Is a Business Plan Worth the Time and Effort?
ByDanica Jovic
May 30,2022
A business plan is a document that outlines your business goals and objectives and how you plan to achieve them. It covers everything from your business history and background to your marketing strategy and financial projections.
It’s designed to help you navigate your business journey, attract investors, and secure funding. So, is a business plan worth the time and effort? The short answer is yes if you want to put your business on track to success. Keep reading to find out more.
Do You Need a Business Plan?
Business plans are a prominent feature of the modern business world. They play a critical role in helping entrepreneurs secure funding and getting businesses off the ground, but they can be time-consuming and difficult to create.
Figuring out whether you need a business plan depends on everything from your goals to the business life cycle. If you’re starting a new business, the importance of a business plan is obvious. A business plan can help you outline your ideas and determine what steps you need to take to make your business a reality.
However, if you’re further along in your business journey, a business planning process may not be worth your time. Some entrepreneurs think that since they already have a clear vision for their businesses, creating business plans is just a formality.
Why Is a Business Plan Important?
There are many reasons why you should put your business ideas on paper, even if you’re not looking for funding or investment. A business plan can help you in the following ways:
Help you start your business
With a written plan, you increase your chances of actually starting a new business rather than simply giving up on a good idea. A completed plan paints a clearer picture of what you need to do to start and run your business successfully.
Improve team satisfaction and performance
Another purpose of a business plan is to help you communicate your vision to your team and get everyone on the same page.
Having a comprehensive business plan can also improve job satisfaction because employees will feel like they are working towards something larger. Furthermore, studies have shown that businesses with a plan are more likely to outperform businesses without one.
Make better business decisions
Writing a business plan can help you make better business decisions because it forces you to think through all aspects of your business. For example, when you're planning your marketing strategy, you'll need to consider your target market, budget, and objectives. This process can help you save money and make more informed decisions about how to allocate your resources.
Secure funding
If you're looking for prospective investors, a business plan is essential. As a matter of fact, the most common use of business plans is to show investors the potential of your business and how you're going to use their money to grow your company. Without a business plan, it will be difficult to convince angel investors to give you the funding you need.
Look into the viability of your business idea
Business plans can help determine if your business idea is viable. This is important because it can save you a lot of time and money if you realize that your business idea isn't going to work before you've invested too much into it. To do this, you'll need to research your industry, competitors, and target market. This process can be time-consuming, but it's worth it when trying to identify potential pitfalls.
Track your progress
Building a business plan can help you track your progress and measure your success. This is important because it allows you to see how far you've come and what needs to be done in the future. Without a business plan, it can be difficult to set milestones and track your progress.
Attract partners
If you're looking for business partners, a business plan can be helpful. This is because potential business partners will want to see that you have a clear vision and a plan for achieving your operational goals. Without a business plan, it can be difficult to find business partners who are willing to invest in your company.
Secure insurance
Another reason why you need a business plan is to secure affordable business insurance. In order to pick the right insurance and get the necessary coverage, you need to assess all the potential risks. This may be difficult without a business plan.
Get a business loan
Most business loan applications won’t be considered without a business plan. Banks and other financial institutions want to see how much money you really need, how you plan to use it, and how you expect it to benefit your business.
Lease a commercial space
The purpose of business planning also extends to the leasing of commercial space. To get the right property under the right terms, you’ll need to lock down the perfect lease agreement. Landlords expect to see financial statements and a business plan to give them a sense of what you're doing and how you plan to cover long-term expenses.
Understand your competitors
During the planning process, you'll learn about the competition. This is important because it tells you what makes your competitors unique and what you can do to get ahead. It might be tough to research your rivals and grasp their business methods if you don't have a business plan.
Better understand your clients
When you're mapping out your business plan, you'll also gain an understanding of your target market and customers. The importance of business planning is to help you identify the right market and what potential customers are looking for. Researching your target market can be difficult, but it's an important part of creating a profitable business.
Practice your business presentation
If you're going to be pitching your business to potential investors, you need to have a strong business plan. This is because your business plan will be your roadmap during the presentation. Without a business plan, it may be difficult to keep your presentation on track and focused.
Avoid failure
The main purpose of writing a business plan is to help you avoid failure. This is because it forces you to think about all aspects of your business and ensures that everything is in place before you launch. Without a business plan, it's easy to overlook things that could cause your business to fail.
