The Value of Having a Business Plan Essay

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Entrepreneurship and Small Business

A business plan serves as the blueprint for the business. It explains what the business is, why it works, and how it will compete in the marketplace. As such, it provides some structure for the entrepreneur during the formative stage of the business where the ideas are first being generated and decided upon. The business plan can provide clarity during this stage, and help the entrepreneur to understand all of the different aspects of the business (Millyard, 2016). The business plan also plays a couple of other critical roles in the business.

The first of these roles is that the business plan is an essential element of obtaining financing. Kazoo was able to acquire a $500,000 loan from the bank, and this was only possible because there was a solid business plan in place. The business plan shows potential investors/creditors that the company understands its target market, and has thought about the critical elements to success. For this to work, the plan has to be of high quality, with the details all well-researched. Especially if the business plan is going to be used to raise equity capital, it must demonstrate a pathway to liquidity for these investors, so that they know the company is going to enjoy high returns and then allow for the investors to cash out within a few years (Entrepeneur.com, 2014)

This research also provides a certain amount of clarity for the entrepreneur as well. Many people are excited by their great idea, but to bring that idea to life they need to research the market carefully, and be as sure as possible that their idea is going to work. The research that is done into the business plan lends clarity to things like target markets and supply chains. The entrepreneur gets to know what suppliers are out there, and probably contacts them at this stage. For something like Kazoo, market research would have helped Nelson to understand the needs of the target market, and how she could differentiate the store from other retailers, for example the emphasis on non-violent toys would have strong appeal to a specific subset of the market.

Another purpose of the business plan is to build the team around the company -- the employees and the suppliers.

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They do not need to see the plan specifically, but once the entrepreneur has created the plan, then the entrepreneur can more effectively communicate this plan to other stakeholders, and convince them of the merits of the company. Business plans help the entrepreneur learn what ideas to focus on, and how to pitch the company to the different companies that they will be working with.

There are several elements to the plan, which is basically an outline of the entire business. The marketing side is important, because this is where the company outlines what the target market is, and how that market will be reached. Understanding who might be interested in the product or service, and why, is one of the most important parts of the business plan, because ultimately more than just the entrepreneur needs to think that the idea is a good one. Providing a counterbalance to one's emotions is an important aspect of the business plan (Ronick, 2011).

The operations side is important as well. This is where the company figures out how to make everything work. For Kazoo this would be discussing its plan for the layout of the store, and identifying the supply chain dynamics that go into this business. Other elements of operations, such as support are outlined here as well.

The financials are one of the most important parts, but one of the most difficult to get right. It is important that the financials are well-researched. If they are a work of fiction, then they might not have a lot of value to the entrepreneur. The numbers will not only inform about the viability of the business, but will help the entrepreneur to determine what needs to be done in order to make the business work -- how can the desired return be achieved. For Kazoo, the numbers would have shown that to be profitable, it needs to focus on creating a differentiated experience, because it can't work with the margins that companies like Toys R Us have. Again, though, these numbers have to be based on research to have any value.

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