know what you’re doing. A business plan can often be the single most important document you can present to your investors that will provide the structure and confidence that they need to make decisions about funding and supporting your company.

5. Create Milestones

A business plan is also a plan of action. By laying out milestones, you now have targets to shoot for in the short, mid and long term. These goals also mean that you can "course correct" with greater agility if you have targets and realize that you may need to make some changes in order to meet them.

The importance of a business plan can be critical for entrepreneurs. Business may have some artistry to it, but real success comes from having a vision and being organized in the way you strive towards that vision. A business plan will help you immensely and in so many ways!

Template for a Business Plan for Entrepreneurs

To determine whether you have a solid business idea, you will need to do thorough research and create a business plan to see if your idea is feasible. Here is a simple business plan template that is broken into sections that include the key elements for what goes into each step of the process to help get you started.

Section 1: Executive Summary

Write an executive summary. The purpose of the executive summary is to give readers a high-level view of the company and the market before delving into the details. It appears first but is written last and provides a snapshot of your company explaining who you are, what you do, and why. The executive summary provides a short, concise, and optimistic overview of your business to capture the reader's attention and create a need to learn more.

Section 2: Business/Industry Overview

Describe your company and business model by summarizing what your company does, your mission statement, location details, business structure and business owner details, the marketplace needs that your business is trying to meet, and how your products/services meet those needs. Define your business's purpose (mission) and a statement based on your perception of the company's growth potential (vision). Include specific business goals and objectives. Provide background information about the company, including a brief history of the business and a list of fundamental company principles.

Section 3: Market Analysis and Competition

Analyze your market's conditions. The market will ultimately determine how successful your business will be. You will need to demonstrate that you have thoroughly analyzed your target market and have a high-enough demand for your products/services to make your business viable. The competitive analysis should include a comprehensive assessment of your competition and how your business will compete in the sector. Describe the industry within which your business will operate, identify and provide a general profile of your target market, and describe what share of the market you currently have or anticipate. Include both an analysis of research done by others, along with primary research you have collected yourself — whether via customer surveys, interviews, or other methods. Outline the strengths and weaknesses of potential competitors and strategies that will give you a competitive advantage.

Section 4: Sales and Marketing Plan

Design a marketing and sales strategy. Here is where you can plan out your comprehensive marketing and sales strategies to cover how you plan on selling your product. Before working on your marketing and sales plan, you will need to have your market analysis completely fleshed out and choose your target client personas, i.e., your ideal customers. Talk about the competitive landscape. Describe how you intend to entice customers to buy your products or services, including advertising and promotion, sales and distribution, pricing strategy, and post-sales support.

Section 5: Ownership and Management Plan

Outline all operations and management roles. This section describes the ownership, legal structure, and your business's management and staffing requirements. Use this section to outline your company's unique organizational and management structure. Describe how your company is organized, including its legal structure (sole proprietorship, partnership, corporation); identify any special licenses or permits your business operates with; provide a brief bio of key managers within your company; include an organization chart.

Section 6: Operating Plan

The operating plan outlines your business's physical requirements, such as office, warehouse, retail space, equipment, inventory and supplies, and labor. For a one-person, home-based consulting firm, the operating plan may be short and straightforward. However, for businesses such as restaurants or manufacturers that require custom facilities, supply chains, multiple employees, and specialized equipment, the operating plan may need to be very detailed.

Section 7: Financial Plan

This section is the most crucial part of the business plan, especially if you need debt financing or want to attract investors. The financial plan must demonstrate your business' growth and profitability potential. To do this, you will need to provide projected income statements, cash flow statements, and balance sheets. For new businesses, these are forecasts. A golden rule of thumb is to underestimate revenues and overestimate expenses. Outline your financial model, including your business costs, revenue projections, and a funding request if you pitch to investors. Your start-up cost refers to the resources you will need to get your business up and running — and an estimate of how much each of those resources will cost.

Section 8: Appendices and Exhibits

Summarize the above with an appendix. The appendices and exhibits section should contain any detailed information needed to support other areas of the plan, including company brochures, resumes of key employees, a list of business equipment, copies of press articles and advertisements, pictures of your business location and products, any applicable information about your industry or products, key business agreements such as lease, and contracts.

Who Needs a Business Plan?

Start-up Businesses : The most classic business planning scenario is for a start-up, for which the plan helps the founders break down uncertainty into meaningful pieces, like the sales projection, expense budget, milestones, and tasks. When you realize you do not know how much money you need or when you need it without first laying out projected sales, costs, expenses, and payment timing, the need becomes apparent. And that is for all start-ups, whether they need to convince investors, banks, or family and friends to part with their money and fund the new venture. Existing Businesses : Established businesses use business plans to manage and steer their business strategies to address changes in their markets and take advantage of new opportunities. They often use plans to reinforce strategy, establish metrics, track results, manage responsibilities and goals, plan and manage critical resources such as cash flow, and set regular review and revision schedules. Business plans can be a powerful driver of growth for existing businesses.

Finding the Right Plan for You

Considering that business plans serve diverse purposes, it is no surprise that they come in various forms. But before you even start writing your business plan, you need to think about who the audience is and your plan's goals. While there are standard components found in almost every business plan, such as sales forecasts and marketing strategy, business plan formats can differ depending on the audience and business type. For example, if you are building a biotech firm plan, your plan will detail government approval processes. If you are writing a restaurant plan, details about location and renovations might be critical factors. The language you would use in the biotech firm's business plan would be much more technical than the language you would use in the restaurant plan. Plans can also differ significantly in length, detail, and presentation. Those that never leave the office and are used only for internal strategic planning and management may often use more casual language and might not have much visual polish. On the other end of the spectrum, a plan destined for a top venture capitalist's desk will have a high polish and focus on the business' high-growth aspects and the experienced team to deliver desirable results.

Elements of a Business Plan

While the plans may vary by type, certain key elements appear in virtually all business plans. These components include the review schedule, strategy summary, milestones, responsibilities, metrics (numerical goals that can be tracked), and basic projections. The projections include sales, costs, expenses, and cash flow. These core elements grow organically for the actual purpose needed for the business.

Developing a High Power Business Plan

The business plan development process described here can provide the guidance entrepreneurs require for developing a business plan best suited for their needs; a high power business plan.

The Stages of Development

There are six stages involved in developing a high-power business plan.

Essential Initial Research

This stage requires you to analyze the environment in which you anticipate operating at each of the societal, market, industry, and firm levels of analysis. In this planning stage, the essential initial research is a necessary first step for better understanding the trends that affect their business and their decisions to lay the groundwork for and improve their potential for success.

Business Model

Inherent to any business plan is a description of the entrepreneur's chosen business model that will best ensure success. Based upon your essential initial research of the setting in which you anticipate starting your business (your analysis from stage one), you should determine how each element of your business model might fit together to improve the potential success of your business venture. These elements include their revenue streams, cost structure, customer segments, value propositions, key activities, and key partners.

Initial Business Plan Draft

This stage involves taking the knowledge and ideas developed during the first two stages and integrating them into a business plan format. A suggested approach is to create a complete draft of the business plan with all the sections, including the front part with the business description, values, vision, mission, value proposition statement, a preliminary set of goals, table of contents, and lists of tables and figures set up using the software features enabling their automatic generation. Writing all the operations, human resources, marketing, and financial plans as part of the first draft ensures that all these necessary parts can be appropriately integrated. The business plan should tell the story of a planned business start-up in two ways: using primarily words, along with charts and graphs in the operations, human resources, and marketing plans, and through the financial plan. Both approaches must tell the same story.

Making Business Plan Realistic

The first draft of a business plan will seldom be realistic. As you write the plan, it will naturally change as new information is gathered. Another factor that commonly renders the first draft unrealistic is the difficulty in ensuring that the written section—in the front part of the plan and the operations, human resources, and marketing plans—tells the same story as the financial part does. This working stage involves making the necessary adjustments to the plan to make it as realistic as possible.

Making Plan Appeal to Stakeholders and Desirable to the Entrepreneur

A business plan can be realistic without appealing to potential investors or other external stakeholders, such as suppliers, employees, and needed business partners. It may also be realistic and possibly appealing to stakeholders without necessarily being desirable to the entrepreneur. During this stage, try to keep it as realistic as possible when adjusting the plan to appeal to potential investors and yourself.

Finishing the Business Plan

The final stage involves putting all the essential finishing touches on the business plan so it will present well to potential investors and alike. This step involves ensuring that the math and links between the written and financial sections are accurate. It also involves ensuring that all the needed corrections are made to the formatting, spelling, and grammar. The ultimate set of goals should be written to appeal to targeted readers and reflect what the business plan specifies. An executive summary should be written and included as the final step.

FAQs about Business Plans

What are the 4 types of business plans.

1. Mini-plan : A mini-plan may comprise one to 10 pages and include at least cursory attention to such critical matters as business concepts, financing needs, marketing plans, and financial statements, especially cash flow, balance sheet, and income projections. It is a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It could also serve as a valuable prelude to a full-length plan later on.

2. Working Plan : A working plan is a tool to operate your business. It should be lengthy in detail but may be short on presentation. As with a mini-plan, you can probably afford a somewhat higher degree of candor and informality when preparing a working plan.

3. Presentation Plan : If you take a working plan, with its low stress on cosmetic appeal and impression, and twist the lever to boost the amount of attention paid to its visual appearance, you will end up with a presentation plan. This plan is suitable for showing to financiers, investors, stakeholders, and others outside the company.

4. Electronic Plan : Most business plans are composed on a computer, then printed out and presented in hard copy. However, more and more business information transferred between parties only on paper can now be sent electronically, so you may find it convenient to have an electronic version of your plan available. An electronic plan can be useful for presentations to groups using a computer-driven overhead projector, for instance, or for satisfying the demands of discriminating investors who want to delve deeply into the underpinnings of complex spreadsheets.

What are the 3 main purposes of a business plan?

1. Establish a business focus : The primary purpose of a business plan is to establish your plans for your business's future. These plans should include goals and milestones alongside detailed steps on how the business will reach each step. Creating a roadmap to your goals will help determine your business focus and pursue growth.

2. Secure funding : One of the first things private investors, banks, and other lenders look for before investing in your business is a well-researched business plan. Investors and stakeholders want to know how you operate your business, revenue and expense projections, and how they will receive a return on their investment.

3. Attract executives : As your business grows, you will likely need to add executives to your team. The business plan helps you attract executive talent and determine whether they are a good fit for your company.

What are the 5 elements of a business plan?

1. Business concept : Describes the business, its products/services, and the market it will serve. It should point out exactly what will be sold, to whom, and why your business will hold a competitive advantage.

2. Financial features : Highlights the important financial points of the company, including sales, cash flows, profits, and return on investment.

3. Financial requirements : Clearly state the capital needed to start the business and expand. It should detail how capital will be used and the equity that will be provided for funding. If the loan for initial capital is based on security instead of equity, also specify the source of collateral.

4. Current business position : Furnishes relevant information about the business, its legal form of operation, the principal owners, when it was formed, and key personnel.

5. Major achievements : Details of any developments within the company essential to the business's success. Major achievements include patents, prototypes, location of a facility, any binding contracts that need to be in place for product development, or any test marketing results.

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About The Author

Daniel plays a fundamental role in WSI’s global franchise expansion and development. He has since overseen WSI’s franchise development process, and he is personally associated with the recruitment of 600+ global franchisees.

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The importance of a business plan

Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.

Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.

What is a business plan?

A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.

Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success. ‍

Why is a business plan important?

A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business is on the right path and worth putting money into.

Business plans typically include detailed information that can help improve your business’s chances of success, like:

• A market analysis : gathering information about factors and conditions that affect your industry
• Competitive analysis : evaluating the strengths and weaknesses of your competitors
• Customer segmentation : divide your customers into different groups based on specific characteristics to improve your marketing
• Marketing: using your research to advertise your business
• Logistics and operations plans : planning and executing the most efficient production process
• Cash flow projection : being prepared for how much money is going into and out of your business
• An overall path to long-term growth

What is the purpose of a business plan?

A business plan is like a map for small business owners, showing them where to go and how to get there. Its main purposes are to help you avoid risks, keep everyone on the same page, plan finances, check if your business idea is good, make operations smoother, and adapt to changes. It's a way for small business owners to plan, communicate, and stay on track toward their goals.

10 reasons why you need a business plan

I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.

The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.

To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.

1. To help you with critical decisions

The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.

Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.

Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.

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2. To iron out the kinks

Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.

3. To avoid the big mistakes

Only about half of small businesses are still around to celebrate their fifth birthday . While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.

According to data from CB Insights , some of the most common reasons businesses fail include:

• No market need : No one wants what you’re selling.
• Lack of capital : Cash flow issues or businesses simply run out of money.
• Inadequate team : This underscores the importance of hiring the right people to help you run your business.
• Stiff competition : It’s tough to generate a steady profit when you have a lot of competitors in your space.
• Pricing : Some entrepreneurs price their products or services too high or too low—both scenarios can be a recipe for disaster.

The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s cash flow forecasts or a product-market fit analysis , every piece of a business plan can help spot some of those potentially critical mistakes before they arise. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!

Get a jumpstart on your business plan by creating your own cash flow projection .

4. To prove the viability of the business

Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.

Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.

A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.

Want to prove there’s a market gap? Here’s how you can get started with market research.

5. To set better objectives and benchmarks

Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.

6. To communicate objectives and benchmarks

Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.

Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.

7. To provide a guide for service providers

Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.

8. To secure financing

Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.

Learn what you need to get a small business loan.

9. To better understand the broader landscape

No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.

10. To reduce risk

Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.

Business plan FAQs

How does having a business plan help small business owners make better decisions.

Having a business plan supports small business owners in making smarter decisions by providing a structured framework to assess all parts of their businesses. It helps you foresee potential challenges, identify opportunities, and set clear objectives. Business plans help you make decisions across the board, including market strategies, financial management, resource allocation, and growth planning.

What industry-specific issues can business plans help tackle?

Business plans can address industry-specific challenges like regulatory compliance, technological advancements, market trends, and competitive landscape. For instance, in highly regulated industries like healthcare or finance, a comprehensive business plan can outline compliance measures and risk management strategies.

How can small business owners use their business plans to pitch investors or apply for loans?

In addition to attracting investors and securing financing, small business owners can leverage their business plans during pitches or loan applications by focusing on key elements that resonate with potential stakeholders. This includes highlighting market analysis, competitive advantages, revenue projections, and scalability plans. Presenting a well-researched and data-driven business plan demonstrates credibility and makes investors or lenders feel confident about your business’s potential health and growth.

Understanding the importance of a business plan

Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.

Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.

Related Posts

Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

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15 Reasons Why You Need a Business Plan in 2024

Posted august 5, 2024 by noah parsons.

Imagine you’re going on a road trip. You know your final destination, but you haven’t figured out how to get there. 

While it might be fun to start driving and figure things out as you go, your trip will likely take longer than expected and end up costing more. But, if you take the time to look at a map and chart the best way to get to your destination—you’ll arrive on time and on budget. 

Planning for your business isn’t much different, which is why a business plan is so important to your continued success.

What is the purpose of a business plan? 

The primary purpose of a business plan is to help you figure out where you want to go with your business and how you will get there. Writing a business plan helps you set your direction and determine a winning strategy. A solid business plan will set your business up for success and help you build an unbeatable company.

If you start off without a plan, you may go down some interesting detours, but you’re unlikely to grow quickly or stick to your budget.

15 reasons why you need a business plan

“Creating a road map for my business is all well and good, but do I really need a business plan? I’d rather just get started.”

If you’re still thinking like this and decide to skip writing a business plan, you’re making a big mistake and setting yourself up to fail. Even if your business survives, without a plan, you’ll miss valuable growth opportunities and never truly be in control.

Still not convinced? Here are the critical reasons why a business plan is important for small businesses. 

1. You’re more likely to start

Documenting your business idea makes it more official. It takes rough ideas and turns them into the making of a real business. 

According to a study by the Harvard Business Review , entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don’t.

Even if it’s just notes about your potential business, writing things down will make you more likely to proceed with your business. Without a plan, you can’t prove to yourself, partners, mentors, or investors that you’re serious about starting.

2. Reduce potential risks

Writing a business plan takes some of the risk out of starting a business. It helps you think through every facet of your business to determine if it can truly be viable. 

• Does your solution fit the market? Are your startup or operational costs manageable?
• Will your proposed business model actually generate sales?
• What sort of milestones would you need to hit to achieve profitability?

Your business plan can answer these startup questions .

For those already running a business, writing a plan can help you better manage ongoing risk. 

• Should you bring on a new employee?
• What does cash flow look like for your next month, quarter, or even year?
• Will you meet your milestones or do you need to change your focus?

Keep your plan up to date, review it regularly and you can easily answer these growth questions and mitigate risk.

