Why do I need a business plan?

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Why do I need a business plan?

Do you run a business but believe that a business plan is just for starting up? Or are you one of those people who believe they just don't have the time to plan? Well, I have news for you. Business planning is not just for start-ups; it is an essential element of running any successful business, particularly given the growing uncertainty we face and the unyielding shifts in consumer behaviour.

If you think time is the problem, think again and make time to plan. One of the key benefits of planning is that it helps you understand what you need to prioritise.

A business plan is not just a document. It is a holistic analysis of your company, the environment it operates in, and a route map to achieving success based on the resources available. Unfortunately, the image most of us have is of a 30-page bound document. The focus is on the output when the real value in a business plan is the business-planning process itself.

The following list represents some of the key benefits of planning:

1. To plan for an uncertain future

Business planning is vital to help you manage your business more effectively. By committing your thoughts to a plan, 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 also detail alternative future scenarios, set specific objectives and goals, and list the resources required to achieve these goals. In short, it can help ensure that you are prepared for all sorts of eventualities.

2. To help grow your business

In an ideal world, all businesses would be self-financing in exploiting business opportunities. In reality, few are afforded this luxury, and hence, will be required to secure external investment. The production of a credible business plan is one of the primary requirements for any entrepreneur seeking investment to grow.

3. To commit to a particular course of action

A business plan can help a company assess future opportunities, choose one, and then commit to a particular course of action. By committing to one opportunity, all other options are effectively marginalised and the company is aligned to focus on key deliverables.

4. To 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).

5. To value a business

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

6. To ensure all bases are covered

When you start a new business, the temptation is to spend time on the idea and then react to events as they come up rather than focusing on what is important. The very creation of a business plan ensures that you cover all the various bases you need to when taking an idea from conception through to launch.

As you'll have garnered from the above, business planning is an essential activity, regardless of the stage of business you're at. The very process of producing a business plan enables management to give due consideration to the various factors that mesh together to create the opportunity they are seeking to explore, as well as the resources required and the key drivers needed for success.

Alan Gleeson is the Managing Director of Palo Alto Software Ltd, creators of Business Plan Pro® 11.0. He holds an MBA from Oxford University and an MSc from University College, Cork, Ireland. For further information on business planning visit www.bplans.co.uk and www.paloalto.co.uk