A business plan can help the proprietor secure financing for the business or attract promising partnerships with others. This is actually one of the main reasons why the business plan has a section for financial plans and projections.
A sound business plan will make potential
partners or investors see that making a profit is assured. They will be excited
when, for example, they see a big market in the market analysis; they see huge
turnovers in the sales projections or previous sales; or they see much weaker
competition in the competitive analysis. When a business can obtain a loan or
grant, or can attract important partners, its chances of success generally
become brighter.
A
business plan is a management tool. For both
current and future managers, the business plan is a vital instrument for
managing the enterprise. The objectives tell one what is to be achieved. The
strategies tell one what is to be done to achieve the objectives. So, a manager
just has to look at the business plan to know what is to be done. This is what
makes a business plan a management kit.
A
business plan is a control tool. Even though
control is part of management, it is covered separately because of its
importance. Since the business plan contains projections of sales, for example,
these serve as a pointer to the manager to what is expected. The manager uses
the business plan as a reference tool. The manager can compare actual
achievement with planned achievement. If actual is less than planned, the
manager will know they are automatically instructed to take steps that will
result in achieving what was targeted. This is what is to happen if, for
instance, the sales projection for, say, January 2025, is $1,000,000, but the
manager has achieved only $900,000. In this way, a business plan as a control
tool enhances chances of success.
A
business plan creates a sense of purpose. To have
clear goals has the potential to make managers and their staff more eager to work.
So, managers and their sub-ordinates wake up wanting to achieve something. Naturally,
this should have the effect of improving the chances of success of the
business. If managers and their teams did not have any sense of purpose, they
would likely not achieve much or anything.
A
business plan is an important historical reference point. Because a business plan is usually in writing, or recorded in
another form, it can be archived for reference way into the future. That way, a
business plan provides interested parties a record of where the enterprise is
coming from. That would help understand the business better. A good business
person is often one that understands their organisation and business well.
A business plan can also help in making
decisions in the future. It does not necessarily mean that what worked in the
past will work in the future. However, studying what worked and what did not,
and the conditions that existed at the respective points in time, could make
decision-making in the future a lot easier.
There is another potential benefit. Modifying
an existing document to make it work or work better, after studying past
business conditions, is potentially a lot easier and cheaper than creating one
from scratch.
So, in the last three paragraphs, we see
that an old business plan (as historical reference point) can serve as a tool
for success of the business.
A
business plan helps an entrepreneur set milestones.
These are significant shorter-term objectives. For example, if the annual sales
target by volume is $1,000,000, the milestones are $250,000 at the end of the
first quarter; $250,000 at the end of the second quarter; $250,000 at the end
of the third quarter; and $250,000 at the end of the fourth quarter, assuming a
regular sales pattern. The importance of milestones is that they keep the
bigger goals in sight and help maintain morale. So, one can say that by helping
one establish milestones, the business plan increases chances of success.
A
business plan gives an understanding of the competition. Competitor analysis is one of the components of the standard
business plan. So, by its very nature, a business plan implores the business
person or persons to establish important facts about the competition. Competitor
analysis provides strategically important information on such matters as competitor’s
product range, pricing, product quality, business philosophy and indeed future
plans. A company’s survival has often rested on possession of such information
on the competitor. That is because the business is then less likely to be
caught off-guard by the competitor’s moves. The business can make useful early or
pro-active responses to competitor actions and plans. That way, then, the
business plan helps raise the chances of the business succeeding.
A
business plan helps the business person better understand the customer. The market analysis component of the business plan is a means to
provide key information on the customer. Without that information, the product
made, for example, may not match the expectations of the potential consumer.
Good marketing starts with appreciating well the needs and wants of the
customer. As with competitor analysis, a business plan persuades the
businesswoman or businessman to do market analysis because this is a standard
ingredient. So, a business plan helps enhance the chances of an enterprise
succeeding.
In fact, when doing market analysis, the
business plan might reveal unsatisfied customer needs. Such discoveries also increase
the chances of a business doing well.
A
business plan is a way of attracting top talent to the enterprise. Many gifted managers and ordinary people will be interested in
knowing the prospects or viability of a business idea before committing to
giving their services as employees. A nicely-prepared business plan will be a
magnet to everyone, skilled and unskilled, gifted and not so talented. The business
is then able to choose the best of the best. This raises its chances of not only
survival but also success. Without a business plan, the enterprise may not be
so attractive to some go-getting potential employees, and its chances of
surviving or succeeding, as a result, may be dim.
A
business plan is a risk management instrument. Writing
a business plan can reveal what can be done and what cannot be done. In fact,
some business people have ended up changing the type of business to be done
altogether upon realising that the original idea was in fact not so viable. In such situations, doing a business plan has
helped prevent possible financial and other loss. In other words, the business
plan also worked as a viability study and revealed danger, which was then
avoided or minimised by changing the type of business.
A business
plan makes one an overall industry expert. Doing a
business plan forces the businesswoman or man to do plenty of research on the
many different areas of a business plan. The result is that one becomes an
expert on the industry as a whole. The expertise gained is invaluable in
matters of decision-making. In this way, the business plan improves the
probability of an enterprise succeeding.
A
business plan can help achieve smoother expansion. A
business plan gives revenue projections. Normally, the projections show a
growth trend. By looking at the projections, therefore, the business person is
able to work out how much more office or factory space and human resource, for
example, will be needed after, say, five years. The business person can then
plan for these future requirements well in advance and avoid sudden pressure to
look for additional space or to recruit more employees.
To conclude, it often takes a while and a
lot of work to prepare a good business plan, but the likely benefits suggest it
is well worth the effort and time.