3. Test a new business idea and prove it’s viable

When you have a new business idea, it helps to spend time thinking through all the details. 

A business plan will help you think about your:

• Target market
• How much money you’ll need to launch
• How your idea will actually work before you spend any real money

A business plan will also help you easily share your idea with other people to get input and feedback before you get started. 

There’s no need to create a detailed business plan either. 

Instead, I recommend using a one-page business plan to quickly test your ideas and determine if you have a viable business. 

4. Understand your market and build a marketing plan

No matter how good your idea is, you have to figure out who your ideal customers are and how you will get the word out to them. 

That’s where a marketing plan comes in. It can be an indispensable tool to figure out how you get your first customers as well as your thousandth customer. It can start as a simple bulleted list of potential marketing channels that expands in detail as you need it.

5. Build a better budget and a financial forecast

Without a business plan, it’s impossible to know how much money it will cost to start and run a business. You don’t just need money for your initial purchases; you need enough cash in the bank to maintain your cash runway and keep your business afloat while you get fully up and running.

When you plan, you’ll need to create your expense budget , set sales goals, and identify how much cash is needed to keep your doors open, purchase inventory, and more. 

The beauty of incorporating forecasts into your business plan is that you don’t need exact numbers to start. You can work with general assumptions and compare against competitive benchmarks to set a baseline for your business. 

As you operate and collect financial data, you can revisit your business plan and update your forecasts to generate a more accurate picture of your business’s future.

6. Attract investors and get funding

Sharing your business idea with investors requires a business plan. 

Investors may never actually ask for your full business plan, but they will certainly ask you questions that you’ll only be able to answer if you’ve taken the time to write a plan. 

At the very least, they’ll want to see your financial forecasts, so you should be prepared for this. If you pitch your business to investors, having a business plan makes it much easier to translate the right information into a pitch deck. 

In short, you’ll have all of the right information ready and available to show why your business is worth investing in.

7. Plan for different scenarios

Things rarely actually go to plan. The world is always changing, customer tastes change, and new competitors arrive. 

Having a plan allows you to experiment with different scenarios to see how changes to your business will impact your forecasts, budgets, profitability, and cash flow.

Without a business plan, you’ll be reacting blindly with no way to track if your decisions are making a real impact.

8. Attract employees

Especially if you’re a young startup company, attracting employees can be hard. Without a proven track record, why should someone take a risk to work for you? 

Having a business plan can help solve that problem. Your plan can help prospective employees understand your business strategy and growth plans so that they can feel confident joining your team. It’s also incredibly useful in determining when and if it’s feasible for you to hire more employees . 

9. Get your team on the same page

A great business strategy can only be successful if your team understands it. By documenting your strategy with a business plan, you can easily get everyone on the same page and working towards the same goals. 

It’s even better if you regularly review your plan with members of your team. Have everyone revisit your core strategy, analyze it, and explore how it impacts individual and team goals .

10. Manage your business better 

A business plan is all about setting goals for your company — both financial goals and milestones you hope to accomplish. 

When you use your business plan to manage your business, you’ll see which parts of your strategy are working and which aren’t. 

For example, you may have invested in new marketing efforts to sell one of your products, but that strategy just isn’t working out. With a business plan in hand, you’ll be able to see what’s going to plan and where you need to adjust your strategy, pivoting to new opportunities that will drive profitability.

Regular business plan reviews , ideally monthly, will help you build a strong, resilient business.

11. Effectively navigate a crisis

Having a business plan not only helps you create a roadmap for your business but also helps you navigate unforeseen events. Large-scale economic downturns, supply shortages, payment delays, cash flow problems, and any number of other issues are bound to pop up. But by leveraging your business plan, you can be prepared to face each crisis head-on.

A plan helps you assess your current situation, determine how the crisis will alter your plan, and explore what it will take to recover. 

With a little planning, you can even prepare your business for future downturns with this same process. Having the right plan and processes in place will make crisis planning easier and, ideally, recession-proof your business .

12. You’ll be ready to sell

You might decide to sell your business or position yourself for acquisition down the road. Having a solid business plan helps make the case for a higher valuation. 

Your business is likely worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. 

Remember, if you were buying a business , you’d likely want to see their business plan and any previous documentation. So, the more organized and professional your plan is, the easier it will be for a buyer to say yes.

13. It’s easier than you think

You may be procrastinating in writing a business plan because it sounds like a lot of work. The truth is that planning is much less complicated than you think. 

Start small by writing a simple business plan you can complete in about half an hour. With the emergence of AI business plan generators , getting stuck with a blank page is a thing of the past. Just be sure that you don’t just let AI write your plan for you and keep yourself involved in the planning process.

From there, refine your plan until your idea is solid. At that point, you can invest more time in a more detailed business plan. Just start with the basics and expand from there.

14. You’ll sleep better at night

When you have a plan for your business, you have peace of mind. You know that you’ve invested the time to figure out a business model that works, and you’ve considered different financial scenarios so you can handle the unexpected. 

Plus, you have a management tool to run your business better than your competitors. 

15. Research shows that business plans work

A Journal of Management Studies study found that businesses that take the time to plan grow 30% faster than those that don’t. 

Our own 2021 small business research study found that 58% of small business owners who have or are working on a plan feel confident in their business, even amidst a crisis. 

A study in Small Business Economics found that entrepreneurs who write business plans for their ideas are 152% more likely to actually start their businesses.

There’s plenty of additional research linking business planning with success, so it’s a proven fact that you won’t waste time when you write your plan.

Why is a business plan important? Because it sets you up for success

There are plenty of reasons to write a business plan, but they all relate to one thing—increasing the likelihood of success for you and your business. 

Taking the time to plan is an investment in yourself and your business that will pay dividends, whether you’re starting a new business or taking your existing business to the next level. 

If you’ve been putting off writing a business plan, now is the time to do it. Start by downloading one of the many free business plan templates out there, or for additional guidance, invest in an online business plan builder .

No matter what business planning tool you choose, just deciding to write a business plan will set you up to build, run, and grow your business. So, don’t wait—start planning today.

What is a business plan?

A business plan is a structured document that outlines the goals, strategies, target market, and financial forecasts of a business. It serves as a roadmap for the business, detailing the steps necessary to achieve success.

Why is planning necessary?

Business planning is essential because it helps businesses set clear goals, allocate resources efficiently, identify potential challenges, and develop strategies to overcome them. It also provides a framework for decision-making and helps attract investors by demonstrating the viability of the business.

What happens if a business doesn’t plan?

Without planning, a business may lack direction and clarity, leading to inefficient use of resources, missed opportunities, and an inability to respond effectively to market changes. This can result in financial difficulties, operational challenges, and ultimately, business failure.

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Noah Parsons

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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Do you REALLY need a business plan?

The top three questions that I get asked most frequently as a professional business plan writer will probably not surprise you:

• What is the purpose of a business plan – why is it really required?
• How is it going to benefit my business if I write a business plan?
• Is a business plan really that important – how can I actually use it?

Keep reading to get my take on what the most essential advantages of preparing a business plan are—and why you may (not) need to prepare one.

The importance, purpose and benefit of a business plan is in that it enables you to validate a business idea, secure funding, set strategic goals – and then take organized action on those goals by making decisions, managing resources, risk and change, while effectively communicating with stakeholders.

Let’s take a closer look at how each of the important business planning benefits can catapult your business forward:

1. Validate Your Business Idea

The process of writing your business plan will force you to ask the difficult questions about the major components of your business, including:

• External: industry, target market of prospective customers, competitive landscape
• Internal: business model, unique selling proposition, operations, marketing, finance

Business planning connects the dots to draw a big picture of the entire business.

And imagine how much time and money you would save if working through a business plan revealed that your business idea is untenable. You would be surprised how often that happens – an idea that once sounded so very promising may easily fall apart after you actually write down all the facts, details and numbers.

While you may be tempted to jump directly into start-up mode, writing a business plan is an essential first step to check the feasibility of a business before investing too much time and money into it. Business plans help to confirm that the idea you are so passionate and convinced about is solid from business point of view.

Take the time to do the necessary research and work through a proper business plan. The more you know, the higher the likelihood that your business will succeed.

2. Set and Track Goals

Successful businesses are dynamic and continuously evolve. And so are good business plans that allow you to:

• Priorities: Regularly set goals, targets (e.g., sales revenues reached), milestones (e.g. number of employees hired), performance indicators and metrics for short, mid and long term
• Accountability: Track your progress toward goals and benchmarks
• Course-correction: make changes to your business as you learn more about your market and what works and what does not
• Mission: Refer to a clear set of values to help steer your business through any times of trouble

Essentially, business plan is a blueprint and an important strategic tool that keeps you focused, motivated and accountable to keep your business on track. When used properly and consulted regularly, it can help you measure and manage what you are working so hard to create – your long-term vision.

As humans, we work better when we have clear goals we can work towards. The everyday business hustle makes it challenging to keep an eye on the strategic priorities. The business planning process serves as a useful reminder.

3. Take Action

A business plan is also a plan of action . At its core, your plan identifies where you are now, where you want your business to go, and how you will get there.

Planning out exactly how you are going to turn your vision into a successful business is perhaps the most important step between an idea and reality. Success comes not only from having a vision but working towards that vision in a systematic and organized way.

A good business plan clearly outlines specific steps necessary to turn the business objectives into reality. Think of it as a roadmap to success. The strategy and tactics need to be in alignment to make sure that your day-to-day activities lead to the achievement of your business goals.

4. Manage Resources

A business plan also provides insight on how resources required for achieving your business goals will be structured and allocated according to their strategic priority. For example:

Large Spending Decisions

• Assets: When and in what amount will the business commit resources to buy/lease new assets, such as computers or vehicles.
• Human Resources: Objectives for hiring new employees, including not only their pay but how they will help the business grow and flourish.
• Business Space: Information on costs of renting/buying space for offices, retail, manufacturing or other operations, for example when expanding to a new location.

Cash Flow It is essential that a business carefully plans and manages cash flows to ensure that there are optimal levels of cash in the bank at all times and avoid situations where the business could run out of cash and could not afford to pay its bills.

Revenues v. Expenses In addition, your business plan will compare your revenue forecasts to the budgeted costs to make sure that your financials are healthy and the business is set up for success.

5. Make Decisions

Whether you are starting a small business or expanding an existing one, a business plan is an important tool to help guide your decisions:

Sound decisions Gathering information for the business plan boosts your knowledge across many important areas of the business:

• Industry, market, customers and competitors
• Financial projections (e.g., revenue, expenses, assets, cash flow)
• Operations, technology and logistics
• Human resources (management and staff)
• Creating value for your customer through products and services

Decision-making skills The business planning process involves thorough research and critical thinking about many intertwined and complex business issues. As a result, it solidifies the decision-making skills of the business owner and builds a solid foundation for strategic planning , prioritization and sound decision making in your business. The more you understand, the better your decisions will be.

Planning Thorough planning allows you to determine the answer to some of the most critical business decisions ahead of time , prepare for anticipate problems before they arise, and ensure that any tactical solutions are in line with the overall strategy and goals.

If you do not take time to plan, you risk becoming overwhelmed by countless options and conflicting directions because you are not unclear about the mission , vision and strategy for your business.

6. Manage Risk

Some level of uncertainty is inherent in every business, but there is a lot you can do to reduce and manage the risk, starting with a business plan to uncover your weak spots.

You will need to take a realistic and pragmatic look at the hard facts and identify:

• Major risks , challenges and obstacles that you can expect on the way – so you can prepare to deal with them.
• Weaknesses in your business idea, business model and strategy – so you can fix them.
• Critical mistakes before they arise – so you can avoid them.

Essentially, the business plan is your safety net . Naturally, business plan cannot entirely eliminate risk, but it can significantly reduce it and prepare you for any challenges you may encounter.

7. Communicate Internally

Attract talent For a business to succeed, attracting talented workers and partners is of vital importance.

A business plan can be used as a communication tool to attract the right talent at all levels, from skilled staff to executive management, to work for your business by explaining the direction and growth potential of the business in a presentable format.

Align performance Sharing your business plan with all team members helps to ensure that everyone is on the same page when it comes to the long-term vision and strategy.

You need their buy-in from the beginning, because aligning your team with your priorities will increase the efficiency of your business as everyone is working towards a common goal .

If everyone on your team understands that their piece of work matters and how it fits into the big picture, they are more invested in achieving the objectives of the business.

It also makes it easier to track and communicate on your progress.

Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.

8. Communicate Externally

Alliances If you are interested in partnerships or joint ventures, you may share selected sections of your plan with the potential business partners in order to develop new alliances.

Suppliers A business plan can play a part in attracting reliable suppliers and getting approved for business credit from suppliers. Suppliers who feel confident that your business will succeed (e.g., sales projections) will be much more likely to extend credit.

In addition, suppliers may want to ensure their products are being represented in the right way .

Professional Services Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, including attorneys, accountants, and other professional consultants as needed, to make sure that everyone is on the same page.

Advisors Share the plan with experts and professionals who are in a position to give you valuable advice.

Landlord Some landlords and property managers require businesses to submit a business plan to be considered for a lease to prove that your business will have sufficient cash flows to pay the rent.

Customers The business plan may also function as a prospectus for potential customers, especially when it comes to large corporate accounts and exclusive customer relationships.

9. Secure Funding

If you intend to seek outside financing for your business, you are likely going to need a business plan.

Whether you are seeking debt financing (e.g. loan or credit line) from a lender (e.g., bank or financial institution) or equity capital financing from investors (e.g., venture or angel capital), a business plan can make the difference between whether or not – and how much – someone decides to invest.

Investors and financiers are always looking at the risk of default and the earning potential based on facts and figures. Understandably, anyone who is interested in supporting your business will want to check that you know what you are doing, that their money is in good hands, and that the venture is viable in the long run.

Business plans tend to be the most effective ways of proving that. A presentation may pique their interest , but they will most probably request a well-written document they can study in detail before they will be prepared to make any financial commitment.

That is why a business plan can often be the single most important document you can present to potential investors/financiers that will provide the structure and confidence that they need to make decisions about funding and supporting your company.

Be prepared to have your business plan scrutinized . Investors and financiers will conduct extensive checks and analyses to be certain that what is written in your business plan faithful representation of the truth.

10. Grow and Change

It is a very common misconception that a business plan is a static document that a new business prepares once in the start-up phase and then happily forgets about.

But businesses are not static. And neither are business plans. The business plan for any business will change over time as the company evolves and expands .

In the growth phase, an updated business plan is particularly useful for:

Raising additional capital for expansion

• Seeking financing for new assets , such as equipment or property
• Securing financing to support steady cash flows (e.g., seasonality, market downturns, timing of sale/purchase invoices)
• Forecasting to allocate resources according to strategic priority and operational needs
• Valuation (e.g., mergers & acquisitions, tax issues, transactions related to divorce, inheritance, estate planning)

Keeping the business plan updated gives established businesses better chance of getting the money they need to grow or even keep operating.

Business plan is also an excellent tool for planning an exit as it would include the strategy and timelines for a transfer to new ownership or dissolution of the company.

Also, if you ever make the decision to sell your business or position yourself for a merger or an acquisition , a strong business plan in hand is going to help you to maximize the business valuation.

Valuation is the process of establishing the worth of a business by a valuation expert who will draw on professional experience as well as a business plan that will outline what you have, what it’s worth now and how much will it likely produce in the future.

Your business is likely to be worth more to a buyer if they clearly understand your business model, your market, your assets and your overall potential to grow and scale .

Related Questions

Business plan purpose: what is the purpose of a business plan.

The purpose of a business plan is to articulate a strategy for starting a new business or growing an existing one by identifying where the business is going and how it will get there to test the viability of a business idea and maximize the chances of securing funding and achieving business goals and success.

Business Plan Benefits: What are the benefits of a business plan?

A business plan benefits businesses by serving as a strategic tool outlining the steps and resources required to achieve goals and make business ideas succeed, as well as a communication tool allowing businesses to articulate their strategy to stakeholders that support the business.

Business Plan Importance: Why is business plan important?

The importance of a business plan lies in it being a roadmap that guides the decisions of a business on the road to success, providing clarity on all aspects of its operations. This blueprint outlines the goals of the business and what exactly is needed to achieve them through effective management.

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Importance of Business Plan to an Entrepreneur: Guide to Implement

Importance of Business Plan to an Entrepreneur – A business plan is an essential road map that entrepreneurs use to navigate the difficult process of starting and expanding a profitable firm. It performs as a strategic instrument for outlining the goals. Also, serve as a financial prediction of a company.

