If you’re just starting a new business, you have probably wondered whether or not you really need a formal business plan. The short answer is, yes. A formal business plan is one of the most commonly overlooked aspects of successful business ownership — but it’s one of the most integral.

Many business owners mistakenly believe that business plans are only for those seeking funding for their venture. While a business plan can certainly help you to secure financing, that isn’t its sole value. The reality is, whether you have the capital you need or not, there are myriad benefits to having a formal business plan that will contribute to your company’s long-term success, including:

  • Evaluating your industry, market, and competitors
  • Identifying business challenges and strategies to overcome them
  • Identifying opportunities
  • Better understanding your business’ financial picture and defining profitability
  • Setting performance and other goals
  • …. And more!

Even if you’ve been operating your business successfully without one, it’s never too late to create and implement a formal business plan. Many business owners cite time as a reason for their lack of a plan, and while developing a complete business plan will take time, it will certainly be time well spent.

Plan for success

Some statistics state that as many as 50 percent of all U.S. companies fail within five years. With that in mind, it’s smart to give yourself every advantage you can — starting with proper planning out of the gate.

A 2017 survey found that having a business plan doubles a company’s chances of success. Of 995 business owners who said they’d completed a business plan, 499 — or 64 percent — said they had grown their business. Additionally, 297, or 36 percent of those owners, had secured a loan and 280, or 36 percent, said they’d secured investment capital.

Let’s take a look at some benefits beyond those listed above of devising a formal business plan.

  • It helps you secure financing. This is the most obvious benefit for new entrepreneurs and startups. Any bank or private investor will want to know why they should buy into your business. A business plan lends credibility and shows that you’ve put real thought and planning into how your company will operate and remain profitable and viable. By showing investors how you have predicted profits and income streams, you will show them that you’re for real.
  • It helps you to make decisions. A business plan can help you define specifics — from what products or services you will sell and how you will price them, down to more granular details, including how you will define success and profitability. Of course, you always have the freedom to pivot if it makes sense, but spelling out these details will help you avoid indecision to define key aspects of your business and how it will run.
  • It helps you set goals and prioritize. Particularly for new business owners, defining priorities can be a challenge — but this is also a key area where existing business owners can also benefit from developing a formal business plan. A well-thought-out business plan is an indispensable tool that will help you in reaching both short- and long-term goals. Setting goals helps to define — or redefine — your company’s direction and objectives. It also helps you to map out the steps and strategies to achieve those goals and to address how you will manage any unexpected hurdles or challenges that arise.
  • It identifies gaps. Initially, a business plan can be an integral part of your SWOT, or gap, analysis. A SWOT analysis is an organized list of your business’ greatest strengths, weaknesses, opportunities, and threats. A SWOT analysis should always be a part of a formal business plan.
  • It enables you to objectively assess your business. Having a business plan empowers you with a tool to evaluate what’s working and to identify areas of improvement. When you are in the day-to-day rhythm of running your company, it can be difficult to accurately gauge its success or to identify where changes need to be made. Being able to evaluate your company against defined goals and standards will keep you honest and objective about the true state of your business.
  • It inspires new ideas. Going through the process of business planning almost always yields new perspectives and ideas. If you approach your business plan as a living document, rather than a static or stringent set of rules, it can foster creativity and future growth. You can even involve your employees in planning. Doing so will allow you to benefit from their feedback and give them an opportunity to contribute and feel more invested in the business as a result.
  • It puts you in control. Let’s face it: As a business owner, there will be days where you feel like nothing is in your control. By going through the planning process, you can revert back to logic in those times of chaos. Being able to do so will give you a sense of control and keep you focused on your goals during stressful or uncertain times.
  • It makes your business more saleable. Beyond running your company as its owner, a business plan will also benefit you when it comes time to sell your business. Having a proven business plan that’s worked year over year will legitimize your business and make it more attractive to potential buyers. For many prospective buyers, a business plan adds an additional element of security in order to successfully take over and run an existing company.

Overall, developing a formal business plan will give you greater insight into a variety of factors affecting your business, which you may not have otherwise considered. Once you’ve developed your formal business plan, you should review and update it regularly. Doing so will help to keep your goals top of mind, assess what’s working and what isn’t, and identify new opportunities that come your way.