A business plan is a comprehensive description of a business. It contains a thorough analysis of a business’s products/services, production or service delivery process, its industry and target market, the marketing strategies, human resources, organizational structure, the various infrastructure and supplies, financing requirements, the sources of funds and the uses of these funds in the business among several others.
The business plan describes the past, present and future of the business but the emphasis is usually on the future. The business plan is normally updated annually and looks ahead for a period of three, five or ten years depending on the nature and size of the business.
The business plan is a crucial document in application for any kind of funding from any source of financing for the business such as banks, individual investors and venture capital institutions. As a result, the business plan should be complete, sincere, factual, well-structured and reader-friendly.
There are many important reasons for drawing up a business plan. Some of the most significant are the following:
Getting An Integrated View Of Your Business
By preparing your business plan, you get an integrated view of all issues regarding your business. For example, it helps you to better identify your target clients, outline your market segment, shape your pricing strategy and define the competitive conditions under which you must operate in order to succeed.
The business plan ensures that all of these are consistent and properly harmonized. It also leads to the discovery of competitive advantages or new opportunities as well as deficiencies that may exist in the business. Committing your plans to paper ensures that your overall ability to manage the business will improve. You will be able to concentrate your efforts on any deviations from the plan before conditions become critical. You will also have time to look ahead and avoid problems before they arise.
Mutual Understanding Within The Management Team
The business plan helps to improve the understanding within the management team of your business. This comes about beservice the entire management team is involved in the planning the business. They get to put their heads together in a unified fashion to analyze the entire scope of the business to facilitate its efficiency. This unification will ensure that the management team is on the same wavelength in their management decisions.
Determining Financial Needs And Applying For Funds
The business plan is also very important in the acquisition of funds. Finance institutions or sources like banks, venture capital institutions and investors want to be informed about the entire scope of the business before they commit funds to it. The business plan makes this easy as it explains the entire business in a very clear manner which makes business financing a very easy process.
Approval From Board Of Directors And Shareholders
The board of directors and shareholders give approvals to management propositions based on extensive information about the impact of the decision on the business. A business plan details such decisions and their impacts hence, making it easier for the board of directors and shareholders to make their decisions as they are provided with all the information they need through the business plan.
Deriving Objectives For Employees
The business plan helps management to set specific independent objectives for the various departments of the business. It helps to ensure that all the departments of the business are always working hard to ensure their contribution to the entire business’s objectives.
It also informs and motivates the employees of the business. Once the employees are well-informed on the scope of the business, they work eagerly to ensure their quota is contributed to the business’s success.
Lenders require a business plan to be well informed of your business before they decide to commit funds to it. The business plan also helps them monitor the application of the funds to ensure that the funds are used for the intended purposes and the returns duly earned.