For the majority of South African entrepreneurs the likelihood of launching a company that is profitable after three years is quite slim. However, the chances of success are increased considerably if an entrepreneur takes the time and makes the effort to put together a business plan. It’s even estimated that businesses that plan grow 30% faster and are more likely to increase profit than those who don’t .
What is a business plan?
A business plan is a written statement of your business’s goals and the methods for realising them. A typical business plan will cover some of the following points – a vision statement; your team; business profile; financial and marketing plan and expansion plans, among others.
See also: Starting a Business in South Africa
While there are some entrepreneurs that swear by business plans and use it as a blue-print for every step of their business, there are those that question if it’s still a requirement.
Below we outline the two main reasons why a business plan is still a good idea today.
A business plan helps you obtain financing
Most new businesses need funding to launch. The good news is that there are a number of potential investors that entrepreneurs can reach out to in the early stages of their businesses including banks, VCs, private lenders or the government.
Most of these investors will require that you present a business plan which should have a financials section that details your future financial projections, including your budget for expenses and projected revenue.
Martin Zwilling, an American entrepreneur and writer in a Forbes magazine article, explains it the following way.
“Most professional investors, even if they like your story, and were properly introduced by a friend, will ask for a business plan at the due diligence stage,” he says.
Above all investors will look at your business plan to see if your business makes sense financially and how they can expect to get a return.
A business plan gets you customers
We all know that knowledge is power – this is even more true when you are launching a business that will ultimately find success among its target market.
According to a study by CBInsights, 42% of businesses that fail did not plan or research if there is a market for their product or service. In this case, a good business plan demonstrates that the entrepreneur has done their research and knows their customer well.
Your business plan should include a customer profile which includes your customers’ age, location, purchasing habits and even their goals and motivations. A customer profile is useful beyond just the initial business plan. This is explained by Marang Marekimane, a business strategist and founder of Business Processes Mechanics.
“Creating a customer profile makes it easier to communicate the value of your products and services to potential customers and convert them to buyers,” she says in the article, ‘How To Create A Customer Profile To Find Out Who Your Real Customers Are‘.
Ultimately, a business plan puts you ahead of your competitors as it forces you to research one of the most important factors of business success – having a keen understanding of your customers and the market you are operating in.
Beyond these two main advantages there are many benefits to having business plan – including a clear roadmap for achieving your goals, gaining insight into the viability of your business idea and achieve structure, among others. With all these benefits it’s clear that putting in the work to craft a business plan is well worth the effort.