Now that the New Year has dawned, the top priority for any entrepreneur should be the creation of a business plan. Ideas that exist in entrepreneurs’ heads tend to stay exactly where they are, unless they are documented in a formal business plan. By committing ones thoughts into a formal document it is easier to share the concept, obtain feedback on it and to enhance your individual awareness of gaps etc
The importance of writing a business plan is widely appreciated; however, the benefits of writing one are not always understood. In a nutshell, a business plan helps you organise your thoughts in a concise and logical order and ensures that the reader can gain a thorough understanding of the business idea and the challenges faced. Here are 5 reasons every entrepreneur should have a business plan.
1. To Map the Future
A business plan is not just required to secure funding at the start-up phase, but is a vital aid to help you manage your business more effectively. By committing your thoughts to paper, you can understand your business better and can also chart specific courses of action that need to be taken to improve your business.
2. To Support Growth and Secure Funding
Most businesses face investment decisions during the course of their lifetime. Often, these opportunities cannot be funded by cash in the business alone, and hence the business must seek external funding.
3. To Develop and Communicate a Course of Action
A business plan helps a company assess future opportunities and commit to a particular course of action. By committing the plan to paper, all other options are effectively marginalized and the company is aligned to focus on key activities.
4. To Help 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). While the break-even point--where total revenue equals total costs--is a highly important figure for start-ups, once a business is up and running profitably, it becomes less important and good cash flow management takes over in importance.
5. To Support a Strategic Exit
Finally, at some point, the owners of the firm will decide it is time to exit. Considering the likely exit strategy in advance can help inform and direct present day decisions. The aim is to liquidate the investment, so the owner/current investors have the option of cashing out when they want.
While the distractions of any entrepreneur are numerous, it is important to remember that what needs to be done needs to get prioritised. The temptation is to do the easy things or be responsive to those who shout the loudest/ most frequently. However, as history has shown repeatedly, those that have plans in place are better prepared to face the uncertainties that the future may bring – than those who are merely reacting to events as they happen around them.
Alan Gleeson is the Managing Director of Palo Alto Software, Ltd., creators of Business Plan Pro® 2007. He holds an MBA from Oxford University and is a graduate of University College, Cork, Ireland. For further information on business planning visit www.bplans.co.uk and www.paloalto.co.uk
