A business plan is a written document that explains what the business is, how it operates, what it’s goals are and how it plans to achieve those goals.
Many think that only those seeking financing need a business plan. They consider the business plan a necessity for the bank – that’s it. They could not be more wrong and here are five reasons why.
1) Benchmarking – A good business plan identifies what are called Key Performance Indicators (KPI’s) for the business. A business can then use these KPI’s to measure its success moving forward. This can help when you are looking at specific areas of growth that can be attributed to current initiatives for example a new sales campaign, or the hiring of an accounts receivable clerk to reduce the AR balance etc.
2) Strategy – A business plan takes the goals of the organization and shows the reader how to get from here to there. It documents the strategy. With a strategy in place you can have more focus within the organization and consensus in management.
3) Missing Pieces – The process of putting down your company’s resources (such as human resource capital) together with your strategy can identify areas you may come up short. It can identify where you will be required to hire new staff or get additional training or knowledge. I often find the questions involved identify holes that the business owner did not realize. Knowing early can allow for sufficient planning to take place to deal with these issues in advance.
4) Forecasting – This builds on the previous three arguments. Forecasting what you believe the future of your business will look like can show you a lot of things (for example it can help with benchmarking and show you missing pieces like cash flow shortages). It can also show you the potential (or lack of) within the plan itself this can encourage re-direction but can also be excellent motivational tool. Especially in the beginning phases of the plan when things are financially tighter.
5) Financing – When you need financing, both debt (loans) and equity financers will require a business plan. The reason for this is (although I could not find any specific percentages) they increase a businesses chances for success making them a more solid investment. Thus, financing isn’t the reason to prepare a business plan but it can be a happy result.
Those are my top five reasons that everyone should have a business plan. Invest in your success and make a plan. Good luck!
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