The purpose of a business plan is to explain in writing what your business idea is, why it is needed in the marketplace, how it will succeed and who will make it happen. In the process of writing a full business plan, you’ll essentially be forced to run your new business on paper before you get in over your head. The plan will reveal any flaws in your idea or its execution and give you a chance to correct those issues before you invest too much time or money, or pledge your house as collateral for a commercial loan. Writing a business plan will also show you everything you need to know about your business as its owner.
Once your business is up and running, your business plan will be a document you can look back on any time your business is struggling or you are having doubts. Consulting your plan at times like these can show you if you are on track. Perhaps you’ve strayed from your plan and need to return to your original ideas; on the other hand, if you are on track and things just aren’t working, the business plan will allow you to easily examine every detail of your business and see where you need to alter your plan to improve your business model. (Do you know how your companies really make their money? Learn to assess the systems by which businesses generate their revenue – read Getting To Know Business Models.)
In an ideal world, everyone would write a business plan before they actually started their business, but sometimes this is not the case. If you are already up and running but don’t yet have a business plan, your primary motivation for preparing one will almost certainly be to obtain financing. An existing business that is undergoing a significant change would also benefit from preparing a business plan, regardless of whether it is seeking financing. The good news about creating a plan for an existing business is that you will have real-world experience and real-world financial data to work with.