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IMPORTANCE OF BUSINESS PLANNING

Whether you’re just starting out, growing your business or seeking outside help, a well-thought-out business plan is the vehicle you need to get you there. Business plans are critical to the success of any new venture. A business plan is an important tool for managing and growing your business. A well-designed plan lays out a vision of growth and the steps needed to get there. A plan is also an essential communications tool for attracting financing as well as managers and staff as your business grows.

Entrepreneurs should dedicate time to create them, regardless if you’re searching for investors. Business plans serve as the framework for your company and provide benchmarks to see if you’re reaching your goals. They are key to helping you think through your business and keep you on track.

A business plan is a blueprint detailing how the gears of your business get in mesh to generate profits. A sound business plan contains the information needed for effective operation and management of the company. It explains what is possible for the business, how it will be done and why it will be successful.

We help our clients to prepare world class and professional business plans which will help them to satisfy the following purposes and requirements during every stage of their corporate lifecycle.

Visit us at www.unifinn.com to know more.

Main purposes of a Business Plan

  • To secure Project Finance and Growth Finance
  • Inspire investor/ lender confidence
  • Identifies and describes long term and short term goals
  • Effectively plan the future of your business
  • Business valuation / Equity valuation     (Read more)
  • For mergers and acquisitions
  • Plan to develop and implement the most efficient business and financial model
  • To implement a strong management system
  • Create a vision to ensure sustainable long term growth
  • Effective management of cash flows
  • To develop and communicate the best course of action
  • To support a strategic exit

The following represents a list of top reasons a firm needs a business plan.

 A Concise Introduction

A business plan is a chance to tell who you are. It gives readers an overview of your company, an analysis of market conditions and a description of how the company plans to use its profits to profit its investors and lenders. It’s the synopsis of how you plan to reach your company’s goals and your projections of its profitability.

Roadmap to the future

A business plan is not just required to secure funding at the start-up phase, but is a vital aid to help you manage your business more effectively. By committing your thoughts to paper, you can understand your business better and also chart specific courses of action that need to be taken to improve your business. A plan can detail alternative future scenarios and set specific objectives and goals along with the resources required to achieve these goals.

By understanding your business and the market a little better and planning how best to operate within this environment, you will be well placed to ensure your long-term success.

To support growth and secure funding

Most businesses face investment decisions during the course of their lifetime. Often, these opportunities cannot be funded by free cash flows alone, and the business must seek external funding. However, despite the fact that the market for funding is highly competitive, all prospective lenders will require access to the company’s recent Income Statements/Profit and Loss Statements, along with an up-to-date business plan. In essence the former helps investors understand the past, whereas the business plan helps give them a window on the future.

When seeking investment in your business, it is important to clearly describe the opportunity, as investors will want to know:

  • Why they would be better off investing in your business, rather than leaving money in a bank account or investing in another business?
  • What the Unique Selling Proposition (USP) for the business arising from the opportunity is?
  • Why people will part with their cash to buy from your business?

A well-written business plan can help you convey these points to prospective investors, helping them feel confident in you and in the thoroughness with which you have considered future scenarios. The most crucial component for them will be clear evidence of the company’s future ability to generate sufficient cash flows to meet debt obligations, while enabling the business to operate effectively.

Develop and communicate a course of action

A business plan helps a company assess future opportunities and commit to a particular course of action. By committing the plan to paper, all other options are effectively marginalized and the company is aligned to focus on key activities. The plan can assign milestones to specific individuals and ultimately help management to monitor progress. Once written, a plan can be disseminated quickly and will also prompt further questions and feedback by the readers helping to ensure a more collaborative plan is produced.

Highlights Strengths and Weaknesses

The business plan provides a chance to analyze your company’s strengths and weaknesses, the opportunities it can embrace and the threats it faces. The SWOT analysis names each of your competitors and discusses their relative strengths and weaknesses. The analysis can also highlight how your company fits into your industry.

Structure and Management

The business plan gives investors insight into the company’s management. The principle members of management are profiled to show what each brings to the table. This part of the plan can show you areas where your organization is weak or could use new or more talent. The plan also describes the legal structure — whether your company is a sole proprietorship, a partnership or some form of corporation.

Help manage cash flow

Careful management of cash flow is a fundamental requirement for all businesses. The reason is quite simple–many businesses fail, not because they are unprofitable, but because they ultimately become insolvent (i.e., are unable to pay their debts as they fall due). While the break-even point–where total revenue equals total costs–is a highly important figure for start-ups, once a business is up and running profitably, it becomes less important.

Cash flow management then becomes more vital when businesses pursue investment opportunities where there are significant cash out flows, in advance of the cash flows coming in. These opportunities need to be assessed against any seasonal variations in the business and the timing of the flows. If you are a “cash-only” business, you can bank the income immediately; however, if you sell on credit, you receive the cash in the future and hence may need to pay some of your own expenses before that income hits your account. This will put a further strain on the company’s solvency and hence a well structured business plan will help you manage funding requirements in advance.

Support a strategic exit

Finally, at some point, the owners of the firm will decide it is time to exit. Considering the likely exit strategy in advance can help inform and direct present day decisions. The aim is to liquidate the investment, so the owner/current investors have the option of cashing out when they want.

Common exit strategies include;

  • Initial Public Offering of stock (IPO’s)
  • Acquisition by competitors
  • Mergers
  • Family succession
  • Management buy-outs

Investment decisions can be taken in the present with one eye on the future via a well-thought-out business plan. For example, if the most attractive exit route appeared to be selling to a competitor, present day management and investment decisions could focus on activities that would increase the company’s attractiveness to that competitor.

Given that valuing firms is notoriously difficult and subjective, a well-written plan will clearly highlight the opportunity for the incoming investors, the value of it and increase the likelihood of a successful exit by the current owner.

Identifies Goals

A business plan includes a description of the business that describes its long- and short-term goals. This description allows you to see how and why your company meets a need in the industry. For example, at the beginning of the 20th century, there were thousands of buggy-whip makers. Those who failed to realize that they were in the larger business of “vehicle acceleration” were gone by the beginning of the 21st century. The few who remain downsized and survive in a market niche.

Dileep Nair

LinkedIn

(Content courtesy: http://smallbusiness.chron.com/ , http://articles.bplans.co.uk/, http://unifinn.com/business-plans.html)

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Comments (2)

Hello
Please let me know which kind of business do not need mortgage and property gurantee to repayment the investment. Or secure it. I am not an employee to have salary. And I haven’t a house bill to lay. Is it possible for a person to get investment through a way?
I have lost all of my property. Was active in business and know my best.

Thanks for your comments. We focus on corporate finance so helpless in advising on any personal financial matters. Best regards

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