Grow faster
A business plan can help you grow your company. With a good plan, you'll get a clear roadmap and stay focused on your goals. Moreover, a good marketing plan will increase your chances of thriving faster. Without it, it can be easy to get sidetracked and waste time on activities that don't help you grow a successful business.
What Makes a Good Business Plan?
While there is no one-size-fits-all approach to writing a business plan, there are certain elements all successful business plans share. These include a clear description of your business, your business goals, a market analysis, an analysis of the competition, and a financial plan.
There are different types of business plans for different types of businesses. For example, a startup business plan will be different from a business plan for an established company. The type of business plan you need will also depend on your goals.
Bottom Line
Overall, a business plan is worth the time and effort because it serves as a roadmap for success. If you're looking to start a business, secure funding, or attract business partners, a business plan is essential. Additionally, a business plan can also help you track your progress, make better business decisions, and understand your competition.
FAQ
Is a business plan worth it?
A business plan can help you identify your goals, strategies, and potential pitfalls. It can also give you a better understanding of your business finances. There are many good reasons for a business plan, but it’s up to you to decide if your company needs it or not.
Is a business plan key to success?
Despite its obvious benefits, many entrepreneurs still ask themselves: Is a business plan worth the time and effort? The truth is that a business plan is one of many useful ingredients for creating a successful business. Taking the time to write up a comprehensive and detailed business plan can give you the confidence to get your idea off the ground, attract investors, and pave the way to success.
What is the importance of a business plan?
A business plan is helpful for thinking through your business goals and strategies. It can help you understand your competitors, grow faster, and avoid a few common pitfalls that small business owners grapple with.
About the author
Danica’s greatest passion is writing. From small businesses, tech, and digital marketing, to academic folklore analysis, movie reviews, and anthropology — she’s done it all. A literature major with a passion for business, software, and fun new gadgets, she has turned her writing craft into a profitable blogging business. When she’s not writing for SmallBizGenius, Danica enjoys hiking, trying to perfect her burger-making skills, and dreaming about vacations in Greece.
More From Our Blog
Discounted Cash Flow: Definition, Formula, and Examples
It goes without saying that each business investment should be approached carefully and strategically. One way to estimate whether an investment is risky is to employ a discounted cash flow (DCF) analysis. Keep on reading to learn more about this valuation method, including how to calculate it and its advantages and disadvantages.
What Is Discounted Cash Flow?
The term discounted cash flow (DCF) is used for a valuation of an investment based on its expected future cash flows. In other words, this method estimates how much capital a business will generate in the future while taking into account the time value of money. Therefore, DCF lets you see how much the expected cash flows would be worth at present.
The term discounted cash flow is sometimes used interchangeably with net present value (NPV). Although they are quite similar, a distinction can be made between the two. To be precise, NPV adds another step to the DCF calculation. After DCF is calculated, the upfront investment costs are subtracted to get the NPV value.
How To Calculate Discounted Cash Flow
To calculate the discounted cash flow, you should use a discounted cash flow formula. The most commonly used one is as follows:
DCF = CF1/(1+r)^1+ CF2/(1+r)^2+...+CFn/(1+r)^n
CF1 stands for the cash flow for the first time period, CF2 marks the second, while CFn is there to denote each following period. The discount rate is r. Let’s explain these three elements in more detail.
Cash Flow (CF)
There are several cash flow types, such as operating cash flow and unlevered free cash flow. In this case, unlevered free cash flow is used. It refers to net cash payments acquired by the investor for the securities they have, such as bonds and shares.
Number of Periods (n)
The number of periods simply refers to the number of years, months, or quarters you are calculating the discounted cash flow for. The periods are typically equal, but if they’re not, they are presented as a percentage of a given year.
Discount Rate (r)
In most cases, when evaluating a business, the discount rate is simply the company’s Weighted Average Cost of Capital (WACC). WACC measures the cost to a business to borrow money and is calculated by considering the company’s debt and equity financing.
The formula for calculating the WACC is the following:
WACC = (E/V x Re) + ((D/V x Rd) x (1 – T))
E represents the market value of the firm’s equity, while D is the market value of the firm’s debt. V stands for the total value of capital, which is the sum of equity and debt. Furthermore, E/V denotes the percentage of capital that is equity, and D/V is the percentage that is debt. Finally, Re is the cost of equity, Rd stands for the cost of debt, and T is the tax rate.
