The importance of having a business plan
Your business plan is one of the most important documents you will need to start and run a successful business. It outlines the sources of funding and expenditure for the new enterprise.
Although you don’t need a business plan to set up a business in Ireland, it will give you direction on how your business will operate and grow. Most importantly, the plan is often used to acquire loans and funding that are necessary to set up the business. Check out our page on how to set up a limited company in Ireland as well.
In this blog, we review the important elements of the business plan, reasons why you need it and its scope in setting up your business.
What is the business plan?
A business plan is a template of your business operations, funding and expenses. It outlines all the important facts that help prospective customers, funders, lenders and other stakeholders know what your business is trying to achieve.
The main elements of the business plan include the following:
An overview provides a summary of the business as well as its mission and objectives.
The Company section outlines how the business is structured legally, its ownership, the business location and any starting managerial staff. This section also outlines if the business has been in operations previously. For example, Sole Trader to Limited Company.
There is a Market Analysis section that identifies the need for creating the business. It reviews the gaps in the market and answers the questions of how and why your business will fulfil these gaps. It also provides information about competitors and future demand expectations.
The Products/services section explains all the products and services that you will offer in the market.
Strategic Implementation section gives an overview of your operations. It explains what resources will be hired and the marketing, financial and operating strategies for the business.
A section should be dedicated to explaining the management structure as well as the recruitment, R&D and HR requirements of the business.
The Financial Forecasts section outlines the profits, expenses, assets, liabilities and capital in the business. Profit & Loss Statement, Balance Sheet, Cash Account and Business Ratios are important components of this section.
An optional section that is used to attach any other relevant information and statistics etc.
Why do you need a business plan?
Makes you think strategically about your business
As you can see from its structure, the business plan is a comprehensive document that provides a lot of information to readers. It tells them about the what, when, why, where, who and how of your business.
It gives a very good indication of what your business is trying to achieve and what you need to accomplish your objective.
Can be used to acquire funding
One of the main purposes of a business plan is to acquire funding from potential investors and lenders. You might have the most visionary business idea in your head, but you will find it difficult to explain it to an investor in words without the help of a proper business plan.
It is a document that can be evaluated critically by lenders and investors to conclude whether they should invest in your business or not.
Helps you determine if your business idea is a viable one
Another reason to prepare a plan is that it helps you put things into perspective. Creating a business plan requires undertaking market research about the demand for a product or service. You also learn about the competitors in the industry.
In the end, you may decide that the venture isn’t as profitable as you thought or more competitive than you could handle. Preparing a business plan could give you insights on the probability of success and may keep you from investing time and resources in a difficult venture.
Pros of writing a business plan
- A business plan helps you assess the market and get information about your competitors, customers, suppliers and other key stakeholders.
- It gives you better awareness of market demand for your products and services and serves as the guiding document for setting up your business.
- Planning helps you grow your business gradually instead of committing too many resources too quickly.
- Drawing up a plan gives you a more reasonable estimate of the resources and funding you will need to set up the business.
- Many investors and lenders will ask to see a business plan before they will consider approving any funds for your business.
- It helps you set up a roadmap for the business that can be useful in prioritising your efforts.
- It also helps you set reasonable expectations for cash by accounting for cash inflows and outflows.
- You can run the business plan through with colleagues, friends and other businesses to find out if it is feasible or not.
- Many business plans also include an exit strategy that identifies how you will sell it off down the line if/when you want to exit.
- The business plan helps you identify the skills that you lack for running the business, and you can make up for them by learning them or finding people who do have those skills.
Cons of writing a business plan
- It should be understood that the business plan is only a hypothetical plan. Having a plan will help, but it offers no guarantee of success.
- Writing a business plan requires advanced understanding and experience in business management, accounting and marketing. If you don’t have these skills, then you may find it difficult to write.
- Preparing a business plan requires a good deal of market research so it can be time-consuming.
- A plan is only as good as the research you put into it. If you are not trained for market research or don’t know how to write a business plan, the result will be far from perfect.
- It is possible that you overestimate or underestimate some revenue or expenses and get unrealistic expectations for the business.
- On the reverse side, it is also possible that you underrate the potential for the business and decide not to pursue the enterprise, even though it is a worthwhile venture.
Use the latest tools – Lean Canvas
You can use a variety of business planning tools that will help you draft a better business plan and serve as a guide.
Consider using the Lean Canvas which is a 1-page business plan template. The Lean Canvas document contains a snapshot of your whole business in one place and makes understanding the business easier.
Who needs a business plan
The only person who never needs a business plan is someone who never deals with any business. Everyone else who wants to create something beneficial or wants to invest in a project that earns a good return will need a business plan to understand businesses better.
Business plans are used by everyone from a freelancer and sole proprietor to SME businesses and large corporations. New businesses, in particular, need a business plan to help them acquire funding and set a direction for the business venture.
Even long-existing businesses require a business plan when they grow to the next stage of their enterprise. Businesses that are looking to get incorporated create something similar to the business plan called a company prospectus that outlines similar information as a business plan.
Updating the plan
The need for a business plan does not simply end after you have acquired funds and set up the business. You should keep the plan with you and update it regularly to reflect the changes in the business environment.
The following periods are the best times to update your plan:
Business plans should be updated at the start of a new financial year to set up new budgets and forecasts.
Funding or financial opportunity
Plans should be drawn up well in advance of a major financing requirement. If you are looking to expand your business, you should start writing a business plan to appeal to investors for funds.
When you develop a new product, service or technology or restructure your business into different components, you should write a business plan to make adjustments.
If the top business management is replaced, new managers may want to introduce a new strategy or shift the business focus to a level that merits writing a new business plan.
You may also need to write up a new business plan when your company crosses a new threshold. FOr example, your business may move to a new geographic location or adds another office in the market.
Lastly, you may want to update the business plan when the existing plan no longer reflects reality or meets the needs of your organisation.
How to set up a business in Ireland?
If you’re interested in starting a business in Ireland, our expert Client Services team are happy to help you understand what’s required.
Every month, we host a Startup Webinar for entrepreneurs that are looking to set up a company in Ireland. It’s a free, live event, hosted by one of our Chartered Accountants and Client Services Team.
Register for our Startup Webinar today.
Rose is the Director of Sales and Marketing at Accountant Online. Rose has worked in senior leadership roles for over 20 years in both US corporates and Irish SME’s. Areas of expertise: Leadership, Strategic Planning, Executive Coaching, Mentorship, Online Business Management