5 Reasons Why You Need a Business Plan

You might have heard that it’s essential to have a plan to have a successful business but might not understand why. When you have a well-written business plan, it can direct and empower not only everyone on your team but also you, as the business owner. These are the 5 most important reasons why you need to have a business plan in place.

Pin graphic why you need a business plan

When you take a look at most business owners who are struggling to become profitable, they all have one thing in common: they have not written a business plan.

Some debate that a business plan isn’t necessary, especially if a business owner is not planning to obtain financing. Sure, you might not notice it missing at the start but as time progresses, you will probably notice some inconsistencies and patterns that might seem harmful to your business.

While writing a business plan doesn’t sound fun and it’s more exciting to just jump right in and test out an idea sooner rather than later, many can’t answer the most fundamental questions about their business. The lack of research, understanding, and planning are reasons why many businesses fail.

5 Questions To Answer In Every Business Plan

According to the U.S. Small Business Administration, over 50% of small businesses shut down within the first five years.

There are several reasons why most businesses fail, including a lack of cash flow, poor planning, and not having a good understanding of the market they are currently in. Common misconceptions about business plans are that they’re complicated and will takes months to write.

That’s not exactly true. It doesn’t have to be a complex and lengthy plan if you focus on the basics. In working with new and struggling business owners, I’ve learned that there are five basic questions that need to be answered in every business plan.

#1 – Why do you want to have this business?

Team creating a business plan

In my experience, this question has two parts to it.

The first part would be: what is the specific problem and challenge that you are solving? There must be a driving need for why you are starting this business. You might’ve noticed that your product is something missing in your niche and you know many people would benefit from it. This may also be referred to as your mission statement.

The second part of it would come down to why. Putting aside the need in your niche, there also needs to be a drive and dedication coming from you, as the business owner, and your staff to make your business the best it can be.

Putting both of those reasons into your business plan will allow you to structure your layout to work best for your business.

#2 – What products and services are you offering?

Once you are clear what the problems and challenges you are planning to solve and have your mission statement nailed down, it’s time to think about how will you be solving them? Specifically, what are the products and services that you are going to offer to the market?

I would recommend making sure that you have more than one product or service to diversify your income, especially if you have a seasonal business. The best scenario would be for you to have three different options or products for your customers.

Otherwise, you may find your customers asking themselves “Do I want to buy?” versus “Which option (A, B, or C) do I want to choose?” 

By giving them a variety, they have the ability to pick and choose the product that works best for them.

#3 – Who is your ideal customer? 

Please do not say that your target market is everybody. The most common mistake that small business owners make is believing and saying their ideal customer is “anyone right now” because they just need to make a sale.

That’s a big mistake.

You can’t and won’t be able to market effectively if you don’t have a specific person in mind who needs your exact product and services.

Do your homework by either researching online or by asking friends, colleagues, and potential customers. Provide specifics on who your ideal customer is, including gender, age, marital status, profession or industry, household income, interest, hobbies, etc.

This all will help you narrow down and identify your ideal customer as well as the marketing of your product and/or services.

#4 – What makes your business unique? 

Entrepreneur creating a business plan on laptop

In other words, how are you different than your competitors? Why should customers buy from you?

What sets you and your business apart from everyone else?

It can be from your packaging to your messaging and even the physical product you are offering.

You want your customers to believe that you are either the only one who can solve their problem or the best choice to help them achieve their goals.

This can also be referred to as your branding and can be added to your marketing strategy.

#5 – What are the expected sales and costs to run and grow your business?

Most business owners overestimate their sales numbers and underestimate their costs and expenses. Often, they don’t know what they don’t know, resulting in prices that are too low and costs that are too high.

If sales numbers are decent but costs are higher than expected, there may be little to no profit. I’ve had many small business owners think they were doing great from a sales perspective, but then couldn’t understand why there was never any money left at the end of the month.

True Story:  I know business owners who made $60,000 to $1 million in sales a year, but didn’t have any profits.  They didn’t have a good handle on their finances and spent more than they brought in.


  • If Sales $ > Cost of Goods Sold = Profit
  • If Sales $ = Cost of Goods Sold = Break-even
  • If Sales $ < Cost of Goods Sold = Loss

While breaking even is good, if you’re making little to no profit after calculating just the cost of goods sold (also known as direct costs of goods and services), then you are heading into the negative numbers once you have to factor in indirect costs to running the business, including rent, telephone, accounting, staff, and legal services, etc.

Taking the time to factor in labor, expenses and profit goal will allow you to set a price point in your business plan to allow income flow.

Three Solutions If You Need Help Writing A Business Plan

Now that you have thought about the five questions I shared with you above, you might be ready to put your business plan together but are still struggling in how to actually put it all together.

No worries. I have you covered!

If writing a business plan still seems daunting and you are struggling to move forward, here are three simple solutions you can pursue if you need help writing out a plan for your business:

  1. Take a business planning class to go through writing a business plan with a step-by-step process. Do some research at your local community college and see if they have a small business center that offers free seminars or evening/weekend courses.
  2. Talk to mentors and colleagues who have successfully started a business and have some insight on your industry.
    • Example: SCORE.org is a resource partner of the U.S. Small Business Administration (SBA) and provides mentoring and education with over 10,000 volunteers in 300 chapters.
  3. Hire a business and financial coach to help you talk through areas that you aren’t comfortable with or don’t have any experience in. Some people do better with having a sounding board and brainstorming with an experienced business owner than trying to unravel it all on their own. A good coach will have both business and financial skills to help you create a solid business plan with financial data and hold you accountable when it comes to completing the plan.

It’s Time To Build Out Your Business Plan

Planner notebook with a business plan written

If you are thinking about starting a business or struggling to make a profit, be sure that you can answer these five questions regarding your mission, offerings, ideal customer, branding, and finances.

While these aren’t the only questions you should be answering in a business plan, defining these will create you a solid foundation to continue growing and building your business upon.

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4 Comments. Leave new

  • “If Sales $ > Cost of Goods Sold = Profit
    If Sales $ = Cost of Goods Sold = Break-even
    If Sales $ < Cost of Goods Sold = Loss"

    So basic, yet so many entrepreneurs forget this! Can't grow without the profits to fuel the growth.

    I definitely agree business plans are important. I've also noticed that many try to make it too big and complicated, so they never get around to it. I'd rather have a 1-2 page business plan that's done then a 50 page plan that's not done. And then most importantly, that 1-2 page plan allows you to get started and begin working! Because the plan will naturally change as you move forward.

    Thanks for the article!

  • Thanks for reading and sharing your comments, Chad! Great point about having a 1-2 page business plan to get started vs. a 50 page plan that’s never done. Completely agree – plans will naturally change. Most businesses, including mine, has changed from when I started it. Having a simple business plan and sharing with others can help you validate the changes and assumptions.

  • Thank you, Sylvia. You have distilled this advice down to the absolute basics. Business plans can appear challenging, but you have nailed it! The thought and action that go into answering these 5 key questions have helped me make real progress toward my business goals. Keep blogging!!

    • Thank you, Lily, for reading and sharing your feedback! I’m so glad to hear that these 5 key questions helped you make progress toward your business goals. Feel free to reach out if you’d like a review and feedback on your business plan.


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