Discounted Cash Flow Example
To make things simpler, we’ll show you a DCF example. Let’s say you plan on investing in a company that is projected to have the following cash flow over the next five years:
Year
Cash Flow
1
$500,000
2
$550,000
3
$600,000
4
$750,000
5
$900,000
The discount rate we’ll use in this example is 10%. Here is what the calculation looks like when the formula is applied.
Year 1: $500,000/(1+10%)^1 = $500,000/1.1 = $454,545
Year 2: $550,000/(1+10%)^2 = $550,000/1.21 = $454,545
Year 3: $600,000/(1+10%)^3 = $600,000/1.331 = $450,788
Year 4: $750,000/(1+10%)^4 = $750,000/1.464 = $512,295
Year 5: $900,000/(1+10%)^5 = $900,000/1.611 = $558,659
When we add up the calculated discounted cash flows for all of the years, we get a total of $2,430,832. That number represents the discounted cash flow for this five-year period.
The Pros and Cons of the Discounted Cash Flow Analysis
The main perk of the discounted cash flow method is that it allows businesses and other investors to make predictions about potential investment opportunities. It’s also adjustable, so you may get different results in different scenarios.
On the other hand, this valuation method has some major limitations, making it less reliable than other options. Namely, it relies heavily on estimations. One of the elements in the DCF formula is the discount rate, and any mistakes here will lead to highly inaccurate results.
Bottom Line
Using the discounted cash flow formula can be useful for estimating whether an investment is worthwhile. However, it should be applied with caution, given that the formula’s key elements are approximations, so the result may not be as precise as you need it to be.
By Danica Jovic ·
December 22,2022
Running a small business is hard work. A lot of opportunities simply don’t pan out, and businesses can quickly sink into debt. But all hope is not lost, as filing for a Chapter 13 bankruptcy can give you some breathing room to restructure and reduce your debt.
In the following guide, we’ll tell you everything you need to know about a business bankruptcy Chapter 13 filing and help you figure out whether this is the way back to profitability for your business.
What Is Chapter 13 Bankruptcy?
Businesses aren’t eligible for Chapter 13 bankruptcy, but business owners are. As such, a
Chapter 13 business bankruptcy enables owners to re-organize their debts in order to salvage their independently-owned businesses. It doesn't involve any liquidation of assets. Instead, you agree on a repayment schedule with your creditors.
These payments are made on a monthly basis to the bankruptcy Chapter 13 trustee the court assigns to your case, who then pays the creditors. The entire process can last anywhere between three to five years. A portion of your debt may also be written off to make your payments easier.
The amount you pay back depends on your finances, including your income, expenses, and even the type of debt. However, there are some types of debts that you must pay in full, regardless of your financial status. These are referred to as priority debts, and examples include taxes, alimony payments, and other domestic support payments.
An important part of a Chapter 13 filing is your ability to prove that your income is insufficient to meet your debt obligations.
Chapter 13 Business Eligibility Requirements
Seeing as you cannot file for Chapter 13 bankruptcy under your business name, you’ll need to do it under your name. This is an ideal solution for sole proprietors who aren’t a separate legal entity from their business, as is the case with corporations and LLCs.
A sole proprietor is responsible for debts incurred as an individual and a business. This means that all of your personal income and property are available to clear off business debts. Also, creditors are more likely to get their money through this arrangement.
Benefits of Chapter 13 Bankruptcy for a Small Business
Here are some of the benefits your small business gets from a Chapter 13 filing.
Protect your business assets
Your business assets are crucial to keep operations running. Losing them to creditors to settle debts can be detrimental to your business. Thankfully, Chapter 13 bankruptcy lets you keep both exempt and nonexempt assets from being seized.
Exempt assets are those you need to operate your business. Different businesses have different property and equipment needs, and when filing for Chapter 13, you’ll need to prove that certain assets are critical for maintaining operations.
You can also keep nonexempt business property when filing Chapter 13. But you’ll need to account for their value in your repayment plan. Each state has bankruptcy exemption statutes that let you know what assets can be protected.
Write off business debts
This only works if you’re a sole proprietor, as there is no separation between individual and business debts. You can list business debts in your bankruptcy filing and most likely have to pay small installments on these debts. Once you complete your payment plan, a qualifying balance will be discharged or written off.