Importance of a Business Plan to an Entrepreneurs

A strong business plan’s importance cannot be overstated since it provides entrepreneurs with a comprehensive framework for making decisions, attracting investors , securing funding, and navigating the dynamic business world. This article will cover the significance of a business plan. Also, offer practical guidance on how entrepreneurs can utilize it to advance their ventures. Let’s discuss what are the importance of a business plan to an entrepreneur.

A Business Plan Provides a Roadmap for a Business

Picture you are going on a road trip to a dream destination. Before setting off, you would carefully plan your route, mark critical milestones, estimate travel time, and consider alternative paths in case of detours. Similarly, a business plan helps entrepreneurs chart their course by defining their vision, identifying target markets, assessing competition, setting financial goals, and mapping out strategies to overcome challenges.

Read – Can Anyone Be an Entrepreneur

Helps Entrepreneurs to Define Their Objectives

Imagine that an entrepreneur wishes to launch a sustainable clothing line. They would specify their goals through the business planning process, such as advancing ethical fashion, minimizing environmental effects, and making a good social impact. The business plan would outline these objectives and establish strategies and action steps to align the business activities with these goals.

Defined objectives in a business plan help entrepreneurs think critically, establish purpose, and guide decision-making. By setting SMART objectives, entrepreneurs can track performance, evaluate strategies, and make necessary adjustments to achieve desired outcomes. For example, an e-commerce business can increase online sales by 50% within a year, allowing regular monitoring, analysis, and adjustments to achieve its target.

Importance of Entrepreneurs to Identifying Their Target Market

Let’s use the example of an entrepreneur who wants to launch a line of fitness clothes to demonstrate the significance of this. They would do market research as part of the process of writing a business plan to pinpoint their target consumers, such as fitness fanatics, gym visitors, or athletes. The business plan would include insightful information on the target market’s demographics, hobbies, and purchase patterns. With this knowledge, the business owner may carefully coordinate their product offering, price, and marketing messaging to appeal to the determined target demographic.

Entrepreneurs may focus on the appropriate audience, avoid one-size-fits-all techniques, and customize their products, services, and marketing strategies to their consumers’ needs by determining their target market. This aids in comprehending the competitive landscape, spotting gaps, and creating distinctive value propositions that appeal to the target market.

Helps Entrepreneurs to Assesses Competition

A business plan is a valuable tool that helps entrepreneurs assess their competition and gain a deeper understanding of the market landscape in which they operate. By following a structured approach, a business plan guides entrepreneurs on how to effectively analyze and evaluate their competitors.

A business plan helps entrepreneurs identify their key competitors by conducting research and gathering information about their products or services, pricing strategies, target market, marketing tactics, distribution channels, and customer reviews. This helps entrepreneurs understand their unique selling points and position themselves in the market. Entrepreneurs can compare their strengths and weaknesses to those of their competitors, identifying areas for differentiation. They also analyze market demand and customer preferences to identify gaps or underserved segments, tailoring their products or services to cater to these needs. A business plan guides entrepreneurs in positioning themselves against their competition, developing a unique value proposition that resonates with the target market. This roadmap helps entrepreneurs stay agile and adapt their strategies accordingly.

Importance to Evaluate Feasibility

Read – Benefits of Being an Entrepreneur

Importance of Entrepreneurs to Attract Investors

A business plan holds immense importance for entrepreneurs when it comes to attracting investors to support their venture. A well-crafted business plan serves as a persuasive tool that demonstrates the potential of the business and convinces investors to provide financial backing.

Helps Entrepreneurs to Secures Their Funding

A business plan is essential for assisting entrepreneurs in obtaining finance for their projects. It acts as a roadmap that details the company’s potential, financial estimates, and growth plans. Entrepreneurs should write a succinct executive summary, thorough business description, market and competitive analysis, financial projections, funding requirements, marketing and sales strategy, management team, risk assessment, and mitigation, and supporting documents to obtain funding through a business plan.

These elements help investors and lenders understand the business’s unique value proposition, target market, revenue potential, and funding requirements. By presenting realistic financial projections, well-supported financial projections, and a well-thought-out marketing and sales strategy, entrepreneurs can secure funding and attract investors and lenders.

Business Plan Guides Entrepreneurs to Resource Allocation

A business plan serves as a valuable tool that guides entrepreneurs in allocating their resources effectively. It provides a clear roadmap for resource allocation by outlining the key areas of the business that require attention and investment.

Importance to Facilitate Decision-Making

A business plan holds great importance for entrepreneurs in facilitating effective decision-making throughout their entrepreneurial journey. It provides a framework that helps entrepreneurs make informed decisions by considering various factors and evaluating potential outcomes.

To effectively use a business plan for decision-making, entrepreneurs should define goals and objectives, gather relevant information, evaluate alternatives, consider financial implications, analyze risks and mitigation strategies, seek input from experts, regularly review and update the plan, and trust intuition and vision. This balances analytical thinking with an entrepreneurial instinct, ensuring long-term sustainability and informed decisions.

Identifies Risks and Mitigation Strategies

To identify risks and develop mitigation strategies in a business plan, conduct a comprehensive risk assessment, analyze the impact and likelihood of risks, and develop specific strategies. Allocate resources, including financial, personnel, and time, to support the implementation of these strategies. Regularly monitor and update the business plan, seeking external expertise or consulting with industry professionals to gain insights. Communicate the identified risks and mitigation strategies clearly to stakeholders, including investors, lenders, and partners, to demonstrate professionalism and confidence in the business.

Importance of Entrepreneurs to Assists in Team Building

Read – Entrepreneurship Books for Students

Business Plan Supports Marketing and Sales Efforts

A business plan holds significant importance in supporting marketing and sales efforts for entrepreneurs. It provides a strategic roadmap for effectively promoting products or services and attracting customers. A business plan helps understand the target market, define the unique selling proposition (USP), develop marketing strategies, allocate budgets, monitor and measure results, and adapt and evolve.

Guides Product or Service Development

A business plan is essential for directing entrepreneurs as they create their goods or services. It offers a methodical way to determine consumer demands, specify product characteristics, and create a schedule for product development.

A business plan can guide product or service development by identifying customer needs, defining product or service features, setting development milestones, determining resource requirements, conducting testing and iteration, and integrating marketing and launch strategies. This helps entrepreneurs stay focused, track progress, and ensure the timely completion of activities. The plan should also outline the necessary funding, collaborations, and resources needed for the development process. By incorporating continuous improvement and iterative development, entrepreneurs can create a high-quality offering that meets or exceeds customer expectations.

Importance of Entrepreneurs to Manage Finances Effectively

A business plan holds great importance for entrepreneurs when it comes to managing finances effectively. It offers a thorough foundation for comprehending the financial facets of the firm and aids business owners in making defensible choices to maximize financial resources.

Business Plan Measures Progress and Success

A business plan holds significant importance for entrepreneurs in measuring their progress and success. They may compare their accomplishments to it as a standard to see if they are progressing in the correct path.

Establish Key Performance Indicators (KPIs) that are in line with the goals of the business’s plan to successfully measure the growth and success of entrepreneurs. Regularly track and monitor KPIs to assess progress and make informed decisions. Conduct periodic reviews to evaluate progress against the plan, identify areas for adjustments or course corrections, and celebrate milestones and successes. Continuously update and evolve the business plan to reflect evolving goals, strategies, and market conditions.

Business Plan Importance to Enhance Credibility

To enhance entrepreneurs’ credibility, a well-presented business plan should present a professional image, conduct thorough market research, highlight the unique selling proposition, provide detailed financial projections, incorporate risk analysis and mitigation strategies, seek third-party validation, and regularly update and refine the plan. This shows credibility and commitment to continuous improvement, demonstrating the business’s ability to adapt and thrive in the ever-changing landscape.

Business Plan Provides a Basis for Partnerships

Read – Imitative Entrepreneurship

Importance of Entrepreneurs to Do Business Expansion

A business plan plays a crucial role for entrepreneurs when it comes to business expansion. It provides a strategic framework and guidance for expanding operations, entering new markets, or launching new products or services.

Guides Entrepreneurs to Succession Planning

A business plan is of significant importance when it comes to guiding entrepreneurs in succession planning, which involves preparing for the future transition of leadership and ownership within a business.

To effectively use a business plan for succession planning, assess current leadership and ownership, identify potential successors, define succession goals and timeline, develop a succession plan, communicate with stakeholders, and regularly review and update the plan. This process ensures alignment with the long-term vision and aspirations of the business and its stakeholders. Regularly assess the progress of potential successors and provide development opportunities to enhance their skills and knowledge.

Importance to Increases Self-Awareness

Entrepreneurs should consider their objectives and values, perform a SWOT analysis, create reasonable company goals, ask for criticism and mentoring, constantly evaluate their success, and change to improve their self-awareness. By identifying strengths, weaknesses, opportunities, and threats, entrepreneurs can create a clear vision and align their business plans with their values. By seeking feedback and mentoring, entrepreneurs can develop a stronger self-awareness and improve their business strategies.

An effective business plan is a crucial tool for entrepreneurs . It gives them a path to success. A successful business plan may help entrepreneurs define clear goals. Also, identify their target market, analyze the competition, determine whether their idea is feasible, draw in investors, manage funds, and track their progress. It functions as a manual to assist business owners make wise decisions, manage resources effectively, and adjust to changing conditions.

A solid business plan is crucial for entrepreneurs to navigate the complex commercial world, guiding their companies toward expansion, profitability, and long-term success. It should be evaluated and revised regularly to reflect company demands, serving as a compass for entrepreneurs.

FAQ about the Importance of Business Plans to Entrepreneurs

Why is a business plan important, when is the best time to write a business plan.

Typically, before launching a new firm. It is the ideal time to draft a business plan. Likewise, when a current firm is expected to undergo significant adjustments. Be sure you have a solid strategy in place before approaching investors, looking for finance. Especially, starting a business. Making a business plan, though, is never too late, and you can always change it as your company grows.

What is a Business Plan’s Main Objective?

A business plan’s main objective is to outline an organization’s goals, strategies, and financial predictions. It helps business owners communicate their vision, pinpoint their target market, assess the profitability of their endeavor, entice investors, and allocate their resources effectively. It serves as a compass for monitoring growth and making adjustments as needed.

What are the Typical Challenges of Writing a Business Plan?

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Nine reasons why you need a business plan

Building a great business plan helps you plan, strategize and succeed. Presented by Chase for Business .

Making the decision to create a new business is an exciting yet stressful experience. Starting a business involves many tasks and obstacles, so it’s important to focus before you take action. A solid business plan can provide direction, help you attract investors and ensure you maintain momentum.

No matter what industry you plan on going into, a business plan is the first step for any successful enterprise. Building your business plan helps you figure out where you want your business to go and identify the necessary steps to get you there. This is a key document for your company to both guide your actions and track your progress.

What is the purpose of a business plan?

Think of a business plan like a roadmap. It enables you to solve problems and make key business decisions, such as marketing and competitive analysis, customer and market analysis and logistics and operations plans.

It can also help you organize your thoughts and goals, as well as give you a better idea of how your company will work. Good planning is often the difference between success and failure.

Here are nine reasons your company needs a business plan.

1. Prove your idea is viable

Through the process of writing a business plan, you can assess whether your company will be successful. Understanding market dynamics, as well as competitors, will help determine if your idea is viable.

This is also the time to develop financial projections for your business plan, like estimated startup costs, a profit and loss forecast, a break-even analysis and a cash flow statement . By taking time to investigate the viability of your idea, you can build goals and strategies to support your path to success.

A proper business plan proves to all interested parties—including potential investors, customers, employees, partners and most importantly yourself — that you are serious about your business.

2. Set important goals

As a business owner, the bulk of your time will mostly likely be spent managing day-to-day tasks. As a result, it might be hard to find time after you launch your business to set goals and milestones. Writing a business plan allows you to lay out significant goals for yourself ahead of time for three or even five years down the road. Create both short- and long-term business goals. 

3. Reduce potential risks

Prevent your business from falling victim to unexpected dangers by researching before you break ground. A business plan opens your eyes to potential risks that your business could face. Don’t be afraid to ask yourself the hard questions that may need research and analysis to answer. This is also good practice in how your business would actually manage issues when they arise. Incorporate a contingency plan that identifies risks and how you would respond to them effectively.

The most common reasons businesses fail include:

• Lack of capital
• Lack of market impact or need
• Unresearched pricing (too high or low)
• Explosive growth that drains all your capital
• Stiff competition

Lack of capital is the most prevalent reason why businesses fail. To best alleviate this problem, take time to determine how your business will generate revenue. Build a comprehensive model to help mitigate future risks and long-term pain points. This can be turned into a tool to manage growth and expansion.

4. Secure investments

Whether you’re planning to apply for an SBA loan , build a relationship with angel investors or seek venture capital funding, you need more than just an elevator pitch to get funding. All credible investors will want to review your business plan. Although investors will focus on the financial aspects of the plan, they will also want to see if you’ve spent time researching your industry, developed a viable product or service and created a strong marketing strategy.

While building your business plan, think about how much raised capital you need to get your idea off the ground. Determine exactly how much funding you’ll need and what you will use it for. This is essential for raising and employing capital.

5. Allot resources and plan purchases

You will have many investments to make at the launch of your business, such as product and services development, new technology, hiring, operations, sales and marketing. Resource planning is an important part of your business plan. It gives you an idea of how much you’ll need to spend on resources and it ensures your business will manage those resources effectively.  

A business plan provides clarity about necessary assets and investment for each item. A good business plan can also determine when it is feasible to expand to a larger store or workspace.

In your plan, include research on new products and services, where you can buy reliable equipment and what technologies you may need. Allocate capital and plan how you’ll fund major purchases, such as with a Chase small business checking account or business credit card .

6. Build your team

From seasoned executives to skilled labor, a compelling business plan can help you attract top-tier talent, ideally inspiring management and employees long after hiring. Business plans include an overview of your executive team as well as the different roles you need filled immediately and further down the line.

Small businesses often employ specialized consultants, contractors and freelancers for individual tasks such as marketing, accounting and legal assistance. Sharing a business plan helps the larger team work collectively in the same direction. 

This will also come into play when you begin working with any new partners. As a new business, a potential partner may ask to see your business plan. Building partnerships takes time and money, and with a solid business plan you have the opportunity to attract and work with the type of partners your new business needs.

7. Share your vision 

When you start a business, it's easy to assume you'll be available to guide your team. A business plan helps your team and investors understand your vision for the company. Your plan will outline your goals and can help your team make decisions or take action on your behalf. Share your business plan with employees to align your full staff toward a collective goal or objective for the company.  Consider employee and stakeholder ownership as a compelling and motivating force. 

8. Develop a marketing strategy

A marketing strategy details how you will reach your customers and build brand awareness. The clearer your brand positioning is to investors, customers, partners and employees, the more successful your business will be.

Important questions to consider as you build your marketing strategy include:

• What industry segments are we pursuing?
• What is the value proposition of the products or services we plan to offer?
• Who are our customers?
• How will we retain our customers and keep them engaged with our products or services and marketing?
• What is our advertising budget?
• What price will we charge?
• What is the overall look and feel of our brand? What are our brand guidelines?
• Will we need to hire marketing experts to help us create our brand?
• Who are our competitors? What marketing strategies have worked (or not worked) for them?

With a thoughtful marketing strategy integrated into your business plan, your company goals are significantly more in reach.

9. Focus your energy

Your business plan determines which areas of your business to focus on while also avoiding possible distractions. It provides a roadmap for critical tradeoffs and resource allocation.

As a business owner, you will feel the urge to solve all of your internal and customers’ problems, but it is important to maintain focus. Keep your priorities at the top of your mind as you set off to build your company.

As a small business owner, writing a business plan should be one of your first priorities. Read our checklist for starting a business, and learn how to take your business from a plan to reality. When you’re ready to get started, talk with a Chase business banker to open a Chase business checking or savings account today.

For Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.

JPMorgan Chase Bank, N.A. Member FDIC. Equal Opportunity Lender, ©2023 JPMorgan Chase & Co

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The Undeniable Importance of a Business Plan

We often hear about business plans in the context of early-stage companies; however, constructing excellent business plans is difficult and time-consuming, so many entrepreneurs avoid them. But, is this a mistake?

While most people may be aware of the “soft” arguments for and against writing a business plan, in this article, a Toptal Finance Expert takes a data-driven approach to addressing the debate. In it, he finds strong evidence to support the notion that writing an excellent business plan is time well spent.

By Sean Heberling

Sean has analyzed 10,000+ companies, built complex models, and helped facilitate $1+ billion in investment transactions.

