Why do you want a business plan? You already know the obvious reasons, but there are so many other good reasons to create a business plan that many business owners don’t know about.
1. To map the future
A business plan is not just required to secure funding at the start-up phase, but is a vital aid to help you manage your business more effectively. By committing your thoughts to paper, you can understand your business better and also chart specific courses of action that need to be taken to improve your business. A plan can detail alternative future scenarios and set specific objectives and goals along with the resources required to achieve these goals.
By understanding your business and the market a little better and planning how best to operate within this environment, you will be well placed to ensure your long-term success.
2. To support growth and secure funding
Most businesses face investment decisions during the course of their lifetime. Often, these opportunities cannot be funded by free cash flows alone, and the business must seek external funding. However, despite the fact that the market for funding is highly competitive, all prospective lenders will require access to the company’s recent Income Statements/Profit and Loss Statements, along with an up-to-date business plan. In essence the former helps investors understand the past, whereas the business plan helps give them a window on the future.
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When seeking investment in your business, it is important to clearly describe the opportunity, as investors will want to know:
• Why they would be better off investing in your business, rather than leaving money in a bank account or investing in another business?
• What the Unique Selling Proposition (USP) for the business arising from the opportunity is?
• Why people will part with their cash to buy from your business?
A well-written business plan can help you convey these points to prospective investors, helping them feel confident in you and in the thoroughness with which you have considered future scenarios. The most crucial component for them will be clear evidence of the company’s future ability to generate sufficient cash flows to meet debt obligations, while enabling the business to operate effectively.
3. To develop and communicate a course of action
A business plan helps a company assess future opportunities and commit to a particular course of action. By committing the plan to paper, all other options are effectively marginalized and the company is aligned to focus on key activities. The plan can assign milestones to specific individuals and ultimately help management to monitor progress. Once written, a plan can be disseminated quickly and will also prompt further questions and feedback by the readers helping to ensure a more collaborative plan is produced.