What is the purpose of a business plan?

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Spontaneity is fun. But in the profit-driven corporate world, careful planning simply makes more sense. The Small Business Administration says 70% of start-ups are likely to fail in their first two years, and the reasons are too numerous to mention. One of the biggest failure factors is a poorly constructed business plan – or no plan at all.

Although these documents are essential to the success of a business, many entrepreneurs wonder what really makes a good business plan.

At the heart of a business plan

So much has been said about business plans, but they still remain largely misunderstood, often with unfortunate consequences. So if you’re just getting started, setting clear goals is always the clearest path to a solid plan.

keep focus

Perhaps the most important purpose of a business plan is to provide direction for your business. Write down product information, labor requirements, financial projections, and other details that characterize and define the direction.

The Small Business Administration advises that you check your business plan from time to time and update it whenever you make changes. This can highlight how any adjustment can affect your business as a whole. Overall, the plan should remind you of your initial goals for starting the business, any new goals you established along the way, and how these two influence your initial vision.

Testing strategies and performance evaluation

To get an accurate picture of the strategy, you can compare actual and predicted results, and derive insights that help you make safer trading decisions in the future. If some parts of the policy failed, you can remove them or modify them to work better.

If a new product is currently underperforming, management may decide to improve or repackage it. With a business plan, different theories can be tested, from finance and marketing to customer relations. Without a record of a business plan, executives could make decisions based on speculation and assumptions, increasing their risk of failure.

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Appropriate allocation of resources

One of the most important purposes of a business plan is to build consensus on everything about the business – vision and mission, goals, projections, strategies, processes, target markets, etc. Unless everyone is on the same page, the appropriate allocation of resources becomes difficult, thus inhibiting growth.

With a clear business plan, decision-makers can work in harmony without having to consult or consult with each other, saving everyone time while working toward common goals.

Securing funding

A very practical purpose of a business plan is to build a fundraising case. It’s no secret that banks and other lenders ask for this essential document as part of their due diligence before granting loans.

With a plan in place, banks are able to explore a company’s goals, ideals and operating methods. All of these give clues to the comparative financial value of the company. Needless to say, business plans form the bulk of the basis on which loan providers decide whether to approve or reject an application.

Provide motivation for growth

Starting a business can be daunting, especially for new entrepreneurs. By breaking it down into something concrete, aspiring business owners can have a clearer and more reliable view of how they can achieve their goals.

The tangibility and objective nature of a business plan can help increase your confidence and motivation to grow your business. Yes, you can still verbally discuss your plans in meetings or conversations, but a black-and-white approach provides a better understanding of where you want to go and how to get there.

Attract investors

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Another purpose of a business plan is to attract potential investors. Before people invest their money in a business, they will naturally want to review performance plans, and a business plan couldn’t be more perfect for that. The document will provide a crystal clear picture of the company’s current financial performance, projected profit streams, marketing research for the target population, growth and expansion plans, and more.

In other words, a business plan gives potential investors an overview of what they can expect from a certain business. It’s a good way for you to show off your business and attract those investors.

Support new executives

As a business grows, you’ll likely add executives to your team to help steer your business on the right path. A business plan gives these new decision makers a broader scope of the business and how their skills can play an important role.

The absence of a business plan can also lead to false expectations, disappointment and frustration, which can ultimately undermine the interests of both parties.

Plan for success

Just looking at a clear outline of a business plan with goals will make it easier for you to see how it plays a central role in success. But, in addition to creating that blueprint, you also need to keep it from being static, letting it evolve with the dynamic needs and demands of the industry. A rule of thumb is to update this document every year.

A business plan is a good way to go back in time and assess the business for what it has achieved so far, what needs more work and attention, and most importantly, how the processes existing ones can be improved to produce competitive results.


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