what is one purpose of writing a business plan before entering the market?

what is one purpose of writing a business plan before entering the market?

Importance of Writing a Business Plan

1. Section One: Understanding the Market

The first step to creating a marketing strategy is to establish its target customers that the business will serve. This involves a detailed market segment analysis. This is a process where the total market is split into various customer types. A customer type is a group of people that have similar needs and wants. An example of where the paragraph is split into customer types, an example being of the fitness shoe industry, is a healthy person who runs regularly. The segmentation of the market is beneficial to the business as it can identify which customer types are more frequent users than others. Once market segments have been identified, it is wise for the business to evaluate each segment and decide the attractiveness and whether it is worth targeting. This can be summarized by stating the potential profit and the cost of working in this area. A popular method of doing this is the use of a market segment matrix. This is a grid that usually measures the attractiveness of a segment by rating them as high, medium, or low in comparison to several factors. An example of a market segment matrix for the fitness shoe industry is to rate the segment based on the availability of information on the segment and the company’s.

A business plan should impress potential financial backers or lenders by stating the venture’s purpose and its objectives for the next two to three years. The business plan should reflect the aim of the business – to make as much profit as possible in comparison to its competitors whilst maintaining customers satisfied to keep them loyal. Once business aims have been written down, a business plan should be able to assess the best way to achieve these goals. This plan should include a sales forecast, which is expected to be the only financial statement if the business is a new start-up, and an expense budget.

2. Section Two: Setting Clear Goals and Objectives

Wait a minute, you say! “We’re too small to waste time on a plan. We need to get on with it.” Or, if you’re a solo entrepreneur, you may say “I don’t need a plan – I’m already doing everything.” Although this may be the attitude that many small business owners have, it’s usually because they don’t realize the benefits that planning can bring to their business, or they are aware of the benefits but have experienced difficulty in creating and using a plan. A common misconception is that planning is not an essential use of time, rather it is a waste of time that could be better spent getting to work on the actual work. This perception usually occurs when the planning process is done incorrectly or when the plan is put in the bottom drawer never to be looked at again. Nowhere is it written that the plan is a static tool that cannot be changed. You should look at your plan as a work in progress that can be modified as conditions change. A flexible plan that can be accessed regularly is very valuable to a business.

In the first module, we talked about the importance of spending your time on things that will make the biggest difference to your business and focusing first and foremost on those things. Developing a plan with specific goals and objectives is key to knowing what to focus on and keeping your team on the right track. A good plan helps you to know where you’re going and increases your chances of actually getting there. But did you know that a good plan has the following ancillary benefits?

Simply just spinning in aimless circles, isn’t it? Of course, this would be an exaggeration. You know you’re busy, but will you accomplish the high priority goals that will benefit your business? Many people engage in activities that are actually distractions from the top priority tasks. The reason they work on lower priority activities is to avoid the stress of tackling the really important tasks.

3. Section Three: Identifying Potential Challenges and Risks

In your business plan, it is important to be able to identify and analyze possible risks and challenges to your business. Doing so can put you in a difficult position because it’s not something you will enjoy doing. No one likes to think that their business may fail or any other form of negativity. It is important to try and be objective and as realistic as possible when stating potential risks. Framework on possible risks and challenges will also help you in later decision making by identifying the risk before it has occurred and coming up with a plan on how to overcome this issue and what implications it could have on your business. If you can solve a problem before it has occurred, your business will be in a much better position. In this Risk Management section you need to identify and evaluate the risks that your business may face. By risks, we mean events that can prevent the key aims and objectives being achieved. You then need to decide whether it is something that could have a major impact and is worth taking preventative action. If the risk could potentially deal a fatal blow to your business, it may be best just to avoid the operation all together. Measures to identify and evaluate risk could include doing research on other similar businesses to see what problems they have encountered, drawing up a cause and effect analysis and preparing a risk register to keep track of all the risks the business may face. A risk register is just a table that includes the risk, the likelihood of the risk occurring, the severity of the impact and the course of action that will be taken. Completing a risk register will make it easier for you to identify the severity of the risk and whether it is worth taking action.

4. Section Four: Attracting Investors and Securing Funding

Upon identifying your investor, it is wise to research the specific criteria of the type of investment you are accepting. Tailor your business plan to address what your investor wants to see. For example, a bank will seek a business plan that illustrates continuous growth with minimized risk, whereas an R&D investor will look for detail in the product development.

Types of funding and investors At the early stages of a business, your typical investor will be a business angel, friends and family, or a government body, depending on the country of operation. This is due to the minimal access to public investments and bank loans, which are more suited for medium to large businesses. Your choice for these early stages often depends on the situation. For those seeking informal and hands-on guidance, business angels are a good choice as investment often includes mentorship and input from the investor. With a higher interest in company involvement, government bodies are best suited for those seeking long-term investments that can help finance R&D and capital expenditure.

Investor’s perspective When seeking to fund your dream, investors need to be persuaded. This will be their return on a low-risk investment, and the higher the risk, the higher the return. You must show them you have a low-risk start-up with potential to yield high returns. This is something you have the power to control. A well-written business plan can effectively illustrate this. Low-risk factors that the plan will cover include the product being intangible, lack of experience, a successful past with the same venture or lack thereof, and an ability to foresee failure causing the idea to be dropped before costly actions are taken. High returns can be shown through 5-year valuation outcomes to illustrate the profit your investors will be receiving.

Attracting investors and securing funding This is where you are able to clearly demonstrate the worth of your business. If you have any product photos, this is a great place to include them. It presents investors with a snapshot of your business and illustrates the opportunity it represents. Here are some factors to consider when creating your plan.

5. Section Five: Creating a Roadmap for Success

When you turn on the TV, flip to the movie where you are a huge success; you know, the one where everything falls into place? In your mind, everything these people are doing, you are doing. You get the house you always wanted, the car you always dreamt of and your start your own company and it becomes a huge success; you are living the life that you’ve always dreamed! Now snap back to reality, and take action to make this reality. The first step to comparing the movie to your life is creating a roadmap for success. This is the first critical step towards pursuing a successful venture. A roadmap is the way to go from desires and needs to accomplishments. There are some who are reluctant to plan, finding it easier to boast the phrase “shoot, ready, aim”. This approach often leads to wasted time and money, and at worst, business failure. But for those who plan, research and commit to their business, it means a chance at success. A written business plan is the key to a well thought out roadmap to success. A business plan is much more than just writing down goals on a napkin and throwing together some ideas. “A business plan is a detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and qualifications of the owner(s).” A good business plan acts as a tool for small business owners when trying to define the goals of their business and the strategy in which to obtain them. An established business should have a business plan that may be used to guide the company in the right direction.