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Arguably, there is nothing more important in a company’s documents than its business plan. There are a variety of reasons for this, from internal planning by the company’s managers, to its attractiveness to loans from banks, to its ability to convince others to invest. For new businesses, a business plan in the start-up phase provides a clear path to the future as it requires that everyone involved carefully consider their strategies and realistically evaluate the new enterprise’s limitations in order to avoid potential costly mistakes.
Few and far between are companies who survive without a business plan. Those who forego this crucial step are statistically more likely to fail. A well-constructed plan can assist businesses in clarifying their objectives and reach their goals. Management decisions made prior to actions help companies realize both their limitations, how to ultimately overcome those limitations, and to continue to grow, become, and remain competitive.
Business plans are used in for multiple reasons and purpose. Internally, business plans are used to forecast events and plan accordingly by the company’s executives. Business plans are used to acquire the money needed for smooth operations, whether those funds are used for current operational needs or for planned expansions, mergers, acquisitions, and more. Because each plan is specific to each company, each is unique although some standard elements are usually present in all.
Let’s consider the usefulness of a business plan for internal purposes first. Much like an architectural blueprint to show construction workers specifically how to erect a building, business plans too are blueprints to show managers and executives how to build a sound foundation and scaffolding of a business. As the business grows, the business plan can be compared to the projected goals, sales, direction, and the timeliness of all of those elements. If something goes wrong, the business plan can help where those problem areas are occurring, and solutions that have anticipated some of those rough spots can be implemented. Areas of opportunity are also anticipated in a well-constructed business plan, such as marketing potential and opportunities. Anticipating the need for income as the company grows is also an important element of a company’s business plan. Looking forward, for both problems and opportunities, helps a company stay on course.
In the best of worlds, everyone involved in a company will be aware and participate in a company’s business plan, from the president to the forklift driver. For those in upper management, a good plan will establish performance targets for the company as a whole. In middle management, the plan is used to guide decisions in real time as these managers navigate on-going needs, problems, and opportunities. Middle management also relies on the business plan to assess those performance of employees who work below them. Those on the lower levels should be aware of the future plans for the company so that they can adjust their own performance on the job in order to help the company stay on course and reach its future goals.
As companies grow and change, they frequently face the need to reorganize or restructure. When this happens, a business plan which has anticipated these events can help the company stay profitable as it pursues new goals. Plans that include the needs of a reorganization or restructure will identify the types of changes that will likely be necessary, including changes in production and employees as well as products and services.
Outside of the company, a clear business plan is used by lenders to assess a company’s ability to take on debt. The business plan continually documents the company’s cash flow needs as well as providing a comprehensive list of assets. The business plan also offers lenders its projected financial performance. This factual information allows lenders to perform risk assessment and avoid making bad loans.
When it comes time to sell a company, the business plan is the best and first source of information for the potential buyer, either of the entire company, one or more of its divisions, or its product line. Just as it does for lenders, the business plan, for a buyer, gives that party valuable insight into the basic strengths and weakness of the company it is looking into purchasing.
No single person prepares a company’s business plan, at least not many which result in successful ventures. Business plans are almost always a team effort, and they involve not only executives, but managers and workforce input as well. Upper management is wise to listen to everyone involved when establishing the plan, and they should be willing to entertain feedback as well.
A few basic steps can be identified in the planning process. The first step is to organize the process by identifying who will be involved, determining the basic scope of the plan, and establishing a time frame within which the plan is to be completed. Upper management not only communicates its support of the planning process, it also defines the responsibilities of each party involved. Work plans that supplement the general timetable are helpful in meeting deadlines associated with the planning process.
While plans are indeed unique, some components are overlap. For example, all companies must begin with determining who among them will be involved in the construction and verbiage of the plan; they must define the scope of the plan; they must decide on a deadline for the plan’s completion. After this entire framework has been laid down, and after a great deal of information is gathered, those involved can begin assessing the company, both internally and externally. Of great importance is an honest assessment of any and all weaknesses identified, whether those weaknesses are internal or external. External factors that fall under consideration include the economic picture of the country, competitors, and trends. Management is also assessed at this time.
After organizing and evaluation comes goal setting and strategizing for the future. Goals usually include defining the market, how the company will compete in the marketplace, and its overall philosophy regarding customers. From these broader goals, more specific strategies are developed.
Now specific plans can go forward. Programs determine how the existing and future resources will be managed in order to achieve goals.
Source: Business Plans Handbook, ©1995 Gale Cengage. All Rights Reserved
Business planning requires a long term perspective and faith in your company's capabilities. I might sound a bit too impractical as compared to the present scenario but in my opinion these are the basic necessities of planning a business prospective. A business plan is an essential roadmap for business success. This living document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues. The most important aspect is being honest. Your business plan should reflect your company perfectly. Under or over estimation of any sort can incur losses and disappointments!
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