A business plan is both a complete analysis and feasibility study of bringing a business market and to receive investor funding. It is a crystallization of all aspects including financial and marketing expenses which will determine the success of the endeavor to be undertaken. It is also meant as a sales pitch to convince those looking to invest in your business that is not just a hobby but a very serious business to be established for long-term financial success. A business plan is important because a thoroughly researched plan will cover all aspects and leave no stone unturned which could result in unexpected expenses or unplanned stumbling blocks which could lead to business failure.
A business plan is important because it outlines the principles who will be handling day-to-day operations. It also answers questions like what is the nature of the business, what expenses are expected to be involved in ongoing operations, what does the macro economic environment look like regarding competition, and what is the plan for long-term profitability? It will also take into consideration how customers will be solicited, the business' location and what type of product differentiation will help set your business apart from other similar operations.
The business plan will also outline all expected expenses including property plant and equipment as well as utilities and labor costs. Workers compensation, federal and state taxes, raw material expenses and the marketing budget will also be included in a financial section so investors know where the money will be going and whether or not is being spent appropriately. The more thought out a business plan is the more likely it is to receive funding from a bank or other financial institution. Similar to having a credit report reviewed when seeking a loan for a mortgage or automobile, a business plan is reviewed when seeking capital to fund a business venture. The level of detail and thoroughness of the analysis will be readily apparent to any person reviewing your business plan. Poor grammar and punctuation as a well as generalizations will be immediately dismissed as not being serious.
At the end of the day a business plan is important because it is your presentation, your sales pitch, to convince others to give you money to start a business. They have to not only believe in the idea and its execution but also in you. Investors are looking for a return on investment with as little risk as possible. The more professional and well thought out your business plan is the more likely it is to be properly funded. Typing up a few pages and saying you have a great business idea is not going to be enough to receive capital and get your business off the ground. Be professional and thorough as well as enthusiastic and visionary if you want to convince others to give you money to make your dream come true.