Entrepreneurs often have the mistaken impression that a business plan is only useful as a sales document to convince investors to put money into their venture. Actually the business plan is primarily beneficial as a tool to help the management team run the business. Conducting the planning process in a thoughtful, thorough manner greatly increases a start-up company's chances of success, and an ongoing enterprise's chances of further increasing its revenues and profits.
Focusing Management's Effort
Building a company is like any other construction project -- first you need to draw up a blueprint. A business plan outlines the sequence of tasks required to create the final structure -- a profitable, growing business. The planning process also helps management determine the resources needed to accomplish its goals. These resources include talent, capital, facilities and equipment. The plan helps identify weaknesses in current management and determines the additional talent that needs to be brought in. The plan assigns managerial responsibility for tasks and includes a timeline with due dates for their completion. This focuses the staff's efforts on what must be accomplished to reach company goals.
Selecting the Most Viable Opportunities
When creating the business plan, management has to decide which opportunities to pursue. It has to decide what products or services to offer the marketplace based on the potential size of the market, the company's capability to deliver the products or services, and the strength of competitors. Once these decisions are made, it has to segment the market into the most viable target markets -- the customers most likely to benefit from the company's products or services and therefore most likely to purchase them.
Wise Use of Resources
The business plan includes a forecast of expenditures needed to build the company. This process helps management determine which expenditures are absolutely necessary -- those that most impact the company's ability to generate revenues and acquire customers. In this way, the business plan conserves financial resources. For early stage companies, using scarce financial resources wisely is critical. Companies that spend their initial capital injudiciously often go out of business.
Measuring Progress
The management team makes use of the plan year-round, not just during the planning process. Actual financial results are compared to the forecast numbers, usually at the end of each month. Forecast numbers give management benchmarks to decide whether the company is moving in the right direction, or whether its strategies need to be adjusted because sales or profit results are falling short of expectations.
Raising Capital
A sound, thorough business plan makes it easier to generate serious interest from prospective investors or lenders. If they see that the management team understands what it takes to build the company, it inspires confidence that the venture has a good chance of success. Experienced investors know the difference between hastily-prepared business plans full of unsubstantiated claims, and a well-documented blueprint for success that's ready for implementation as soon as capital becomes available.
Tags: business plan, management team, planning process, products services, build company
