The Importance of a Business Plan for a Successful Business

A business plan is very essential to almost any business‘s success, you need a plan or at least a description of the direction you want your company to go in the future. A business plan a set of organizational goals that you. as a company, feel are realistic and can be obtained over a cenain period of time. Business plans can be used by investment-hunting entrepreneurs, firms trying to bring in new employees, the possibility for new business partnerships, dealing with suppliers or, more directly, how to better manages your own business.

A business plan will overview your entire company top to bottom and help you figure out the best steps to take toward generating revenue by setting up marketing and sales plans, operating plans and human resource plans. Essentially, a business plan will give your business a better direction. According to Business Plans (2010). there are three primary parts to a business plan: Business concept, marketplace section and financial section.

The first part, business concept, involves the discussion of the industry, your business structure. your business and how to make your business more successful.

The marketplace section is describing and analyzes potential future customers. Analyzing potential customers can involve things such as who they are. what makes them spend their money etc. During marketplace section, you also describe your competitors and the best way to get ahead of them in your particular market. The third and final part to a business plan is the financial section, which contains your income and cash flow statement and balance sheet.

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This is the part that most business owners may need to call their accountants for because, as mentioned before it contains complex financial statements etc. Breaking it down even further, beyond the three sections, a business plan also consists of: An executive summary, a business description, market strategies, a competitive analysis, a design and development plan, an operations and management plan and other financial factors.

A business plan often requires different types of financing to help fund it one being debt financing. Debt financing is borrowing money without giving up the ownership of that money. When you’re given the money, it often comes with harsh conditions as well as the interest that accumulates on the money over time. Debt financing can be either short-term or long term, in terms of repayment. Short-term financing is usually to fund current operating activities whereas long-term financing is used for bigger things such as buildings and equipment. According to Ag Decision Maker (2016), debt financing includes borrowing money from: Friends and relatives, banks and/or other commercial lenders, commercial finance companies, government programs and bonds. Friends and family are an option because well. they‘re family and are the people you are closest with. A lot of the time friends and family will let you pay them back with less interest than if you were to go through another option. Another option would be banking/other commercial lenders.

This option though tough to get approved. is very popular. Banks require you to have a good business plan and a good credit report. This is not the option to go with if your business is a start-up. Commercial finance companies are often used when someone was previously denied a loan from other commercial sources. Commercial finance companies don’t rely on track records as much because they make you offer up a lot of collateral if you are end up defaulting on a loan. It’s a high-risk high-reward path to take. Government programs, another source, are programs, such as the Small Business Administration (SBA). designed to lend a hand to small businesses and new ventures. This option is used when a business may not have many assets to offer up as collateral. Lastly we have the option of the bond. Bonds are basically a loan between an investor and the business.

An investor will give the company a cenain amount of money for a certain amount of time and, in return, the company will pay the investor gets interest payments at the agreed upon times. Pros of debt financing would include things like being able to keep the ownership of your business tax breaks, lower interest rates among others. The cons of debt financing would include things like having to pay back debt, high-interest rates and often negative credit ratings that can be acquired when borrowing large amounts. Another financing option that you can use is equity financing. Equity financing involves inflating money through investors for a small business. By using equity financing, an owner gives away part of their ownership to investors who want to see a return on their investment through the business.

Different types of equity financing involves options such as, SBA investment companies, angel investors, venture capitalists and royalty financing among others. SBA investment companies are programs designed to give small businesses venture capital, They are regulated by the SBA but are also private investment companies looking for profits. Angel investors are groups or individuals who are very wealthy that help start up businesses by providing private equity to help businesses grow. Another equity financing option, venture capital, are people who invest in a high risk business that they think will give them a sound return investment.

Royalty financing is an investment in future sales of a company’s product. Some pros of equity financing would be no interest payments to investors, no liabilities and no monthly payments. The overwhelming con of equity financing would be having to give up ownership of your business which gives you little to no power in a company you started. In conclusion, I‘ve learned a lot about business funding sources that I did not previously know. I read more in-depth about certain paths you can take when it comes to funding your business. In my personal opinion, I would choose debt financing because I would never want to see an individual or group of individuals take over a business I built. I know it’s easier said than done to keep a business afloat without equity financing but I believe the ideal option would be debt financing.