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Why you need to have a business plan

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One of the main reasons small businesses fail is because they run out of money. Crunching the numbers early could save your business from that fate.

 

Work through important details with partners

If you're starting a business with another person, a business plan becomes all the more important. This is the document where you can work through the details, including how much you'll spend during the startup phase, and who is responsible for each aspect of the business operations.

 

Secure funding

If you need to secure funding for your business, a business plan is crucial. Lenders and investors want to know that you have a solid plan in place for reaching profitability and repaying borrowed funds. The financial portion of your business plan should demonstrate when you expect to reach profitability and how you'll be able to repay your debt.

 

Define your marketing plan

Having ideas for how to get customers is an incredibly important part of starting a business. How are your customers going to hear about your business? Are you going to use local or digital marketing to reach them? These important details can get overlooked when there are so many other parts to starting a business. By taking the time to write a business plan you're forced to think strategically about how you'll approach marketing. That advanced planning can make all the difference to the early success of your business.

 

Crunch the numbers

How much do you need to sell for your business to break even? At what point will your business become profitable? What's the right price to charge? These important numbers are covered in your business plan. After writing your business plan you'll know your margins, how much business you need to bring in to turn a profit, and how much you can spend on startup expenses like office space and staff. One of the main reasons small businesses fail is because they run out of money1 — crunching the numbers ahead of time could save your business from that fate.

While writing a business plan is time-consuming, it worth the effort to ensure you're setting your new business up for success.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Melissa Horton, "The 4 Most Common Reasons a Small Business Fails," Investopedia, published June 8, 2020, accessed January 11, 2021. Back