PREVIOUSLY AT

Executive Summary

• Individuals who write business plans are 2.5x as likely to start businesses.
• Business planning improves corporate executive satisfaction with corporate strategy development.
• Angels and venture capitalists value business plans and their [financial models](https://www.toptal.com/finance/tutorials/what-is-a-financial-model).
• Companies who complete business plans are 2.5x as likely to get funded.
• Even if a small-scale early-stage venture seeking just $250,000 in capital spent almost $40,000 on business planning and another almost $40,000 on capital raising, it should still expect to "break even" on a probability-weighted basis.
• Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge.
• Company Overview: An explanation of why your company is relevant and the need you are addressing.
• Market Overview: A description of the state of your market and its important trends, a detailed description of your customers, and a description of your current competitors and their advantages.
• Product/Service Overview: A description of your product(s), how they compete with other brands, why they are needed, and why customers will pay a fair economic value for it.
• Financial Projections: Three thorough financial plans with conservative, moderate, and optimistic assumptions.
• The process of writing forces the author to ask introspectively how they reached their conclusions and each of the sub-conclusions along the way because they must explain their logic to a cynical reader.
• The written author needs to support all conclusions with facts and logic to prove that they are not "making it up" or relying upon popular "myths."
• Outlined reports and outlined business plans are not generally subject to the same level of reader scrutiny.

We often hear about business plans in the context of early-stage companies , but constructing excellent business plans is difficult and time-consuming, so many entrepreneurs avoid them. That’s a mistake, as there is strong evidence demonstrating that business plans generate positive returns on time and money invested .

The business world has long debated the importance of business plans, and most involved understand the “soft” arguments. However, this article delves into the data to conclude that writing an excellent business plan is time well spent. I developed a similar view over my 20+ year financial career , during which I have analyzed well over 10,000 different types of companies. I have noticed that while a business plan may not be required for a venture to become successful, having one does seem to greatly improve the probability of successful outcomes.

Expert Opinions Support the Value of Business Planning

Expert opinions support the four following conclusions:

• Angels and venture capitalists value business plans and their financial models.

Individuals Who Write Business Plans Are 2.5x More Likely to Become Entrepreneurs

Many people have business ideas over the course of their careers, but often, these ideas never come to fruition, or they get lost amidst our daily obligations. Interestingly, studies support the notion that those who write business plans are far more likely to launch their companies. Data from the Panal Study of Entrepreneurial Dynamics in fact suggests that business planners were 2.5x as likely to get into business . The study, which surveyed more than 800 people across the United States who were in the process of starting businesses, therefore concluded that “writing a plan greatly increased the chances that a person would actually go into business.”

Of course, causation of this phenomenon is hard to pin down. There are several different possible reasons why this correlation between writing business plans and actually starting a business may exist. But William Gartner, Clemson University Entrepreneurship Professor and author of the Panal Study, believes that “‘research shows that business plans are all about walking the walk. People who write business plans also do more stuff.’ And doing more stuff, such as researching markets and preparing projections, increases the chances an entrepreneur will follow through.”

Research shows that business plans are all about walking the walk. People who write business plans also do more stuff. And doing more stuff, such as researching markets and preparing projections, increases the chances an entrepreneur will follow through.

William Bygrave, a professor emeritus at Babson College, reached a similar conclusion despite having previously shown “that entrepreneurs who began with formal plans had no greater success than those who started without them.” Bygrave does admit, however, that “40% of Babson students who have taken the college’s business plan writing course go on to start businesses after graduation, twice the rate of those who didn’t study plan writing.”

Business Planning Improves Corporate Executive Satisfaction

Another important way in which business plans can provide tangible help is by aligning everyone in an organization with the vision and strategy going forward. And this, in turn, has important ramifications on corporate executive satisfaction. A study by McKinsey & Company which surveyed nearly 800 corporate executives across a range of industries confirms this conclusion. In it, McKinsey found that “formal strategic-planning processes play an important role in improving overall satisfaction with strategy development. That role can be seen in the responses of the 79 percent of managers who claimed that the formal planning process played a significant role in developing strategies and were satisfied with the approach of their companies, compared with only 21 percent of the respondents who felt that the process did not play a significant role. Looked at another way, 51% of the respondents whose companies had no formal process were dissatisfied with their approach to the development of strategy, against only 20% of those at companies with a formal process.”

Of course, not all planning is equal. Planning just for the sake of planning doesn’t have the desired effects. As McKinsey itself noted in their study, “Just 45% of the respondents said they were satisfied with the strategic planning process. Moreover, only 23% indicated that major strategic decisions were made within its confines. Given these results, managers might well be tempted to jettison the planning process altogether.” As such, entrepreneurs and business managers should take the time and effort required to put together a well-written and well-researched business plan. Later in the article, I outline some of the elements of a well-written plan.

Business Plans and Their Financial Models Are Valuable to Angels and Venture Capitalists

Many entrepreneurs will eventually need to raise outside capital to grow and develop their businesses. In my experience, a business plan is a crucial tool in maximizing the chances of raising money from external investors. A well-written plan not only helps investors understand your business and your vision, but also shows them that you’ve taken the time to carefully assess and think through the issues your business will face, as well as the more detailed questions surrounding the economics and fundamentals of your business model.

Nathan Beckford, CFA, is the CEO of FounderSuite, the funding stack used by startups in Y Combinator, TechStars, 500s, and more to raise over $750 million. Nathan illustrates the above point nicely in an email he wrote to me recently: “Prior to starting Foundersuite.com, I ran a startup consulting business called VentureArchetypes.com. For the first few years, our primary business was cranking out bold, bullish, beautifully-written business plans for startups to present to investors. Around the mid-2000s, business plans started to go out of favor as the ‘Lean Startup’ methodology became popular. Instead of a written plan, we saw a huge uptick in demand for detailed financial models. Bottom line, I still see value in taking time to be contemplative and strategic before launching a startup. Does that need to be in the form of a 40-page written document? No. But if that’s the format that best works for you, and it can help you model scenarios and ‘see around the corner’ then that’s valuable.”

Nathan and I have frequently interacted, as I maintain a subscription to FounderSuite, software I use when running capital campaigns for early-stage companies on whose boards I sit, or when raising capital for my own firm’s investment projects. Nathan’s feedback is helpful, as he frequently interacts with thousands of entrepreneurs simultaneously running capital campaigns, providing him with a great perspective on which approaches work and which don’t. Clearly, he sees that financial models and business plans in some form help entrepreneurs raise capital.

Companies Who Complete Business Plans Are 2.5x as Likely to Get Funded

Following the section above, naturally, if business plans are useful to outside investors, these are therefore likely to also increase one’s chances of successfully raising capital. A study by Palo Alto Software confirms this hypothesis. The study showed that although 65% of entrepreneurs had NOT completed business plans, the ones who had were twice as likely to have secured funding for their businesses.

This study surveyed 2,877 entrepreneurs. Of those, 995 had completed business plans, with 297 of them (30%) having secured loans, 280 of them (28%) having secured investment capital, and 499 of them (50%) having grown their businesses. Contrast these percentages with the results for the 1,882 entrepreneurs who had not completed business plans, where just 222 of them (12%) had secured loans, 219 of them (12%) had secured investment capital, and 501 of them (27%) had grown their businesses. (Note that the percentages among the business plan population sum to over 100% because of some overlap between each of the sub-categories.) These results led the study authors to conclude that “Except in a small number of cases, business planning appeared to be positively correlated with business success as measured by our variables. While our analysis cannot say that completing a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to run a successful business.”

Calculating the Return on Investment for Business Planning

The data and studies outlined above all serve to prove something that I have come to understand very clearly throughout my career. Nevertheless, I still often find that startups struggle with the idea of having to put together a business plan, and in particular with the option of hiring an outside professional to help them do that. As such, I quantified the ROI of such an activity, using data and numbers based on my many years of business consulting. The results of the exercise are summarized in the table at the end of the section, but there are two overarching conclusions:

• Even a small-scale early-stage company can “afford” to pay a finance expert $191 per hour both to create a business plan and to guide the capital raising process, at worst “breaking even” on the investment.
• Larger early-stage companies can expect significant returns on investments in business planning, perhaps as much as 6,700% (67x the amount of money invested).

Diving into the analysis, my inputs included:

• My professional experience with writing business plans. I have spent 25 - 200 hours apiece creating business plans I feel comfortable sharing with founders, advisors, and investors.
• Data from the Palo Alto study discussed earlier in this article. This study showed that 30% of early-stage ventures with business plans had secured funding, 2.5x as great as the 12% of early-stage ventures without business plans who managed to secure funding despite the absence of such plans.
• The hourly rate for a finance expert x (150 to 200 hours) for one round of financing, OR
• 10% of the amount of capital targeted

My analysis illustrates the following:

• Early-stage companies should expect to spend $4,000 - $40,000 on business planning, including the financial modeling associated with it.
• Early-stage companies should expect to spend $30,000 - $200,000 for an initial round of financing between $250,000 and $2 million in size, resulting in net financing of $200,000 - $1.8 million.
• Even if a small-scale early-stage venture seeking just $250,000 in capital spent almost $40,000 on business planning and another almost $40,000 on capital raising, it should still expect to “break even” on a probability-weighted basis. In other words, because the odds of success with a professional business plan are 2.5x greater than without one, small-scale early-stage ventures can justify such a significant investment. This also assumes NO additional odds for success from engaging a professional to coordinate the fundraising effort. I suspect that doing so may push the odds of success from 12% without a business plan and 30% with a business plan to above 50%. It is also likely that a smaller-scale venture may require significantly fewer hours for business planning and capital raising that what is outlined in the “worst case” below.
• Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge, and this analysis just assumes ONE round of equity financing. Most successful startups will experience several rounds of financing.

Thoughts on Writing an Excellent Business Plan

An extensive overview of how to write an excellent business plan is beyond the scope of this article. However, here are two key thoughts that have emerged from my years of experience with startups.

First, there are four common elements to an excellent business plan. In Alan Hall’s Forbes article, “ How to Build a Billion Dollar Business Plan: 10 Top Points ,” he interviews Thomas Harrison, Chairman of Diversified Agency Services, an Omnicom division that has purchased “a vast number of firms,” to share his views on the key elements of a great business plan. Although each of these ten elements is essential, I reorganized the list into four broad categories:

1. Company Overview

• An explanation of why your company is relevant and the need are you addressing
• A description of corporate priorities and the processes to achieve them.
• An overview of the various resources, including the people that will be needed, to deliver what’s expected by the customer.

2. Market Overview

• A description of the state of your market and its important trends.
• A detailed description of your customers.
• A description of your current competitors and their advantages. Which ones will you displace?

3. Product/Service Overview

• A description of your products, how they compete with other brands, and why they are needed.
• An explanation of why customers will pay a fair economic value for your product or service. This element is conspicuously absent from some of today’s most expensive unicorns. Companies such as Uber and Tesla are losing massive amounts of money on rapidly growing sales because these companies may not be selling their services/products for fair economic value. Of course, sales grow rapidly when customers can buy your services/products for far less than their fair economic values!

4. Financial Projections

• Conservative
• Each scenario should have realistic and achievable sales, margins, expenses, and profits on monthly, quarterly, and annual bases. Again, these elements appear to be conspicuously absent from some of today’s most expensive unicorns.

Second, written business plans are superior to those just “outlined.” As an adjunct professor of finance for Villanova University, I require my students to write research reports prior to developing slide decks to present their findings from a full semester of industry research. The process of writing forces the authors to ask themselves how they reached their conclusions and each of the sub-conclusions along the way because they must explain their logic to cynical readers. The written authors need to support their conclusions with facts and logic to prove that they are not “making it up” or relying upon popular “myths.” Outlined reports and outlined business plans are not generally subject to the same level of reader scrutiny. Therefore, written business plans are superior to those just “outlined.” Outlined plans are often kept on 10-12 slide decks, and the slide deck is an important tool in the capital raising process, but the written business plan that stands behind it will differentiate an entrepreneur from their seemingly infinite competition.

Parting Thoughts

Some argue that many public multi-billion-dollar companies such as Apple or Google never had formal business plans before they started, but this argument is flawed because most of these companies likely developed business plans either during the solicitation of venture capital or during the process of going public. Apple and Google were both funded with venture capital, and soliciting venture capital involves business planning. The founders of Apple and Google likely created financial projections and outlined strategic paths.

Moreover, Apple and Google are both public companies, and going public involves business planning. Underwriters employ research analysts creating financial forecasts based on business plans projected by management at the companies going public. Buy-side firms purchasing and holding shares in newly public companies create forecasts based upon the business plans projected by public company management teams.

Admittedly, you don’t need a written business plan to have a successful company. You may not even need a business plan at all to have a successful company. However, the probability of success without a business plan is much lower. Angels and venture capitalists like to know about your business plan, and public companies need to project business plans to persuade underwriters and investors to purchase their securities.

Further Reading on the Toptal Blog:

• Creating a Narrative from Numbers
• Business Plan Consultants: Who They Are and How They Create Value
• Building a Business Continuity Plan
• Building the Next Big Thing: A Guide to Business Idea Development
• Mission Statements: How Effectively Used Intangible Assets Create Corporate Value

Understanding the basics

Why it is important to have a business plan.

Expert opinions and numerous studies show that business plans improve corporate satisfaction, are useful for angel investors and venture capitalists, and increase a company’s chances of raising capital by 2.5x.

What are the benefits of a business plan?

Individuals who write business plans are 2.5x as likely to start businesses. Moreover, business planning improves corporate executive satisfaction with corporate strategy development. Finally, investors value business plans, making the chances of raising capital 2.5x greater.

What does an investor look for in a business plan?

The four key sections of a business plan are: the company overview, a market overview, your product/service overview, and the financial projections.

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Table of Contents

What is a business plan, the advantages of having a business plan, the types of business plans, the key elements of a business plan, best business plan software, common challenges of writing a business plan, become an expert business planner, business planning: it’s importance, types and key elements.

Every year, thousands of new businesses see the light of the day. One look at the  World Bank's Entrepreneurship Survey and database  shows the mind-boggling rate of new business registrations. However, sadly, only a tiny percentage of them have a chance of survival.   

According to the Bureau of Labor Statistics, about 20% of small businesses fail in their first year, about 50% in their fifth year.

Research from the University of Tennessee found that 44% of businesses fail within the first three years. Among those that operate within specific sectors, like information (which includes most tech firms), 63% shut shop within three years.

Several other statistics expose the abysmal rates of business failure. But why are so many businesses bound to fail? Most studies mention "lack of business planning" as one of the reasons.

This isn’t surprising at all. 

Running a business without a plan is like riding a motorcycle up a craggy cliff blindfolded. Yet, way too many firms ( a whopping 67%)  don't have a formal business plan in place. 

It doesn't matter if you're a startup with a great idea or a business with an excellent product. You can only go so far without a roadmap — a business plan. Only, a business plan is so much more than just a roadmap. A solid plan allows a business to weather market challenges and pivot quickly in the face of crisis, like the one global businesses are struggling with right now, in the post-pandemic world.  

But before you can go ahead and develop a great business plan, you need to know the basics. In this article, we'll discuss the fundamentals of business planning to help you plan effectively for 2021.  

Now before we begin with the details of business planning, let us understand what it is.

No two businesses have an identical business plan, even if they operate within the same industry. So one business plan can look entirely different from another one. Still, for the sake of simplicity, a business plan can be defined as a guide for a company to operate and achieve its goals.  

More specifically, it's a document in writing that outlines the goals, objectives, and purpose of a business while laying out the blueprint for its day-to-day operations and key functions such as marketing, finance, and expansion.

A good business plan can be a game-changer for startups that are looking to raise funds to grow and scale. It convinces prospective investors that the venture will be profitable and provides a realistic outlook on how much profit is on the cards and by when it will be attained. 

However, it's not only new businesses that greatly benefit from a business plan. Well-established companies and large conglomerates also need to tweak their business plans to adapt to new business environments and unpredictable market changes. 

Before getting into learning more about business planning, let us learn the advantages of having one.

Since a detailed business plan offers a birds-eye view of the entire framework of an establishment, it has several benefits that make it an important part of any organization. Here are few ways a business plan can offer significant competitive edge.

• Sets objectives and benchmarks: Proper planning helps a business set realistic objectives and assign stipulated time for those goals to be met. This results in long-term profitability. It also lets a company set benchmarks and Key Performance Indicators (KPIs) necessary to reach its goals. 
• Maximizes resource allocation: A good business plan helps to effectively organize and allocate the company’s resources. It provides an understanding of the result of actions, such as, opening new offices, recruiting fresh staff, change in production, and so on. It also helps the business estimate the financial impact of such actions.
• Enhances viability: A plan greatly contributes towards turning concepts into reality. Though business plans vary from company to company, the blueprints of successful companies often serve as an excellent guide for nascent-stage start-ups and new entrepreneurs. It also helps existing firms to market, advertise, and promote new products and services into the market.
• Aids in decision making: Running a business involves a lot of decision making: where to pitch, where to locate, what to sell, what to charge — the list goes on. A well thought-out business plan provides an organization the ability to anticipate the curveballs that the future could throw at them. It allows them to come up with answers and solutions to these issues well in advance.
• Fix past mistakes: When businesses create plans keeping in mind the flaws and failures of the past and what worked for them and what didn’t, it can help them save time, money, and resources. Such plans that reflects the lessons learnt from the past offers businesses an opportunity to avoid future pitfalls.
• Attracts investors: A business plan gives investors an in-depth idea about the objectives, structure, and validity of a firm. It helps to secure their confidence and encourages them to invest. 