Settle with important creditors
Chapter 13 enables you to cover priority debts as part of your repayment plan. These include taxes or loans that you are personally liable for.
Conclusion
Filing for Chapter 13 is a perfectly reasonable solution for those trying to save a struggling business and keep their assets from being sold off. And while businesses aren’t eligible for Chapter 13, business owners can file for this type of bankruptcy to restructure their debt and save their business in the process. Before you file, it’s strongly recommended that you contact a Chapter 13 lawyer to discuss your options.
By Julija A. ·
June 24,2022
When running a business or reviewing our personal finances, more often than not, we find ourselves lacking funds for something. If it’s something luxurious, most of us simply won’t get it unless it’s absolutely necessary. After all, bad credit loans are something all of us try to avoid. Still, when we need something for our company to grow, we’ll try to get a loan.
The more money we need, the bigger the loan’s drawbacks. So what happens if we can’t pay those loans back? Bills and debts start piling up, and you don’t know which way is up anymore. If you’ve drained every option and even bad credit loans are no longer an option, it might be time to declare bankruptcy.
Is that the right choice for you, and how will you get back on your feet afterward? Well, the US government came up with a few solutions, one of them being Chapter 11. But what is Chapter 11 bankruptcy?
Chapter 11 Bankruptcy Explained
By definition, Chapter 11 bankruptcy involves reorganizing a debtor’s assets, debts, and business affairs, which is why it’s also known as "reorganization" bankruptcy. Although it’s available to individuals and businesses alike, it’s mostly used by companies.
Commonly, the debtor is allowed to keep their possessions, is viewed as a trustee, may continue to run their business, and (with court approval) borrow money again. When a reorganization plan is developed and proposed, creditors vote on it; if it passes and fulfills specific legal prerequisites, it is approved by the court.
The purpose of the Chapter 11 bill was to help businesses regroup and set up a strategy for the future. This plan may contain modifying payment due dates and interests and can even remove a debt entirely.
How Does Chapter 11 Work?
All bankruptcy chapters, including Chapter 11, halt the collection process. Once filed, the "automatic stay" forbids most creditors from hunting you, giving you enough room to breathe and figure out your next move. This temporarily stops:
Payment demands
Removal or any kind of foreclosure
Collections trials
Till taps, property confiscation, bank levies
Unlike other chapters, Chapter 11 allows the debtor to act as the trustee, meaning that they can continue everyday business functions as a "debtor in possession" while Chapter 11 restructuring takes place.
However, the business can not make all decisions without court permission. Restricted decisions include sales of any assets other than inventory, creating or closing a rental agreement, taking out new loans, and controlling business operations.
The court also controls payment decisions and contracts related to attorneys, vendors, and unions. Ultimately, the debtor cannot take out a loan that will begin after the bankruptcy is complete.
Is Chapter 11 the Best Bankruptcy Option for You?
There are nine chapters in Title 11 of the US Code, each focusing on different bankruptcy strategies. Chapters 1, 3, and 5 explain the legalities of bankruptcy for all parties involved, including the debtor, creditor, and court.
The other chapters explain who can file for bankruptcy and how to do so according to who they are or whom they represent:
Chapter 12 is for family farmers or family fishers with regular income.
Chapter 15 is used in international cases.
Chapter 13 is for individuals with stable income and has certain debt restrictions.
Chapter 7 is the liquidation bankruptcy chapter for people who cannot create a reorganization plan and provides them with information on liquidating their remaining assets.
How to File for Chapter 11 Bankruptcy
Now that Chapter 11 bankruptcy has been explained, let’s go over the procedural part. It begins by filing a petition at the debtor’s residential area or incorporation location’s federal bankruptcy court. It may be a voluntary petition, filed by the debtor, or an involuntary one, filed by creditors that meet specific requirements.
Then, the creditors vote if the plan within the petition is acceptable. Since the next option is usually filing for a Chapter 7 bankruptcy, meaning liquidation, creditors are typically cooperative.
However, if a creditor objects to the plan, the court will get the input from creditors and other interested parties, before deciding on the best course of action. The determining factors include:
Success probability
Good faith
The creditors’ best interest
If it is fair and equitable
So how long does Chapter 11 take? Well, there are technically no limitations. Some cases take only a few months, but it often takes six months to two years for a case to close.
By Nikolina Cveticanin ·
June 24,2022
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