Building Your Business Becoming an Owner Business Plans Why You Should Write a Business Plan By Susan Ward Susan Ward Twitter Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses. learn about our editorial policies Updated on September 13, 2022 Fact checked by Daniel Rathburn Fact checked by Daniel Rathburn Daniel Rathburn is an associate editor at The Balance. He has over three years of experience working in print and digital media as a fact-checker and editor. Daniel holds a bachelor's degree in English and political science from Michigan State University. learn about our editorial policies Sponsored by What's this? & In This Article View All In This Article To Test the Feasibility of Your Business Idea To Give Your New Business the Best Chance of Success To Secure Funding To Make Business Planning Manageable and Effective To Attract Investors Frequently Asked Questions (FAQs) Photo: The Balance / Getty Images A business plan is the blueprint for your business. Starting a business without a business plan is like building a house without a blueprint. Yet, unlike a house, a business isn't static. We often make the mistake of thinking of a business plan as a single document that you put together once when you're starting out and never touch again. But as the business develops, so should its business plan. In fact, any particular business may have multiple business plans as its objectives change. Writing a business plan is time-consuming, but it's essential if you want to have a successful business that's going to survive the startup phase. Key Takeaways Writing a business plan reveals how tenable your idea is. Updating and amending a business plan as the business develops and its goals change is vital to your success.A good business plan helps you define your target market, competitive advantage, optimum pricing strategies, and better prepares the business for upcoming challenges.A business plan helps you secure funding and attract new investors. To Test the Feasibility of Your Business Idea Writing a business plan is the best way—other than going out and doing it—to test whether an idea for starting a business is feasible. In this sense, the business plan is your safety net. If working through a business plan reveals that your business idea is untenable, it will save you a great deal of time and money. Often, an idea for starting a business is discarded at the marketing analysis or competitive analysis stage, freeing you to move on to a new (and better) idea. Unfortunately, many prospective business owners are so convinced that their idea for a product or service is a can't-miss proposition, that they don't take the time to do the necessary research and work through a proper business plan. The more you know about your industry, your prospective customers, and the competition, the greater the likelihood that your business will succeed. To Give Your New Business the Best Chance of Success Writing a business plan will ensure that you pay attention to the broad operational and financial objectives of your new business and the small details, such as budgeting and market planning. The process will ultimately make for a smoother startup period and fewer unforeseen problems as your business gets up and running. The exercise of budgeting and market planning will help you define your target market, your unique selling proposition, optimum pricing strategies, and outline how you intend to sell and deliver your products to customers. In addition, developing a budget for implementation will assist with determining your startup and operating capital requirements. Note According to the Small Business Administration, one of the most-cited reasons why businesses fail is inadequate planning. By starting too soon and without a sufficient plan, your business is setting itself up for failure. To Secure Funding Most new businesses need startup and operating capital to get off the ground. Without a well-developed business plan, there is no chance of getting debt financing from established financial institutions such as banks or equity financing from angel investors. Established businesses often need money, too, to buy new equipment or property, or because of market downturns. Having an up-to-date business plan gives you a much better chance of getting the money you need to keep operating or expand. Note Even an angel investor will want to ensure their money is going to a business that knows what it's doing. The easiest way to prove this is via a well-developed business plan. Investors and financiers are always looking at the risk of default, and word of mouth is no substitute for written facts and figures in a properly prepared business plan. To Make Business Planning Manageable and Effective A business plan is essential if you're thinking of starting a business, but it's also an important tool for established businesses. Viable businesses are dynamic; they change and grow. Your company's original business plan needs to be revised as you set new goals. Reviewing the business plan can also help you see what goals have been accomplished, what changes need to be made, or what new directions your company's growth should take. To Attract Investors Whether you want to shop your business to venture capitalists or attract angel investors, you need to have a solid business plan. A presentation may pique their interest, but they'll need a well-written document they can study before they'll be prepared to make any investment commitment. Be prepared to have your business plan scrutinized. Both venture capitalists and angel investors will want to conduct extensive background checks and competitive analyses to be certain that what's written in your business plan is indeed the case. Frequently Asked Questions (FAQs) What are the sections of a business plan? A comprehensive business plan should include the following sections:Executive summaryCompany descriptionCompetitor analysisIndustry analysisProduct and services descriptionManagement Financial data What is the purpose of a business plan? A business plan has four main purposes:Tests the feasibility and model of your business ideaAttracts investorsSets a plan for growth Identifies capital needs Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Small Business Administration. "Selecting a Business That Fits."