The basic purpose of a business plan is to have clear information about the business concept, marketplace, financial conditions, marketing strategies, competition analysis, design and development, operations and management etc.
The following points summarize the importance of the business plan for a business.
1. Clarify the Purpose of Business:
The primary reason a business plan is created is to state the actual purpose of the business and the direction in that it will follow. Clarification includes description of the services you offer along with the ideal customers beneficial for your business.
If you have a clear purpose about your business then you can design strategies accordingly to achieve it.
2. For Accomplishing the Future Goals:
A good business will describe the future scenarios of the business and policies to achieve those goals. It not only includes the present course of action and marketing techniques but it will also describe ways to maintain a fine balance between short term and long term goals.
If your business plan is designed as per the changing market trends, it is definitely going to be successful in long terms as well.
3. For Growth and Funding:
It is practically inevitable for a business to encounter financial issues due to losses or the ever changing market. Such situations demand external funding but it is easy to find suitable funds because of high competition in the market. To seek help from the investors your business plan should clearly answer the following questions.
Why they should invest in your business than in any other business?
Why would people spend to buy from your business?
If your business plan answers these questions then it can convince investors to invest in your business.
The most significant role of business plan here will be to make investors believe in the credibility of your business whether it will be able to generate sufficient cash flows to meet debt obligations and also operate effectively
4. To Manage Cash Flow:
Managing the cash flow is a fundamental requirement for every business because it is important not just to cut costs but also to generate profits.
Cash flow management is also important to pursue investment opportunities where there are considerable cash out flows, in advance of the incoming cash flows. Such prospects should be evaluated against any seasonal variations in the business and the timing of the flows. If a business is “cash-only” then it can bank the income straight away but if it is credit based then you need to pay some expenses before the money comes to your account.
Such situations are strenuous for a company and the only way to escape can be a well structured business plan.
5. To Bear a Strategic Exit:
This is the hard fact: At some point in time, the owners of the business will have to pass on their responsibility to partners, family members. So, keeping this in mind, the present day decisions can be molded accordingly. The basic purpose behind this is to liquidate the investment, so that the current investor or the owner has the option of cashing out whenever they wish to.
Common exit strategies:
- Initial Public Offering of stock (IPO’s)
- Overtake by competitors
- Family succession
A good business plan cannot just take care of the present investors but also create opportunities for future incoming investors.