Why does a business need a plan?

If you are looking to raise finance for your business it is essential you write a business plan. This will give you to a clear understanding of your business, and crucially, its financial projections. A plan can help determine what finance is required and how where additional funds are needed. Any potential investors will expect you to know why you need finance and where it is likely to be spent. It will then work as a communication tool for ‘selling your idea’, providing the basis of a financial proposal.

Going beyond raising finance

The benefits of writing a business plan extend beyond being a tool to source finance; it is a vital aid to help you manage your business more effectively. There are many advantages for both start-ups and existing businesses.

By setting clear objectives and mapping out your business ideas, you will have a much better understanding of your business, your customers and your strategy moving forward. One of the biggest benefits in writing a business plan is not producing the document itself, but researching the market and critically analysing your business. This can help you to determine any possible growth opportunities and highlight any potential threats for your business. How may a new competitor impact your business? Can you afford to expand and take on new staff?

A business plan will also confirm whether or not a proposed business is viable. A lot of initial ideas may sound great, but until you consider the financial information and other important business fundamentals, and put them down on paper, it is extremely difficult to determine the credibility of a new business.

Planning benefits you may not think of

As well as using the business plan to attract potential investors, you can also use it to attract the best employees. If you want to hire the most gifted members of staff, it may be a good idea to show them your plan and how the business is projected to develop over the next few years. They will likely be impressed if your company is forecasted to grow considerably in the years to come, and also by your knowledge and hard work.

A robust business plan can also help a company mitigate inefficiencies. As a business begins to grow and set up various different departments within the business, it is important to understand and keep a close eye on individual operations. Planning will allow you to analyse departmental overheads and determine Return on Investment (ROI) for each area. This will help highlight any inefficiency within the company; something that may have otherwise gone unnoticed.