Now let's look at the various types involved in business planning.

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Business plans are formulated according to the needs of a business. It can be a simple one-page document or an elaborate 40-page affair, or anything in between. While there’s no rule set in stone as to what exactly a business plan can or can’t contain, there are a few common types of business plan that nearly all businesses in existence use.  

Here’s an overview of a few fundamental types of business plans. 

• Start-up plan: As the name suggests, this is a documentation of the plans, structure, and objections of a new business establishments. It describes the products and services that are to be produced by the firm, the staff management, and market analysis of their production. Often, a detailed finance spreadsheet is also attached to this document for investors to determine the viability of the new business set-up.
• Feasibility plan: A feasibility plan evaluates the prospective customers of the products or services that are to be produced by a company. It also estimates the possibility of a profit or a loss of a venture. It helps to forecast how well a product will sell at the market, the duration it will require to yield results, and the profit margin that it will secure on investments. 
• Expansion Plan: This kind of plan is primarily framed when a company decided to expand in terms of production or structure. It lays down the fundamental steps and guidelines with regards to internal or external growth. It helps the firm to analyze the activities like resource allocation for increased production, financial investments, employment of extra staff, and much more.
• Operations Plan: An operational plan is also called an annual plan. This details the day-to-day activities and strategies that a business needs to follow in order to materialize its targets. It outlines the roles and responsibilities of the managing body, the various departments, and the company’s employees for the holistic success of the firm.
• Strategic Plan: This document caters to the internal strategies of the company and is a part of the foundational grounds of the establishments. It can be accurately drafted with the help of a SWOT analysis through which the strengths, weaknesses, opportunities, and threats can be categorized and evaluated so that to develop means for optimizing profits.

There is some preliminary work that’s required before you actually sit down to write a plan for your business. Knowing what goes into a business plan is one of them. 

Here are the key elements of a good business plan:

• Executive Summary: An executive summary gives a clear picture of the strategies and goals of your business right at the outset. Though its value is often understated, it can be extremely helpful in creating the readers’ first impression of your business. As such, it could define the opinions of customers and investors from the get-go.  
• Business Description: A thorough business description removes room for any ambiguity from your processes. An excellent business description will explain the size and structure of the firm as well as its position in the market. It also describes the kind of products and services that the company offers. It even states as to whether the company is old and established or new and aspiring. Most importantly, it highlights the USP of the products or services as compared to your competitors in the market.
• Market Analysis: A systematic market analysis helps to determine the current position of a business and analyzes its scope for future expansions. This can help in evaluating investments, promotions, marketing, and distribution of products. In-depth market understanding also helps a business combat competition and make plans for long-term success.
• Operations and Management: Much like a statement of purpose, this allows an enterprise to explain its uniqueness to its readers and customers. It showcases the ways in which the firm can deliver greater and superior products at cheaper rates and in relatively less time. 
• Financial Plan: This is the most important element of a business plan and is primarily addressed to investors and sponsors. It requires a firm to reveal its financial policies and market analysis. At times, a 5-year financial report is also required to be included to show past performances and profits. The financial plan draws out the current business strategies, future projections, and the total estimated worth of the firm.

The importance of business planning is it simplifies the planning of your company's finances to present this information to a bank or investors. Here are the best business plan software providers available right now:

• Business Sorter

The importance of business planning cannot be emphasized enough, but it can be challenging to write a business plan. Here are a few issues to consider before you start your business planning:

• Create a business plan to determine your company's direction, obtain financing, and attract investors.
• Identifying financial, demographic, and achievable goals is a common challenge when writing a business plan.
• Some entrepreneurs struggle to write a business plan that is concise, interesting, and informative enough to demonstrate the viability of their business idea.
• You can streamline your business planning process by conducting research, speaking with experts and peers, and working with a business consultant.

Whether you’re running your own business or in-charge of ensuring strategic performance and growth for your employer or clients, knowing the ins and outs of business planning can set you up for success. 

Be it the launch of a new and exciting product or an expansion of operations, business planning is the necessity of all large and small companies. Which is why the need for professionals with superior business planning skills will never die out. In fact, their demand is on the rise with global firms putting emphasis on business analysis and planning to cope with cut-throat competition and market uncertainties.

While some are natural-born planners, most people have to work to develop this important skill. Plus, business planning requires you to understand the fundamentals of business management and be familiar with business analysis techniques . It also requires you to have a working knowledge of data visualization, project management, and monitoring tools commonly used by businesses today.   

Simpliearn’s Executive Certificate Program in General Management will help you develop and hone the required skills to become an extraordinary business planner. This comprehensive general management program by IIM Indore can serve as a career catalyst, equipping professionals with a competitive edge in the ever-evolving business environment.

What Is Meant by Business Planning?

Business planning is developing a company's mission or goals and defining the strategies you will use to achieve those goals or tasks. The process can be extensive, encompassing all aspects of the operation, or it can be concrete, focusing on specific functions within the overall corporate structure.

What Are the 4 Types of Business Plans?

The following are the four types of business plans:

Operational Planning

This type of planning typically describes the company's day-to-day operations. Single-use plans are developed for events and activities that occur only once (such as a single marketing campaign). Ongoing plans include problem-solving policies, rules for specific regulations, and procedures for a step-by-step process for achieving particular goals.

Strategic Planning

Strategic plans are all about why things must occur. A high-level overview of the entire business is included in strategic planning. It is the organization's foundation and will dictate long-term decisions.

Tactical Planning

Tactical plans are about what will happen. Strategic planning is aided by tactical planning. It outlines the tactics the organization intends to employ to achieve the goals outlined in the strategic plan.

Contingency Planning

When something unexpected occurs or something needs to be changed, contingency plans are created. In situations where a change is required, contingency planning can be beneficial.

What Are the 7 Steps of a Business Plan?

The following are the seven steps required for a business plan:

Conduct Research

If your company is to run a viable business plan and attract investors, your information must be of the highest quality.

Have a Goal

The goal must be unambiguous. You will waste your time if you don't know why you're writing a business plan. Knowing also implies having a target audience for when the plan is expected to get completed.

Create a Company Profile

Some refer to it as a company profile, while others refer to it as a snapshot. It's designed to be mentally quick and digestible because it needs to stick in the reader's mind quickly since more information is provided later in the plan.

Describe the Company in Detail

Explain the company's current situation, both good and bad. Details should also include patents, licenses, copyrights, and unique strengths that no one else has.

Create a marketing plan ahead of time.

A strategic marketing plan is required because it outlines how your product or service will be communicated, delivered, and sold to customers.

Be Willing to Change Your Plan for the Sake of Your Audience

Another standard error is that people only write one business plan. Startups have several versions, just as candidates have numerous resumes for various potential employers.

Incorporate Your Motivation

Your motivation must be a compelling reason for people to believe your company will succeed in all circumstances. A mission should drive a business, not just selling, to make money. That mission is defined by your motivation as specified in your business plan.

What Are the Basic Steps in Business Planning?

These are the basic steps in business planning:

Summary and Objectives

Briefly describe your company, its objectives, and your plan to keep it running.

Services and Products

Add specifics to your detailed description of the product or service you intend to offer. Where, why, and how much you plan to sell your product or service and any special offers.

Conduct research on your industry and the ideal customers to whom you want to sell. Identify the issues you want to solve for your customers.

Operations are the process of running your business, including the people, skills, and experience required to make it successful.

How are you going to reach your target audience? How you intend to sell to them may include positioning, pricing, promotion, and distribution.

Consider funding costs, operating expenses, and projected income. Include your financial objectives and a breakdown of what it takes to make your company profitable. With proper business planning through the help of support, system, and mentorship, it is easy to start a business.

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Do You Really Need a Business Plan?

The art of storytelling, from net margin to sales.

Why is a business plan important?

• Who will the reader be?
• What do you want their response to be?

Four Reasons to Write a Business Plan

1. To raise money for your business

2. To make sound decisions

3. To help you identify any potential weaknesses

4. To communicate your ideas with stakeholders

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So You Want to Be an Entrepreneur?

• Emily Heyward

One founder’s advice on what you should know before you quit your day job.

Starting a business is not easy, and scaling it is even harder. You may think you’re sitting on a completely original idea, but chances are the same cultural forces that led you to your business plan are also influencing someone else. That doesn’t mean you should give up, or that you should rush to market before you’re ready. It’s not about who’s first, it’s about who does it best, and best these days is the business that delivers the most value to the consumer. Consumers have more power and choice than ever before, and they’re going to choose and stick with the companies who are clearly on their side. How will you make their lives easier, more pleasant, more meaningful? How will you go out of your way for them at every turn? When considering your competitive advantage, start with the needs of the people you’re ultimately there to serve. If you have a genuine connection to your idea, and you’re solving a real problem in a way that adds more value to people’s lives, you’re well on your way.

When I graduated from college in 2001, I didn’t have a single friend whose plan was to start his or her own business. Med school, law school, finance, consulting: these were the coveted jobs, the clear paths laid out before us. I took a job in advertising, which was seen as much more rebellious than the reality. I worked in advertising for a few years, and learned an incredible amount about how brands get built and communicated. But I grew restless and bored, tasked with coming up with new campaigns for old and broken products that lacked relevance, unable to influence the products themselves. During that time, I was lucky to have an amazing boss who explained a simple principle that fundamentally altered my path. What she told me was that stress is not about how much you have on your plate; it’s about how much control you have over the outcomes. Suddenly I realized why every Sunday night I was overcome with a feeling of dread. It wasn’t because I had too much going on at work. It was because I had too little power to effect change.

• EH Emily Heyward is the author of Obsessed: Building a Brand People Love from Day One (Portfolio; June 9, 2020). She is the co-founder and chief brand officer at Red Antler, a full-service brand company based in Brooklyn. Emily was named among the Most Important Entrepreneurs of the Decade by Inc.  magazine, and has also been recognized as a Top Female Founder by Inc. and one of Entrepreneur’s Most Powerful Women of 2019.

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• Oct 24, 2020

The Top 5 Benefits of Having a Business Plan

Whether you’re starting a small business or exploring ways to expand an existing business, a Business Plan is an important tool to help guide your decisions. An effective Business Plan is a roadmap to success, providing clarity on all aspects of your business, from marketing and finance, through to operations, products, services, people and how you will be better than your competitors.

The purpose of a business plan is to help articulate a strategy for starting or changing your business. It defines how you will achieve your most important business objectives. A good Business Plan should help you to sleep at night if you are a business owner.

For existing businesses, a business plan should be updated annually as a way to guide growth and navigate expansion into new markets. Your plan should include explicit objectives for hiring new employees, what structure you will have, what products and services your business will provide, how you will promote them and how you will finance business operations.

If you are considering starting a business, a Business Plan can help you to check the viability of a business before investing too much time or money in it. It also provides insight on steps to be taken, resources required for achieving your business goals and a timeline of anticipated results.

The Benefits of Having a Business Plan:​

1. Increased Clarity

A business plan can bring clarity to the decision-making process regarding key aspects of the business such as capital investments, leases, resourcing, etc. You can't do everything. A good Business Plan will help you identify business critical priorities and milestones to focus on.

2. Creation of a Marketing Roadmap

Marketing is an important aspect of a business plan. It helps to define your target market(s), target customers and how you will promote and place your product / service to these markets / customers.

3. Support for Funding

Whether you’re seeking credit from a bank or capital from investors, a business plan that answers questions about profitability and revenue generation is often required.

4. Helps to Secure Talent

For a business to succeed, attracting talented workers and partners is vital. Part of a business plan’s purpose is to help bring in the right talent, at the right time. Staff want to understand the vision, how the business will achieve its goals, and how they can contribute to this in their own roles.

5. Provides Structure

A business plan provides structure and defines business management objectives. It becomes a reference tool to keep the business on track with sales targets and operational milestones. When used properly and consulted regularly, it can help measure and manage your priority areas of focus.

Download your Business Plan template for $49.99 + GST here.

Many people engage us as business coaches to take a weekly / fortnightly step-by-step approach to the development of their own Business Plans, with the added benefit of our expertise and guidance throughout the process. In this way, you learn the essential aspects of running a successful business, while crafting your very own business plan over 8-12 weeks.

If you would like more information about how to create an effective Business Plan for your business, with our guidance, then please don't hesitate to contact Business Agility. We are business coaches who are former CEOs and MDs. We know what it takes to be successful in business.

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Thinking of Expanding Your Small Tech Business? Think Again.

Small bestows benefits on founders and clients.

I recently had a conversation with someone explaining why I plan to keep my business, a PR agency that represents tech startups, small. Now mind you, even though this person didn’t start a company, they kept insisting I should strive to be one of the largest agencies in the world. 

My response? Absolutely not. 

The entrepreneurial dream is the bigger, the better, and growing fast and global expansion are the end goals. This idea has never even crossed my mind. I respect companies that have scaled to incredible heights, and many of my clients have done just that.

5 Reasons to Keep a Small Business Small

• You can build a niche in a crowded market.
• You forget a deeper connection to clients.
• You can offer better customer service.
• You have lower overhead.
• You have more control over when you work and with whom.

But growth brings its own set of problems. Founders lose touch with their clients, their missions and sometimes even themselves. Plus, big doesn’t always equal success . Too-rapid growth and overambition have killed many companies. 

On the flip side, small doesn’t mean small impact. A solopreneur-led digital marketing agency, app or web development company can stay small and still make a big impact for its clients. Here are five reasons to seriously consider keeping your small business small. 

More From Brennan Nevada Johnson 5 Signs It’s Time to End a Business Relationship

You Can Build a Niche

Being the founder of a small business allows me to choose the companies I want to work with and the people I want to represent. For example, I only take on clients that are making a positive impact in the world, and I’m deeply moved by companies started by BIPOC or women . If I’m not motivated or inspired by the people building and innovating, I don’t work with them.

This approach has benefited my business in two ways. First, I’ve created a niche and specialty. My business, Brennan Nevada Inc., is the only New York-based Black, female-owned PR and media agency for tech companies and startups.This niche and my client base of large BIPOC-owned businesses, helps my brand stand out in a sea of PR companies. Basically, it gives me an edge on the competition, and there’s plenty of that in New York City. 

Second, if I’m excited about a company, its leaders and its mission, I will do the best possible work for them. My clients benefit from this top-notch work and so do I. I’m much more satisfied at work and in my day-to-day life.

You Stay in Control

As a small business owner, you get to do things how you want, where you want and when you want. You get to set the goals, plan the strategies and execute the way you know is best for you and your clients. You can take valuable recharging time when you want to, schedule meetings when it’s best for your brain, and even take prospects to lunch without getting permission (and an expense account) from your manager.

Again, this benefits you because it gives you peace of mind. And it benefits your clients because they always get you at your best. You don’t have the headaches and stress of dealing with hierarchies and ridiculous rules, most done “because we’ve always done it this way.” You can make decisions faster, a huge benefit for your clients. And they can trust you because you answer to yourself, not a board or investors or a leadership team. 

Your Clients Stay Comfortable

When a company grows, it changes, whether the founder likes it or not. Change means more employees to manage, more forms to fill out, more people to keep happy. That directly affects the role of the founder and not always in the way they want it to. With growth, founders can even lose sight of why they started the business in the first place. 

With a small business that has one leader and one person making decisions, clients are comfortable. They get to know you and your strengths and you, in a way, become part of their team. 

Your Overhead Stays Low

Sure, large companies’ bottom lines tend to be much higher than a small business. No secret there. But consider all the expenses associated with running a business. Salaries. Benefits. Business insurance . Office space if you’re not fully distributed. Travel and expenses. Continuing education. Fun stuff, like holiday parties and swag .

Small businesses have lower overhead and less infrastructure and need fewer resources needed to get the job done. I can work with a laptop on a plane; with more staff, I’d need a computer network and probably an IT person. Again, more hassle, more expenses.

Staying small means that you have the only stake in your company. For example, I don’t need to pay for a full-time lawyer or accountant. I own all of the shares of my business and payroll costs aren’t draining my bank accounts . At the end of the day, financially my company performs as if it’s three times the size it really is. 

