Business Plan Preparation

1
Importance, Reasons and Benefits of Business Plan

Module 1
Importance, Reasons and Benefits of Business Plan

At the end of the lesson, the students should be able to:

1. Identify the Importance, Reasons and Benefits of Business Plan

2. Concentrate on financial matters, management issues, human resource planning,

3. Provide direction for every decision they make going forward.

Reasons Why a Business Plan is Important

According to Rahab Meßmer (June 15, 20160), a business plan is a very important
strategic tool for entrepreneurs. A good business plan not only helps entrepreneurs to
focus on the specific steps necessary for their to make business ideas succeed, but it also
helps them to achieve both their short-term and long-term objectives.

If you fail to plan, you are planning to fail.

Unless commitment is made, there are only promises and hopes; but no plans
― Peter F. Drucker

Course Module
 Business Plan Preparation
Importance, Reasons and Benefits of Business Plan

Here are 4 reasons why you need a business plan

1. To raise money for your business

Potential investors or lenders want a written business plan before they give you money. A
mere description of your business concept is not enough. Instead, ensure you have a
thorough business and financial plan that demonstrates the likelihood of success and how
much you will need for your business to take off.

2. To make sound decisions

As an entrepreneur, having a business plan helps you to define and focus on your business
ideas and business strategies. You not only concentrate on financial matters, but also on
management issues, human resource planning, technology and creating value for your
customer.

3. To help you identify potential weaknesses

Having a business plan helps you to identify potential pitfalls in your idea. You can also
share the plan with others who can give you their opinions and advice. Identify experts and
professionals who are at a position to give you invaluable advice, and share your plan with
them.

Purpose of Business Plan

A business plan serves as the blueprint for how you will operate your business. While you
need to have a business plan to seek investors or get a loan for your company, the plan is
actually for your benefit. It provides a step-by-step guide as you start a new business or
grow your current company. It provides direction for every decision you make going
forward.
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Importance, Reasons and Benefits of Business Plan

Tip
The business plan is your company's road map. It spells out what you want to achieve and
how you propose to achieve it.
a. First, Get Organized
Writing down your business plan helps you clarify your thoughts and organize the steps
you need to take to be successful in your business. There are a number of pieces that all
have to come together to make your business profitable.
A business plan ensures that you won’t skip any important steps that could derail your
efforts down the line. Be specific (even if the plan is for your eyes only).
Use measurable milestones, accountable responsibilities and trackable performance
expectations, for starters. When your plan is clearly spelled out in writing, it helps you see
the big picture and identify potential problems before you make blunders.
Your plan should include things like what you plan to offer to the market, how you plan to
deliver it, what the costs are, how much you plan to charge, what you plan to make in profit
on each sale and what your fixed costs such as rent and utilities are going to be.
2. Stay on Track
After your business plan is developed, referring to it periodically can help you maintain a
long-range view as you make daily decisions. The plan makes it easier to follow each
business development step in order so you don’t miss any important elements along the
way.
A well-written plan provides you with a starting point and outlines a timetable that drives
your activities, keeps you grounded, focuses on your target market, and strategically aligns
with your main business tactics as you track your progress.
3. Clarify and Focus Goals
A business plan is an effective means of defining your goals and the steps needed to reach
them. It spells out your purpose, vision and means of operation. It also serves as your
company’s resume, explaining your objectives to investors, partners, employees and
vendors.
A good business plan clearly states the amount of capital you need to make the company
work and where the investment is coming from. It clarifies the means by which you will
pay back borrowed money, your sales forecast, spending budget, cash flow and how you
will invest profits.
4. Prepare for the Future
By outlining your goals and how you will reach them, your business plan helps you prepare
for the future. Market research in the business plan should include projections based on
consumer needs and your ability to fulfill those needs.

Course Module
 Business Plan Preparation
Importance, Reasons and Benefits of Business Plan
A well-developed business plan also documents actions the company will follow in case the
projections turn out to be too optimistic. Scenarios should be developed to identify
potential obstacles, including possible changes in the market, so that the company will be
prepared to make operational decisions that remain in line with the overall business
strategy.

