3.1 Why a Business Plan Is Important (Part C Question/Answer)

Explain why a business plan is important for every new business.

A business plan makes you think about all aspects of your business, so it helps you prepare for most situations. A business plan is required by lenders, so you will not be able to get a loan without one. A business plan forces you to communicate your ideas effectively, so it helps you convince lenders, suppliers, and yourself that your business can succeed. A business plan can be used as a managing tool, so it helps ensure the future success of your business.

Explain how the three purposes of a business plan apply to starting a new business if the entrepreneur does not need financing.

The answer to Question 1 also applies to this question. However, in this case, the person that the entrepreneur has to convince is himself or herself. The business plan will instill confidence in the entrepreneur and show that the business can be successful.

Explain how the three purposes of a business plan apply to obtaining financing for a new business.

The three purposes of a business plan all serve to convince lenders and investors that your business idea is SOLID. First, you need to show that there is a MARKET for your product or service. Thus, your product or service must be new, better, or less expensive than those presently available, and you must show how you plan to obtain and keep customers. Second, short-, medium-, and long-term sales projections must show that your business will be profitable. Third, the background and experience of you and your staff must convince lenders and investors that you are capable of running the business.