Related Reading Why a High-Growth Strategy May No Longer Make Sense for Your Startup

You Can Provide Better Service

Small businesses rule when it comes to customer service . It’s more direct and responsive. Customers get the CEO on the line, not a chatbot or call center. I don’t even have to say what a huge benefit this is for clients and how this differentiates my company from larger companies in the same industry. 

When I worked for bigger agencies earlier in my career, the founders were never involved in the actual work on an account. This discouraged clients, who wanted to have that senior executive involved. Small businesses have the opportunity to understand their customers’ needs on deeper and nuanced level that larger companies can’t match. 

Small business founders provide the attention to detail and unrivaled personalized care necessary to keep clients happy and renewing that contract year after year. Customers want to feel that they’re your priority and that you are personally nurturing them. That forms longer relationships and in turn, a loyal client base.

Your small business might be the kind that grows with you maintaining your vision, your well-being and your sense of self. If it does, congratulations. 

If it doesn’t, you’ll join me in the hall of happy and successful small business founders. Take it from me: Stay committed to yourself and your ideals and the clients — and dollars — will follow.  

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The bootstrapping guide for startups: What entrepreneurs need to know

Start your company in a few clicks and get ready to charge customers, hire your team, and fundraise.

• Introduction

How does bootstrapping work?

Benefits of bootstrapping for startups, drawbacks of bootstrapping for startups, plan carefully, build a customer base, reinvest your revenue, use cost-effective marketing tactics, build a strong brand, use networking and community, balance growth with financial stability, prepare for future funding rounds, how to innovate and adapt while bootstrapping, mistakes to avoid when bootstrapping.

• Get started with Stripe 

Bootstrapping is the practice of starting and growing a business using one’s own resources, rather than relying on external funding like venture capital or loans. This approach typically involves minimizing expenses, reinvesting profits back into the business, and relying heavily on personal savings, sweat equity, and early revenue. The goal is to achieve self-sustainability as quickly as possible, allowing the business to grow organically without external investment. Bootstrapping often requires creativity, resourcefulness, and a strong focus on cost-effective tactics.

Below, we’ll discuss how to bootstrap effectively, avoid potential mistakes, be adaptable, and prepare for the future.

What’s in this article?

Tips for bootstrapping

Each startup might approach bootstrapping differently and bootstrap for varying amounts of time. More than 1,000 startups founded before 2015 raised a pre-seed or seed round in 2021, a Crunchbase analysis found. That means they bootstrapped for years before raising any external funds. Here’s an overview of how bootstrapping generally works for startups:

Personal savings and revenue reinvestment Many bootstrapped startups begin with the founder’s personal savings. As the business starts to generate revenue , it reinvests these earnings back into the company. This method can be slow but enables full control over business decisions.

Lean operations Bootstrapped startups often operate with minimal overhead. This might involve working from home, having a small team, or using cost-effective tools and technologies. The goal is to keep expenses low while focusing on building a viable product or service.

Strategic growth and scaling Growth is usually gradual and strategic. Founders often focus on achieving profitability or a stable revenue stream before expanding. This methodical approach can maintain financial stability and prevent growth that’s too quick.

Creative funding alternatives Some startups might use creative methods—like presales, crowdfunding , or bartering services with other businesses—to fund their operations. These methods can provide necessary resources without requiring a startup to give up equity or incur debt.

Customer-focused development Without the pressure of investors, bootstrapped startups can closely align their product development with customer needs. This can build a loyal customer base and result in products or services that genuinely solve market problems.

Building strong networks Networking can provide valuable support, advice, and business opportunities. A startup might build these relationships by forming partnerships, seeking mentorship, or engaging with potential customers and industry experts.

Gradual team expansion Bootstrapped startups often hire cautiously, adding team members who can fulfill multiple roles and significantly contribute to the company’s growth. This ensures that the team remains agile and effective without incurring high payroll costs.

Flexibility and adaptability Bootstrapped startups need to be able to adjust their business models based on market feedback and available resources. This flexibility can be an advantage in rapidly changing markets.

There are many advantages to bootstrapping. Here are some of the benefits that convince many founders to finance their startups this way:

Complete control and independence Founders are not accountable to outside investors. They have full autonomy to make decisions and steer the company in the direction they see fit.

Financial discipline and lean mindset Bootstrapping instills a culture of financial discipline and efficiency. Since resources are limited, there is a strong focus on cost-effectiveness and prioritizing investments that yield the greatest returns. This lean mindset often leads to more thoughtful spending and creative problem-solving.

Direct customer alignment Without the pressure to satisfy investors’ expectations, bootstrapped companies can align more closely with their customers’ needs. This often results in products or services that closely match market demands, fostering customer loyalty and organic growth.

Avoiding equity dilution Founders typically sell between 10%–20% of equity in the seed funding round alone. By forgoing external funding, founders avoid diluting their ownership in the company. This means they could gain more in the future from the company’s success, as they haven’t given away a portion of their equity to investors.

Building a sustainable business model Bootstrapping forces startups to create sustainable business models from the start and generate revenue early on. This can build a more robust and viable business in the long term.

Flexibility in business decisions Without external funding, startups have more flexibility to pivot if needed. This agility allows them to adapt to market changes or pursue new opportunities.

Increased credibility and customer trust Successfully bootstrapping a business can build credibility and trust with customers and potential partners. It demonstrates the company’s resilience, commitment, and ability to grow based on the value it provides.

Personal satisfaction and growth For many entrepreneurs, the process of bootstrapping a startup provides immense personal satisfaction. Overcoming challenges and growing a business from the ground up can be incredibly rewarding.

But if you decide to bootstrap your startup, here are some challenges you might encounter:

Limited financial resources Without external funding, startups might struggle to cover initial costs, invest in product development or marketing , or grow operations quickly. This can slow growth and make it difficult to take advantage of market opportunities.

High financial risk Founders often use their personal savings or incur debt, risking their financial stability. If the startup fails, they might experience severe personal financial loss. Considering that about 20% of new businesses in the US fail in the first two years of operation, according to data from the Bureau of Labor Statistics, it’s important to understand the risks.

Slow growth Bootstrapped companies often grow more slowly than their funded counterparts. While slow growth can be sustainable, it might also mean losing out to competitors who can grow more quickly using outside funding.

Overwhelming workload With limited resources, founders and their small teams often fill multiple roles, leading to an overwhelming workload. This can result in burnout and affect employees’ personal lives and the quality of work.

Difficulty in attracting talent Without capital, it can be challenging to attract top talent. Companies often use equity and high salaries to attract skilled individuals in a competitive market, which might not be feasible for a bootstrapped startup.

Limited network and mentoring Beyond funding, venture capitalists and angel investors often provide valuable mentoring and access to a broad network. Bootstrapped startups might not have access to these resources, limiting growth potential.

Market risks Bootstrapped startups might be less prepared to handle sudden market shifts or increased competition. Funded startups often have the resources to pivot quickly or survive during market downturns.

Product development challenges With limited funding, it can be difficult to invest in the research and development necessary to innovate or improve products. The startup might fall behind in technology or product offerings compared to well-funded competitors.

Pressure and stress Founders might be under heavy stress knowing that every decision can directly impact the survival and growth of their business.

While bootstrapping can help startups avoid obligations to external investors, cash flow can be less predictable, leading to worries about the business’s future. Here are some tips to address these worries and position your startup to succeed.

Setting realistic goals The foundation of successful bootstrapping is setting clear, achievable goals, objectives, and milestones, customized to the startup’s capabilities and the market conditions. This clarity helps maintain momentum and morale, especially when resources are limited. Establishing specific targets for product development, customer acquisition, revenue , and other key metrics helps maintain focus. A startup must balance ambition with practicality, ensuring that goals are challenging yet attainable with the resources on hand.

Budgeting and financial planning Bootstrapping requires effective management of limited financial resources. Create a detailed budget that accounts for all potential expenses and revenue streams, and prioritize spending on activities that directly contribute to business growth or operational efficiency. These might include investing in key hires, marketing tactics, or product development. Regularly review and adjust the budget based on actual performance and changing circumstances to ensure that your startup remains financially healthy and able to respond to opportunities and challenges.

Efficient resource allocation With limited capital, startups need to allocate their resources strategically, focusing on areas that yield the highest return on investment (ROI). This might involve making tough choices, like delaying certain projects or finding more cost-effective solutions.

Contingency planning Startups often encounter unforeseen challenges. Create a contingency plan for financial setbacks, market changes, or other disruptions. This might include having a reserve fund, seeking alternative revenue streams, or employing business tactics that can adapt to changing circumstances.

Regular review and adaptation The startup environment is dynamic, and what works today might not work tomorrow. Regularly review goals, budgets, and tactics, and be willing to adapt them as needed.

Lean business operations Scrutinize every aspect of the business to ensure that you are using resources optimally, with minimal waste and maximum efficiency. Lean operations focus on doing more with limited capital, labor, time, or materials.

Minimizing expenses Keep expenses low by negotiating better deals with suppliers, opting for lower-cost alternatives for services and products, and cutting nonessential costs. Minimizing expenses doesn’t mean compromising on quality. It’s about finding cost-effective solutions that maintain or increase the value offered to customers.

Maximizing efficiency Increase efficiency by automating repetitive tasks, simplifying communication, or adopting agile methodologies. Making every process within the startup as efficient as possible saves time and resources, boosting productivity.

Resourceful problem-solving A lean mindset encourages creative, resourceful problem-solving. Instead of solving a problem with money, bootstrapped startups must often find new solutions that are both effective and economical.

Flexible work arrangements Embracing flexible work arrangements can be a part of staying lean. Remote work, for instance, can reduce the need for a physical office space, lowering overhead costs. Similarly, hiring freelancers or part-time employees for specific tasks can be more cost-effective than having a large full-time staff.

Focus on core competencies Spreading resources too thinly across multiple projects can dilute the business’s effectiveness and efficiency. Concentrating on key areas of strength ensures that the startup is optimally using its limited resources.

Build versatile teams In a lean startup, team members often fill multiple roles. Hiring versatile individuals who can handle a range of tasks and adapt to various roles can do more to maintain a lean operation than having specialists in a single area.

Early customer acquisition Bootstrapped startups should prioritize acquiring customers early. Early customers provide essential revenue, validate the business model, and offer critical feedback. Startups should identify and target their ideal customer segment, using cost-effective marketing tactics such as social media, content marketing, and word-of-mouth referrals.

Customer retention Retained customers are more likely to make repeat purchases and can become brand advocates. Implementing tactics like excellent customer service, loyalty programs, or regular communication through email newsletters can keep customers coming back.

Feedback and iteration Early customers are a valuable source of feedback. Engaging with them to understand their needs, preferences, and issues can inform product or service improvements. Iterative development based on customer feedback ensures that the startup remains aligned with market needs and customer expectations.

Building relationships Developing strong relationships with customers can turn them into loyal fans. Personalizing interactions, responding to customer queries, and showing appreciation can build a sense of community and loyalty around the brand.

Customer testimonials and case studies Positive reviews, testimonials, and case studies from satisfied customers can help attract new customers. Sharing these success stories on the startup’s website, social media channels, and marketing materials can demonstrate credibility and attract more business.

Referral programs Referral programs can be an effective way to grow the customer base. Encouraging existing customers to refer friends and family in exchange for discounts or other incentives can lead to cost-effective customer acquisition.

Understanding market needs Continually analyzing the market and understanding evolving customer needs can guide the development of new features, products, or services. Regularly introducing new products can help attract and retain customers.

Effective data use Analyzing data to understand customer behavior, preferences, and trends can provide valuable insights. These can inform marketing tactics, product development, and modifications to the customer experience, building a stronger customer base.

Reinvesting profits to fuel growth Bootstrapped startups can reinvest their profits back into the business to fuel growth without relying on external funding. They can then use any revenue generated to improve products or services, expand marketing efforts, invest in technology, hire key staff, or enter new markets.

Prioritizing investments When reinvesting revenue, prioritize investments that offer the greatest potential for growth and returns. This might involve investing in areas like product development, customer acquisition, or essential tools and technology that increase efficiency.

Sustainable growth Reinvest revenue with consideration for sustainable growth and financial health. This means not overextending the business financially and ensuring that every investment contributes to long-term stability and expansion.

Building a financial cushion Save a portion of revenue as a financial cushion. This reserve can help the business survive any unexpected challenges or economic downturns, providing a safety net that enables continued operations and growth even in tough times.

Measuring ROI When reinvesting revenue, measure each expenditure’s ROI. Understanding which investments yield the best returns can guide future spending and refine the startup’s growth strategy.

Continuous improvement Revenue reinvestment should be a continuous process of improvement. Regularly reviewing and adjusting where and how revenue is reinvested helps the business remain agile and responsive to market changes and growth opportunities.

Employee development and retention Part of reinvesting in the business is investing in the team. Providing training, competitive salaries, and a positive work environment can improve employee retention and productivity, which contributes to the business’s growth and success.

Improving the customer experience Reinvesting in enhancing the customer experience can increase customer satisfaction and loyalty. This might involve improving the product, customer service, or user experience, all of which can generate repeat business and positive word of mouth.

Digital marketing Digital marketing tactics can be a cost-effective way to reach a broad audience and achieve a high ROI. These include search engine optimization (SEO), content marketing, email marketing, and pay-per-click advertising. Startups can customize these tactics to fit small budgets.

Social media marketing Social media platforms are powerful tools for bootstrapped startups due to their wide reach and relatively low cost. Startups can use platforms like Facebook, Instagram, and LinkedIn to connect with customers, build brand awareness, and drive traffic to their websites. Create engaging, shareable content and actively interact with the community to build a loyal following.

Word of mouth and referral marketing Word of mouth is a very cost-effective marketing tactic. Satisfied customers are likely to recommend your products or services to others. Implementing a referral program can incentivize existing customers to spread the word about your business, attracting new customers at a minimal cost.

Content marketing Creating valuable content—such as blog posts, videos, podcasts, or infographics—can attract and retain an audience. This type of marketing builds brand authority and supports SEO efforts, making it easier for potential customers to find your startup online.

Partnerships and collaborations Partnering with other businesses or influencers in your industry can be a great, less expensive way to reach a wider audience. Collaborations can take various forms, from cohosting events to cross-promotions on social media.

Customer reviews and testimonials Positive reviews and testimonials provide social proof and can influence potential customers’ purchasing decisions. Encouraging customers to leave reviews on websites, social media, or Google can boost your startup’s credibility.

Networking and community involvement Attending industry events, joining professional groups, or participating in community activities can help raise awareness of your startup. By networking, you can build relationships that could lead to new customers, partnerships, or other opportunities.

Guerrilla marketing This involves using unconventional, creative marketing tactics to capture the audience’s attention. Guerrilla marketing can create a memorable brand experience and generate buzz, often at a low cost.

Developing a unique brand identity A strong brand identity can set your startup apart in a crowded marketplace. Branding involves creating a unique, memorable name and logo and a consistent visual style across all your marketing materials and products. Your brand identity should reflect your company’s values and mission and the value proposition of your products or services.

Consistency Consistency in your branding builds recognition and trust with your audience. Maintain a consistent tone, style, and messaging across all channels, from your website and social media to customer service and packaging. Consistency reinforces your brand identity, making it more likely for customers to remember and choose your brand.

Building emotional connections with customers A strong brand goes beyond visual elements to create an emotional connection with the audience. Tell your brand’s story, share your creative process, and communicate in a way that resonates with your customers’ values and aspirations.

Using social media for brand building Social media platforms offer a way to directly interact with customers, showcase your brand’s personality, and build a community around your products or services. Engaging content, interactive posts, and regular updates can keep your audience invested in your brand.

Customer relationships and experience Building strong relationships with customers is key to a successful brand. This involves not just meeting but exceeding customer expectations, providing excellent customer service, and ensuring a positive overall customer experience. Happy customers are more likely to become repeat buyers and brand advocates.

Thought leadership and expertise Positioning yourself and your startup as thought leaders in your industry can increase your brand’s credibility. You can achieve this through blogging, participating in industry panels, publishing white papers, or speaking at events. Sharing your expertise establishes your brand as a go-to source in your industry.

Feedback and adaptation Pay attention to customer feedback and adapt your brand strategy accordingly. Customers’ perceptions and market trends can change, and your brand should be flexible enough to evolve with these changes.

Community participation and social responsibility Engaging with your community and demonstrating social responsibility can strengthen your brand. Whether it’s through local events, charitable initiatives, or sustainable practices, showing that your business cares about the community beyond profits can create a positive image and deepen customer loyalty.

Building industry connections Building a strong network within your industry can open doors to valuable opportunities, partnerships, and resources. Attend industry events, join professional associations , and actively participate in industry forums to connect with peers, potential mentors, and industry leaders.

