Why Business Plans are Important to Small Businesses

It's exciting to start a small business. Once an owner forms an idea, he often wants to leap into the business immediately. A business plan forces him to pause, analyze the facts that support his assumptions and validate the business viability.

Significance

According to the U.S. Small Business Administration (SBA), roughly 50 percent of small businesses will close within the first five years, reflecting a gap between small business owner intentions and results. Lack of planning is one of the main causes.

Function

Business plans are required to obtain loans or investment capital. They provide management direction and tell potential suppliers, customers and partners about the proposed business.

Features

A business plan contains information about your business, competition and unique value. It illustrates that you know what you need to operate the business and justifies projections of revenues, expenses and profits.

Benefits

Business plans help small business owners prove to themselves and others that their venture can be successful. They give the business credibility and can attract new partnerships or opportunities.

Raising Capital

Investors expect your business plan to have thorough justification for financial estimates and details about your competitors' market share.

References

• Why Businesses Fail
• SBA: Should You Open a Small Business?
• Benefits of a Business Plan

Resources

• SBA: Manage Your Business from Start to Finish