The importance of the business plan
Often times future entrepreneurs, start-ups, and existing businesses find themselves in the need to create a business plan. Commonly when the term comes up people ask, and why do we need one? And inevitably most will answer: “because investors will ask you for one…”
While this is in part true, investors will most of the times ask you for one, there is a different reason that highlights the importance of the business plan, which is to allow you to answer the following question: “should I do this?” or if you are an existing business: “Am I going in the right direction?…”
Indeed, the main reason to create and maintain your BP is to thoroughly evaluate all the areas responsible for the success of the idea or business, and confirm that given certain assumptions the business is feasible, and has reasonable probabilities of being sustainable.
Another question often made related to BPs is, once I do it what do I do with it? The answer is, keep it as a living document, maintain it, and review it periodically. A BP is not a one-time effort, and the full potential is achieved by monitoring the evolution of the business to the anticipated results shown in the BP, barring of course natural adjustments and sensitivities.
Over time, a BP evolves into an operating and financial plan. For existing businesses there will be an annual planning period, where the expectations for the following fiscal year will be set. The result will be a Plan which drives mainly the financial performance, but is closely related to separate plans: sales and marketing, operations, supply chain, manufacturing, etc.
In summary, when considering the creation of a business plan remember:
- It is not just a document for investors, is for you as entrepreneur or business owner to validate the merit and probability of success of your idea. And helps you answer the question: should I do this?
- A business plan is not a one-time effort, done and archived. A Business plan is a living document that helps you validate the evolution of the business to the anticipated performance.
- As business grows, the business plan will evolve into an annual Plan, which will usually focus on the financial results, but will be closely tied to the individual plans for the different functional areas
If you have questions or would like help building your business plan please contact us