Seeking mentors and advisers Mentors or advisers who are experienced professionals can be incredibly beneficial. They can provide guidance, share insights from their experiences, and offer advice on navigating the challenges of building a startup. Don’t hesitate to reach out to potential mentors, and when you do, be clear about what you’re seeking from the relationship.

Startup ecosystems and resources Many cities and regions have vibrant startup ecosystems with a wealth of resources for entrepreneurs. These can include startup accelerators, incubators , and small business development centers that offer support, mentorship, and sometimes funding opportunities.

Benefits of coworking spaces Coworking spaces are not just physical workplaces; they are also community and networking hubs. These spaces can provide opportunities to connect with other entrepreneurs, share ideas, and collaborate. Many also host networking events, workshops, and speaker series that can be valuable for building connections and learning.

Online communities and forums Online platforms like LinkedIn, industry-specific forums, and social media groups can be excellent resources for networking and knowledge sharing. Participating in these communities allows you to connect with peers and experts globally, gain insights, ask questions, and stay updated on industry trends.

Partnerships and collaborations Networking can lead to partnerships and collaborations with other businesses, which can be a cost-effective way to grow. These partnerships can provide access to new markets, shared resources, and mutual benefits for both parties.

Learning from peers Engaging with other entrepreneurs and startups can provide invaluable learning opportunities. Sharing experiences, challenges, and solutions with peers can offer fresh perspectives and new ideas to apply to your own business.

Giving back to the community Take a reciprocal approach to networking. Sharing your own expertise and supporting others in your network or community builds goodwill and strengthens your relationships. This can lead to a more connected and supportive professional network.

Growing the business responsibly When bootstrapping a startup, it’s important to grow the business without jeopardizing financial stability. This means growing at a pace that the company’s revenue and resources can support. Avoid overcommitting to large expenses or rapid expansion that could put undue strain on the business’s finances. Responsible growth involves careful planning and a clear understanding of the startup’s financial limits and growth potential.

Maintaining a strong financial foundation Continually monitor and manage your startup’s finances. This includes keeping track of cash flow, maintaining an accurate budget, and ensuring that expenditures align with the company’s strategic goals. A strong financial foundation provides a buffer against market fluctuations and unforeseen expenses, enabling more controlled, sustainable growth.

Smart investment decisions When deciding where to invest resources, prioritize areas that will create the most value for the business. These could be product development, market expansion, or operational efficiencies. Make investments that contribute to growth and strengthen the company’s long-term financial position.

Flexibility in business strategy Businesses that are willing to adapt can balance growth and financial stability. Stay attuned to market trends and customer feedback, and be prepared to adjust your business strategy as needed. Flexibility allows you to capitalize on new opportunities without overextending the company’s resources.

Risk management Consider potential challenges your startup might face and develop tactics to mitigate these risks. These could include diversifying revenue streams, having contingency plans, or securing insurance where appropriate.

Measuring and tracking growth metrics Regularly measure and analyze key growth metrics to ensure that the business is on the right track. This includes tracking revenue growth, customer acquisition costs, profit margins, and other relevant indicators. Understand these metrics to inform your decisions about growth and investing.

Gradual expansion Consider a gradual approach to expansion, whether it’s entering new markets, launching new products, or hiring additional staff. A gradual approach allows you to test and make adjustments before committing substantial resources.

Prudent financial reserves Maintain prudent financial reserves to safeguard against unexpected downturns or slow periods. These reserves can sustain the business during tough times and provide the flexibility to take advantage of growth opportunities as they arise.

Understanding when to seek external funding While bootstrapping is an effective way to start and grow your business, there might come a time when external funding is necessary to grow further. This transition typically occurs when growth potential exceeds what can be supported solely through self-funding. Understanding the right timing for this transition involves evaluating your business’s growth potential, market opportunities, and financial needs.

Building a strong track record Before seeking external funding, it’s important to have a strong track record of success. This includes a history of steady revenue growth, a solid customer base, and a viable, flexible business model. Investors will be more inclined to fund a startup that has demonstrated success and growth potential.

Developing a compelling pitch Develop a compelling pitch to prepare for funding rounds. This pitch should clearly state your business’s value proposition, market opportunity, competitive advantages, and how you will use the investment to grow the business. A well-crafted pitch that tells a compelling story can make a difference in attracting investors.

Financial documentation and projections Detailed financial documentation and realistic projections can support future funding rounds. This includes historical financial statements, cash flow projections, and a clear plan for how you will use the funds. Investors will scrutinize this information to assess your startup’s financial health and potential.

Networking with potential investors Build relationships with potential investors well before you need the funding. This might involve attending industry events, participating in startup incubators or accelerators, or relying on your existing network. Having these relationships can make it easier to secure funding when the time comes.

Understanding different funding options There are various sources of external funding, including venture capital, angel investors, crowdfunding, and bank loans. Each comes with its own set of advantages and disadvantages. Understanding these options and determining which is the best fit for your startup is important.

Legal and regulatory considerations Be aware of the legal and regulatory implications of raising external funding. This includes understanding the terms of investment, equity dilution, and any legal obligations to investors. You should consult legal professionals to navigate these aspects properly.

Maintaining flexibility for negotiations When entering funding rounds, be prepared for negotiations. Investors might have different views on your startup’s valuation or the terms of the investment. Maintaining flexibility and being open to negotiation can be key to a successful funding round.

When you’re bootstrapping, it can sometimes feel like you only have enough money to cover basic startup operations. But it’s important to try to innovate and adapt, even if it means investing some of your own resources. Here’s how to do this while bootstrapping:

Innovating within constraints One of the strengths of bootstrapping is the ability to innovate within constraints. Having limited resources can catalyze creativity. Startups should embrace these limitations and use them to think differently, challenge traditional approaches, and find unique solutions. This could involve developing simpler, more cost-effective products, using existing technologies in new ways, or finding unconventional ways to reach and serve customers.

Adapting to market changes Bootstrapped startups need to respond to shifts in market trends, customer preferences, and the competition. This might involve pivoting the business model, exploring new market segments, or rapidly iterating on products based on customer feedback.

Flexibility in business model and strategy Maintaining flexibility in your business model and strategy can help grow the business. This could mean changing your revenue model, exploring different sales channels, or adjusting your product road map to align with market opportunities.

Using technology and automation Technology can be a great enabler for bootstrapped startups. Tools and platforms that automate processes, improve efficiency, or support a better customer experience can help startups do more with less. These might include customer relationship management (CRM) systems, automated marketing tools, or cloud-based services.

Continuous learning and experimentation Encourage your team to experiment with new ideas, learn from failures, and continually seek ways to improve. This culture of continuous learning fosters creativity and can uncover new solutions that give your startup a competitive edge.

Customer-centric improvement Keep your customers at the center of your improvement efforts. Regularly gather customer feedback and use it to inform product development and business tactics. Solving real customer problems in novel ways can lead to breakthroughs.

Networking and collaboration for new ideas Connect regularly with other entrepreneurs, industry experts, and mentors to gain new perspectives and ideas. Collaborations, whether through formal partnerships or informal networking, can provide fresh insights and generate new ways of improving.

Experts recommend that startups have 18 months’ worth of venture capital sitting in the bank, but most bootstrapped startups don’t have that amount of financial reserves. Here are some of the common mistakes bootstrapped entrepreneurs often make and how to avoid them:

Overextending financially Overextension occurs when startups spend too much too quickly, without a stable revenue stream to support such expenses. To avoid this, closely monitor your cash flow and budget. Prioritize spending based on what is absolutely necessary for the business, and always have a clear understanding of your financial reserves. Delay or reduce nonessential expenditures until the business is financially strong.

Neglecting market research and customer feedback Another common mistake is failing to invest enough time and resources in market research and customer feedback. Understanding your target market, competitors, and customer needs is particularly important for a bootstrapped startup with limited resources. Not conducting market research can lead to misdirected product development, ineffective marketing tactics, and ultimately business failure. Regularly gather and analyze customer feedback, and use these insights to inform your business decisions.

Underestimating the importance of a good team Bootstrapped startups sometimes try to minimize costs by compromising on the quality of their teams. But a skilled, dedicated team is crucial to any business’s success. Invest in hiring the right people, even if it means a higher initial cost. A good team will be more efficient, make fewer mistakes, and save money in the long run.

Ignoring legal and financial compliance In an effort to save costs, some startups might overlook the importance of legal and financial compliance. This includes things like proper accounting practices, tax obligations, and legal requirements for running a business. Neglecting these areas can cause serious problems in the future, including fines, legal issues, and reputational damage.

Failing to plan for the long term While it’s important to focus on immediate challenges, failing to plan for the long term can be detrimental. This includes not having a clear business plan, growth strategy, or contingency plans for potential challenges. Regularly update your business plan and tactics to ensure they align with your long-term goals and evolving market conditions.

Not being adaptable Don’t be overly rigid in your business model, product offerings, or tactics. The market can change rapidly, and startups need to be able to adapt quickly. Be open to new ideas, be willing to pivot if something isn’t working, and always look for new opportunities.

Overlooking the importance of a strong network Bootstrapped startups sometimes underestimate the power of networking. Building relationships with other entrepreneurs, industry experts, and potential customers can generate opportunities and resources. Attend industry events, join relevant online communities, and actively seek out mentorship and advice.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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5 tips to achieve financial freedom through entrepreneurship.

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Entrepreneurship is a path to financial freedom.

Entrepreneurship promises financial freedom, flexibility, and control over your future. For many, it represents a way to escape the nine-to-five grind, take charge of their schedule, and create something meaningful. However, while building your own business is appealing, it’s not without challenges. For example, according to recent statistics from the Small Business Administration, over 66% of companies don’t survive their first 10 years.

Why? It’s not because the founders lack passion or motivation but because they often lack a strategy, clear direction, and financial knowledge to succeed. This article explores five essential tips to help you start a business and grow it sustainably, all while creating a life of freedom and opportunity.

1. Be Intentional And Know What You’re Building

Many people are driven by the desire for freedom, flexibility, and fulfillment, but excitement can often lead to starting a business without a clear plan. Without intentionality, there’s a risk of creating a business that becomes a burden rather than a path to freedom. Success begins with a clear understanding of what you’re building and why.

Define your long-term vision. The critical distinction here is whether you are creating a self-employed job or a scalable business. A self-employed business often means trading time for money, which may provide control but limits scalability and financial freedom. In contrast, a scalable business relies on systems, teams, and processes that allow it to grow independently of your direct input.

In an interview, entrepreneur Candy Valentino, author of The 9% Edge , shares about founders and first-time business owners: “What they end up doing is creating a cage because they don’t lay the foundation of the business with any intentionality. So now they have to show up for a job, a job that they own, a job that they have to show up for to work. So there’s no difference.”

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Intentional planning helps you align daily decisions with your larger goals. A simple business plan can serve as a roadmap, outlining how you’ll generate revenue, attract customers, and grow over time. It doesn’t need to be complex but should guide your strategy, ensuring every step moves you closer to your goal.

2. Master The Business Of Numbers

To run a successful business, you need to be comfortable with numbers. Entrepreneurs often focus too much on their business’s creative or operational side, leaving the financial details as an afterthought. Yet, financial mismanagement is one of the top reasons businesses fail.

This doesn’t mean becoming an accountant, but it requires you to understand the basics of business finance. A few of the most important financial metrics to keep an eye on include:

• Break-Even Point : This is the revenue needed to cover all your costs. Knowing when your business becomes profitable helps you set sales goals and manage operational expenses more effectively.
• Gross Profit Margin : This metric reflects your company’s efficiency by showing the percentage of revenue that remains after accounting for the cost of goods sold . A higher margin indicates you generate more income from each sale, contributing to profitability.
• Net Profit Margin : Unlike gross margin, this looks at overall profitability by factoring in all business expenses, including operating costs, taxes, and interest. It clearly shows how much profit you retain from total revenue.
• Cash Flow: Cash flow is the lifeblood of any business. Positive cash flow ensures your company can meet its obligations, reinvest in growth, and weather financial downturns. Even profitable businesses can fail if they experience cash flow shortages.
• Customer Acquisition Cost (CAC) : This metric helps determine how much it costs to attract a new customer. When paired with Customer Lifetime Value (CLV)—which measures the total revenue generated from a customer over their lifetime—it helps evaluate the effectiveness of your marketing spend.
• Burn Rate : Particularly for startups, the burn rate reflects how quickly you use your cash reserves. Monitoring this ensures you can manage expenses and decide when to seek funding or cut costs.

Maintaining a healthy balance between these metrics is crucial. For example, understanding your cash flow relative to your expenses allows you to plan, while keeping your CAC below your CLV ensures that you aren’t spending more to acquire customers than they bring in over time. Budgeting for profit rather than just survival means you can reinvest in your business and build a financial safety net for future challenges.

Regularly reviewing these financial metrics will give you insight into your business’s financial health and make more informed and data-driven decisions for sustainable growth.

3. Don’t Just Chase Growth—Stabilize And Scale

While growth is desirable, rapid expansion without a stable foundation can lead to severe setbacks. Many businesses grow quickly but fail to establish the systems and processes needed to sustain that growth. Before scaling, it’s crucial to ensure your operations are efficient, your customer base is loyal, and your business can handle the increased demand without losing quality.

Valentino cites Peloton’s rise and fall as an example. As demand for at-home fitness surged during the Covid-19 pandemic, Peloton’s stock skyrocketed to $167 in January 2021. However, the company failed to innovate or diversify its offerings beyond its core products, relying too heavily on short-term demand. Once the restrictions eased and demand dropped, Peloton’s stock collapsed, hovering just over $4 in 2024 .

The lesson is clear: sustainable growth requires more than just chasing demand. It involves strengthening your internal systems, focusing on customer retention and loyalty, and ensuring that your business can adapt to changes in the market.

4. Assemble A Team

One of the biggest mistakes you can make is trying to do everything yourself. While this may work in the early stages of a business, it’s not sustainable in the long run. “Good entrepreneurs build a business. Great entrepreneurs build a team —and the team builds the business,” says Valentino.

This means hiring individuals with the necessary skills aligned with your company’s vision. Hiring for long-term potential, rather than filling immediate needs, ensures your team can help drive sustainable growth.

Remember, developing your team is just as important as building it. Invest in training and mentorship to help your employees grow alongside the company. A well-trained team can manage challenges and push the business forward. You should also foster a culture of accountability to ensure each team member knows their responsibilities and contributes effectively to your company’s success.

5. Plan For Exits Along The Way

Many entrepreneurs think of “exit” only in terms of selling the business. However, there are multiple exits that need to happen before that point—relinquishing certain roles, tasks, and responsibilities. Planning for these smaller exits allows you to focus on growing the business without being tied to every aspect of its operations.

The first exit typically involves transitioning out of the day-to-day operations. In the early stages, you may handle everything from customer service to sales, but as your business scales, you must delegate these tasks to trusted team members. This shift frees up your time and allows the business to function more independently.

As your team becomes more capable, your next exit should be from direct management. Hiring a manager or COO to oversee operations enables you to concentrate on strategic initiatives, such as expansion, partnerships, or new product development.

Even if you don’t plan to sell your business in the near future, preparing for that possibility is crucial. This means organizing your business to make it attractive to potential buyers. Documenting workflows, streamlining operations, and ensuring financial transparency will position your business for a smooth transition, whether you choose to sell or continue growing it.

Planning for these exits allows you to build a business that can scale sustainably and explore new opportunities without being tethered to daily responsibilities.

Lastly, consider diversifying your income streams as your business becomes more profitable. This might mean investing in other businesses, real estate, or stocks. Diversifying helps reduce risk and creates additional sources of income that can further increase your financial freedom.

Final Thoughts

Entrepreneurship offers an incredible opportunity to achieve financial freedom, but it’s not a path that can be taken lightly. Success requires intentional planning, financial literacy, sustainable growth, building the right team, and strategically exiting certain roles.

By focusing on these key areas, you can create a business that not only survives but thrives—allowing you to achieve your personal and financial goals while building something that lasts. Whether you’re just starting or looking to scale, these five essential tips will help you navigate the challenges of entrepreneurship and unlock the financial freedom you seek.

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This 31-Year-Old Left Harvard to Help His Mom and Built a $25 Million Nutrition Business How Sam Faycurry's family side hustle blossomed into Fay, a personalized nutrition counseling service.

By Jon Bier Sep 19, 2024

Key Takeaways

• Faycurry turned a family favor into Fay, a digital platform that has raised $25 million in funding.
• His willingness to do unglamorous work led to insights that shaped his successful business model.

Opinions expressed by Entrepreneur contributors are their own.

Since he was "a weird little kid," Sam Faycurry aspired to attend Harvard Business School. So, when he got accepted to the prestigious program, he and his family were thrilled.