Benefits of Business Plan

A business plan is a communication tool that you can use to secure investment capital from
financial institutions or lenders. It can also be used to convince people to work for your
enterprise, to secure credit from suppliers, and to attract potential customers.

Creating a business plan involves a lot of thought. You need to consider what you want to
do, and use that as a starting point. It doesn't need to be complicated. At its core, your plan
should identify where you are now, where you want your business to go, and how you will
get there.

Writing a good business plan, the Ernst and Young Business Plan Guide adds, can’t
guarantee success, but it can go a long way toward reducing the odds of failure. This is also
according to multiplestreams.org, even if you aren't looking for investment, your
entrepreneurial plans will fall flat quickly without a plan to guide them.

Here are those top ten benefits.

1. See the whole business. Business planning done right connects the dots in your
business so you get a better picture of the whole. Strategy is supposed to relate to
tactics with strategic alignment. Does that show up in your plan? Do your sales
connect to your sales and marketing expenses? Are your products right for your
target market? Are you covering costs including long-term fixed costs, product
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Importance, Reasons and Benefits of Business Plan

development, and working capital needs as well? Take a step back and look at the
larger picture.

2. Strategic Focus. Startups and small business need to focus on their special
identities, their target markets, and their products or services tailored to match.

3. Set priorities. You can’t do everything. Business planning helps you keep track of
the right things, and the most important things. Allocate your time, effort, and
resources strategically.

4. Manage change. With good planning process you regularly review assumptions,
track progress, and catch new developments so you can adjust. Plan vs. actual
analysis is a dashboard, and adjusting the plan is steering.

5. Develop accountability. Good planning process sets expectations and tracks

6. Manage cash. Good business planning connects the dots in cash flow. Sometimes
just watching profits is enough. But when sales on account, physical products,
purchasing assets, or repaying debts are involved, cash flow takes planning and
management. Profitable businesses suffer when slow-paying clients or too much
inventory constipate cash flow. A plan helps you see the problem and adjust to it.

7. Strategic alignment. Does your day-to-day work fit with your main business
tactics? Do those tactics match your strategy? If so, you have strategic alignment. If
not, the business planning will bring up the hidden mismatches. For example, if you
run a gourmet restaurant that has a drive-through window, you’re out of alignment.

8. Milestones. Good business planning sets milestones you can work towards. These
are key goals you want to achieve, like reaching a defined sales level, hiring that
sales manager, or opening the new location. We’re human. We work better when we
have visible goals we can work towards.

9. Metrics. Put your performance indicators and numbers to track into a business plan
where you can see them monthly in the plan review meeting. Figure out the
numbers that matter. Sales and expenses usually do, but there are also calls, trips,
seminars, web traffic, conversion rates, returns, and so forth. Use your business
planning to define and track the key metrics.

10. Realistic regular reminders to keep on track. We all want to do everything for
our customers, but sometimes we need to push back to maintain quality and

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 Business Plan Preparation
Importance, Reasons and Benefits of Business Plan
strategic focus. It’s hard, during the heat of the everyday routine, to remember the
priorities and focus. The business planning process becomes a regular reminder.

References:

1.Linda Ray; Reviewed by: Jayne Thompson, LLB, LLM ; Updated August 05, 2019
2. The Business Plan for Peace: Building a World Without War
https://books.google.com.ph › books Scilla Elworthy – 2018
3. Educating Social Entrepreneurs: From Business Plan Formulation to ...
https://books.google.com.ph › books Paul Miesing, Maria Aggestam – 2017

Online supplementary reading materials

https://en.wikipedia.org/wiki/Decision_support_system

https://www.entrepreneur.com/article/38290

https://yourbusiness.azcentral.com/overall-purpose-business-plan-1002.html
https://www.marketing91.com/objectives-of-business-plan/
https://smallbusiness.chron.com/should-objective-statement-company-describe-
10048.html
https://smallbusiness.chron.com/should-objective-statement-company-describe-
10048.html
https://www.iafrikan.com/2016/06/15/4-reasons-why-a-business-plan-is-important/
https://timberry.bplans.com/10-benefits-of-business-planning-for-all-businesses/
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Importance, Reasons and Benefits of Business Plan

Course Module