Uses of a Business Plan
There are many important reasons for drawing up a business plan. Every entrepreneur knows about business plans. You can’t raise money for a startup without one. But once your new venture is launched, do you file the plan away and forget about it until the time comes to woo investors again? 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 identify better 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. Business planning ensures that all these considerations are consistent and properly harmonized. Also, the business plan process often leads to the discovery of a competitive advantage or new opportunities as well as deficiencies in the plan. 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 - Reaching mutual understanding among the members of the management of the firm is particularly important in cases in which the recommended policy of engaging as many managers as practically possible is applied in the preparation of the business plan.
- Determining financial needs and applying for funds - Determining financial needs and applying for funds. Determining the amount, type and sources of financing and when it is required. Using the business plan in the process of application for funds.
- Approval from board of directors/shareholders - Using it as a basis for getting approvals from the company board and shareholders.
- Recruiting - Using it in recruiting and introducing new members of the management and staff.
- Deriving objectives for employees - Deriving from the business plan measures and objectives for units and individuals in the organization (management by objective).
- Informing employees - Using it as a means of informing/motivating employees about the objectives of the company.
- Informing lenders - Giving it to banks/investment funds that have financed your business in the past and require periodical information for monitoring purposes.
- Informing partners - Using the business plan in informing business partners and other relevant organizations. In preparing this manual, it has been assumed that the primary objective of preparing a business plan is to determine the financing requirements of your business and to apply for external funding.