But life had other plans. While helping his mother and sister, both registered dietitians, start their business, Faycurry stumbled into an untapped business opportunity. He and his partner Mark Stefanski founded Fay , a digital platform that connects people with registered dietitians (RDs) who offer personalized nutrition counseling and accept insurance.

Soon, Faycurry realized he couldn't attend Harvard and run the business at the same time. So, he dropped one dream to pursue another.

Related: 3 Things Your Business Idea Must Have To Succeed — as Proven By Famous Harvard Business School Startups

Today, at 31, he is the co-founder and CEO of Fay, which has raised $25 million in funding and is rapidly changing the landscape and accessibility of nutrition counseling. He talked with me about his journey from helping family members to leading a venture-backed startup on the latest episode of the One Day with Jon Bier podcast. Here are five key entrepreneurial lessons Faycurry learned along the way.

Get down and dirty

Faycurry believes experience is the best teacher. Rather than simply studying how to start a business, he says it's equally important to get your hands dirty and just do it.

"You read these books and they're always talking about, 'Don't do things that don't scale.' What the f--- does that mean?" he says. "But then you're sitting there and you're doing things that don't scale, and you're like, 'Oh, shit. That's what they mean.'" This hands-on approach allowed Faycurry to deeply understand the problems in the nutrition industry and develop tailored solutions.

Swallow your pride

Building a successful startup means checking your ego at the door, and setting aside your pride to do menial jobs that might feel like they should be someone else's problem.

For example, Faycurry recalls his mouth being bone dry from having to lick his fingers to separate mounds of paperwork. "It's not until you're doing that that you're realizing, 'Oh, this is what it means to be low ego.'"

But he says a willingness to tackle unglamorous tasks head-on was crucial in understanding the intricacies of the industry.

Related: How to Avoid the Double-Edged Sword of Ego in Entrepreneurship

Solve real problems, not intellectual exercises

Before building Fay, he admits to starting companies that were "more like intellectual masturbation." He describes these early attempts as "horrible ideas" that no one really needed. It wasn't until he focused on solving a real, tangible problem for his family members that he found success.

"When you're in this intellectual state, one could be thinking about a lot of problems to solve," he says. "However, when I found myself helping my mom and my sister start their dietetics private practice, I started to just uncover things that people maybe never saw before."

Be willing to pivot from your original plan

Despite his lifelong dream of attending Harvard Business School, Faycurry made the difficult decision to drop out when Fay started gaining traction. "It was the most challenging decision because it meant so much to be offered to my family," he explains. "No one in my family had ever gone there and it was a big source of pride." This ability to adapt and prioritize the business over personal goals was crucial for Fay's growth.

Related: Navigating Crucial Business Decisions — How to Know When to Pivot and When to Persevere

Stay hungry

Despite being a market leader, Faycurry and his team are constantly aware of the dangers of complacency. "It's actually one of our great weaknesses," he admits, pointing to the need to keep climbing even when they're at the top of the mountain.

He refers to to a number of instances in the mental healthcare space where the companies that rested on their laurels had to drop out of the race, while those with something to prove stayed in the game.

For this reason, Faycurry says he's always challenging his team to ask themselves, "How do we maintain that hunger and that drive?"

Throughout his entrepreneurial journey, Faycurry has learned that success often comes from the most unlikely places. He never dreamed his family's dietician business would derail his Harvard Business School track—but that's exactly what happened. By focusing on real issues and being willing to do the grunt work, Faycurry has positioned Fay to make a significant impact in the healthcare industry.

Reflecting on his journey from helping his mother and sister with paperwork to leading a venture-backed startup, Faycurry remains confident Fay will make an impact. "This feels like the one," he says. "Whether it's successful, I don't know. I'm not here to say that. But for some reason, in my bones, this feels like it."

Faycurry's story reminds us that sometimes the most promising business ideas come from the most unexpected places—even from licking stuck-together papers in a suburban office.

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How to Start a Business In Minnesota

By Homebase Team

Starting a business in Minnesota can seem overwhelming, but breaking it down into manageable steps makes it easier. Whether you’re a first-time entrepreneur or looking to expand, knowing the right steps can save time and resources.

Minnesota offers a supportive environment for businesses, but you’ll need to follow specific procedures to get started. Here’s a straightforward guide to help you navigate the process.

From registering your business to obtaining licenses, this guide covers all the essentials you need to know. Let’s dive in.

What are the steps to starting a business in Minnesota?

Register with the minnesota secretary of state.

Start your business by registering with the Minnesota Secretary of State. This step makes your business official and allows you to operate legally within the state. Visit the Secretary of State’s website to complete the necessary forms. You can file online or by mail. The filing fee varies depending on the type of business entity you choose. Make sure to check the availability of your business name before registering to avoid any conflicts.

Choose a business structure (LLC, corporation, etc.)

Next, decide on the business structure that best suits your needs. Your options include Sole Proprietorship, Partnership, Limited Liability Company (LLC), Corporation, and Nonprofit Corporation. Each structure has its own legal and tax implications. An LLC offers flexibility and limited liability protection, making it a popular choice for small businesses. Corporations are more complex but can be beneficial for larger businesses seeking to raise capital. Consult with a legal advisor to determine which structure aligns with your business goals.

Obtain necessary licenses and permits

After registering your business and choosing a structure, you’ll need to obtain the required licenses and permits. The type of licenses you need depends on your business activities and location. Check with the Minnesota Department of Employment and Economic Development (DEED) for state-level requirements. Additionally, contact your local city or county government to find out if there are any local permits you need to secure. Some industries, like food service or construction, may require specialized licenses.

Register for state and local taxes

Registering for state and local taxes is a critical step to ensure compliance with Minnesota tax laws. Obtain a Federal Employer Identification Number (EIN) from the IRS if you haven’t already. You’ll need this number for tax purposes and to open a business bank account. Register with the Minnesota Department of Revenue to handle state taxes, including sales tax, income tax withholding, and unemployment insurance tax. Depending on your business type, you may also need to register for local taxes.

Open a business bank account

Separate your personal and business finances by opening a business bank account. This step helps you manage your finances more effectively and simplifies tax filing. Choose a bank that offers services tailored to small businesses, such as low fees and online banking options. You’ll need your EIN, business registration documents, and personal identification to open the account. Keeping your finances separate also provides a clear record of your business transactions, which is essential for accounting and legal purposes.

Get business insurance

Finally, protect your business by obtaining the necessary insurance. General liability insurance covers common risks, such as property damage and personal injury claims. If you have employees, you’ll need workers’ compensation insurance, which is mandatory in Minnesota. Depending on your industry, you might also require professional liability insurance or commercial property insurance. Consult with an insurance agent to determine the coverage that best fits your business needs. Having the right insurance safeguards your business against unforeseen events and liabilities.

What business structure options are available in Minnesota?

Choosing the right business structure is a big deal for you. You want to ensure you pick the structure that offers the best balance of liability protection and tax benefits.

• Sole Proprietorship

A Sole Proprietorship is the simplest business structure. You own and operate the business by yourself. There’s no legal distinction between you and the business. This means you’re personally responsible for all debts and liabilities. It’s easy to set up and has minimal regulatory requirements. However, the lack of liability protection can be a significant drawback. Sole Proprietorships are ideal for low-risk businesses and those who want to test their business idea before forming a more formal entity.

• Partnership

A Partnership involves two or more people who agree to share the profits and losses of a business. There are two main types: General Partnerships (GP) and Limited Partnerships (LP). In a GP, all partners manage the business and assume responsibility for the partnership’s debts. In an LP, there are both general and limited partners. General partners manage the business and assume liability, while limited partners invest without taking on personal liability. Partnerships are relatively easy to establish but require a solid partnership agreement to outline roles, responsibilities, and profit-sharing.

• Limited Liability Company (LLC)

An LLC combines the benefits of a corporation and a partnership. It offers liability protection for its owners, known as members, while allowing profits and losses to pass through to their personal income without corporate taxes. This structure provides flexibility in management and fewer compliance requirements compared to a corporation. LLCs are popular among small business owners due to their simplicity and protection. To form an LLC in Minnesota, you need to file Articles of Organization with the Secretary of State and create an operating agreement.

• Corporation

Corporations are more complex structures suitable for larger businesses. They are separate legal entities owned by shareholders. This separation provides liability protection to the owners. There are two main types: C Corporations and S Corporations. C Corporations face double taxation, where the company’s profits are taxed, and shareholders also pay taxes on dividends. S Corporations avoid double taxation by allowing profits and losses to pass through to shareholders’ personal tax returns. Corporations require more extensive record-keeping, operational processes, and reporting. They are ideal for businesses that plan to raise capital through the sale of stock.

• Nonprofit Corporation

Nonprofit Corporations operate to fulfill a charitable, educational, religious, or scientific purpose rather than to earn profits. They can apply for tax-exempt status, meaning they don’t pay federal or state income taxes on profits related to their nonprofit purpose. Any profits made are reinvested into the organization’s mission. Nonprofits must adhere to specific regulations and compliance requirements, including filing for tax-exempt status with the IRS and the state. They are governed by a board of directors and must follow strict reporting and operational guidelines. Nonprofits are ideal for organizations focused on social causes and community benefits.

What licenses and permits are required to start a business in Minnesota?

Licenses and permits can be a headache, but they’re crucial for operating legally and avoiding fines or shutdowns.

State-level licenses and permits

To operate legally in Minnesota, you’ll need to secure state-level licenses and permits specific to your business activities. The Minnesota Department of Employment and Economic Development (DEED) provides a comprehensive list of required licenses. Common state-level permits include health permits for food-related businesses, environmental permits for companies impacting natural resources, and professional licenses for certain trades. Check the DEED website to identify the exact requirements for your business type.

Local licenses and permits

In addition to state-level requirements, you must also obtain local licenses and permits. These vary by city and county. Contact your local city hall or county office to determine the necessary permits. Typical local permits include zoning permits, signage permits, and building permits. For example, if you plan to open a retail store, you may need a zoning permit to ensure your business location complies with local zoning laws. Always verify with local authorities to avoid any compliance issues.

Professional licenses

Certain professions in Minnesota require specific professional licenses. These licenses ensure that individuals meet the state’s standards for education, experience, and competency. Professions such as healthcare providers, real estate agents, and contractors need these licenses. The Minnesota Department of Commerce and the Minnesota Board of Medical Practice are examples of agencies that issue professional licenses. Verify if your profession requires a license and apply through the appropriate state agency.

Seller’s permits

If you plan to sell tangible goods, you must obtain a seller’s permit, also known as a sales tax permit. This permit allows you to collect sales tax from customers. Register for a seller’s permit through the Minnesota Department of Revenue. You’ll need to provide information about your business, including your EIN and business structure. Once registered, you must collect sales tax on taxable sales and remit it to the state. This permit is essential for any business involved in retail sales, whether online or in a physical location.

What are the benefits of starting a business in Minnesota?

Starting a business is a big step, and you want to make sure you’re doing it in a place that supports your success . Minnesota is that place.

Strong and diverse economy

Minnesota boasts a robust and varied economy, providing a stable environment for new businesses. The state excels in multiple industries, including healthcare, manufacturing, technology, and agriculture. This diversity helps cushion against economic downturns, offering resilience and opportunities for growth. Whether you’re launching a tech startup or a retail store, Minnesota’s economic landscape supports a wide range of business ventures.

Educated workforce

Access to a skilled and educated workforce is a significant advantage in Minnesota. The state is home to numerous reputable colleges and universities, producing graduates with diverse skill sets. This educated talent pool ensures that you can find qualified employees to meet your business needs. Additionally, the state’s focus on continuing education and professional development helps maintain a competitive workforce, ready to adapt to new challenges and innovations.

Business-friendly tax structure

Minnesota offers a business-friendly tax environment that can benefit your bottom line. The state provides various tax incentives and credits aimed at supporting small businesses and encouraging economic development. These include research and development credits, job creation funds, and investment incentives. Understanding and leveraging these tax benefits can help reduce operational costs and increase profitability, making it easier to reinvest in your business.

High quality of life

Minnesota consistently ranks high in quality of life metrics, making it an attractive place to live and work. The state offers excellent healthcare, top-tier education, and a range of recreational activities. A high quality of life helps attract and retain employees , contributing to a stable and satisfied workforce. The vibrant cultural scene, combined with natural beauty and outdoor activities, ensures a balanced lifestyle, enhancing overall well-being and productivity for you and your team.

What are some resources for Minnesota entrepreneurs?

Finding the right resources and support can make or break your entrepreneurial journey. Luckily, Minnesota has a wealth of resources to help you succeed.

Small Business Administration (SBA) Minnesota District Office

The SBA Minnesota District Office offers various programs and services to help you start, grow, and manage your business. They provide access to funding through loans and grants, offer training workshops, and connect you with local resources. The SBA also has a wealth of online resources, including guides and templates for business planning.

SCORE mentorship

SCORE is a nonprofit organization that provides free, confidential business mentoring and training workshops to small business owners. Experienced business professionals volunteer their time to offer guidance on everything from business planning to marketing strategies. You can meet with a mentor in person or online, making it a flexible option for busy entrepreneurs.

Minnesota Small Business Development Centers

Minnesota Small Business Development Centers (SBDCs) offer no-cost consulting services and low-cost training to new and existing businesses. They help with business planning, market research, financial analysis, and more. SBDCs are located throughout the state, providing easy access to personalized support and resources tailored to your business needs.

Startup accelerators and incubators

Minnesota hosts several startup accelerators and incubators that provide resources, mentorship, and funding opportunities. These programs are designed to help early-stage companies grow quickly. They offer office space, networking opportunities, and access to investors. Participating in an accelerator or incubator can significantly boost your business’s growth and development.

Chambers of commerce

Local chambers of commerce are valuable resources for networking, advocacy, and business development. They offer events, workshops, and resources to help you connect with other business owners and potential customers. Chambers of commerce also work to create a favorable business environment by advocating for policies that benefit local businesses.

Is starting a business in Minnesota right for you?

Starting a business is a huge commitment, and you want to make sure you’re ready for the challenges ahead. It’s important to assess your readiness and understand what’s involved.

Assess your entrepreneurial readiness

Before diving into the business world, evaluate your readiness . Consider your skills, experience, and motivation. Are you prepared to handle the responsibilities and risks? Reflect on your ability to manage finances, lead a team, and make strategic decisions. Self-assessment helps you understand if you have the qualities needed to succeed as an entrepreneur.

Research your business idea and target market

Thorough research is vital. Identify a business idea that aligns with your interests and skills. Study the market to understand demand, competition, and potential customers. Analyze trends and gather data to validate your idea. Knowing your target market helps you tailor your products or services to meet their needs effectively.

Understand the commitment and challenges involved

Starting a business requires significant time, effort, and resources. Be prepared for long hours and the possibility of setbacks. Understand the financial commitment, including startup costs and ongoing expenses. Recognize the challenges you might face, such as market competition and economic fluctuations. Being aware of these factors helps you plan and stay resilient.

Seek advice from mentors and experts

Leverage the experience of others. Connect with mentors who have successfully navigated the business landscape. They can provide valuable insights, guidance, and support. Attend workshops, join business networks, and seek advice from industry experts. Learning from others’ experiences can help you avoid common pitfalls and make informed decisions.

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• What : Starting a business in Minnesota requires registration, choosing a structure, getting licenses, and setting up finances.
• So What : Minnesota’s strong economy and supportive environment are ideal for new businesses.
• Pros & Cons : Pros: diverse economy, skilled workforce, good quality of life; Cons: complex licensing, high commitment.
• Bottom Line : Minnesota is a solid choice for starting a business with proper planning.

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Frequently Asked Questions

1. what are the steps to starting a business in minnesota.

• Develop an idea.
• Conduct market research.
• Draft a business plan.
• Choose a business structure.
• Name and register your business.
• Obtain licenses and permits.
• Choose a business location.
• File and report business taxes.
• Obtain business insurance.
• Open a business bank account.
• Secure funding.
• Launch and grow your business.

2. What business structure options are available in Minnesota?

3. what licenses and permits are required to start a business in minnesota.

• State-level licenses and permits.
• Local licenses and permits.
• Professional licenses.
• Seller’s permits.

4. What are the benefits of starting a business in Minnesota?

• Strong and diverse economy.
• Educated workforce.
• Business-friendly tax structure.
• High quality of life.

5. What are some resources for Minnesota entrepreneurs?

• Small Business Administration (SBA) Minnesota District Office.
• SCORE mentorship.
• Minnesota Small Business Development Centers.
• Startup accelerators and incubators.
• Chambers of commerce.

6. Is starting a business in Minnesota right for you?

• Assess your entrepreneurial readiness.
• Research your business idea and target market.
• Understand the commitment and challenges involved.
• Seek advice from mentors and experts.

Remember:  This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.

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