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Understand the Importance of a Business Plan

Importance of a Business PlanA business plan clearly lays out all aspects of your company in detail. This is a crucial step in initial setting up of your business, annual review to keep up with changing environmental dynamics, it also helps you attract and seal the deal with potential investors and important stakeholders such as key hires and regulators. A business plan has multiple uses. We will explore these purposes as well as the different sections which makes up a business plan. A good idea coupled with a well thought out business plan, enables you to execute more efficiently and with a greater chance of success.


Purpose of a Business Plan

The first factor as to why it is important to have a business plan is to raise capital. In today’s rapid pace and competitive environment, business planning and fund raising are closely intertwined, one cannot exist without the other. If you’d like to attract investors or venture capitalists, a business plan is required when you are proposing why they should invest in you. It is a tool to better communicate your growth story and pique the investor’s interest to invest in you. Using this, it’ll help you to showcase your industry landscape, winning factors and also enables you to justify your asking valuation during negotiations with investors or buyers.

The second is business planning. It increases clarity for the management team to make data-driven decisions with clear vision and understanding of the horizontal and vertical push-pull factors. With a clear plan and road map to get to their destination, it is easier for the team to stay on the route, eliminate away from the distractions and help them focus on the organization’s goal.

The final factor is the recruitment of key talents. This is essential because you will need people you can trust that can help move your company in the right direction. A business plan will also help you communicate your vision to potential new hires. Through having key talents that possess beliefs and views closely aligned to the organization’s, they have increased confidence in the venture increased passion in the role and increases their sense of belonging and morale. This leads to longer term serving team of key talents with minimal turnover, collectively as a team working towards the long-term goals of the company.


Sections of a Business Plan

In this section, we will explain the different parts that make up a business plan as well as the purpose they serve.

First, make sure you have an interesting executive summary. This is a brief introduction to your business. Introduce what this business is all about but remember to keep it simple so as to retain the reader’s interest. This is considered the most critical part of the business plan as this introduces your company to an investor or a potential hire. This is the part that they will see and this is where their first impression towards your company will be formed. This section consists of the key elements of your plan and is often the section that the reader makes the preliminary decision on whether is it necessary to continue to the subsequent sections.

Next would be the company analysis which is to educate the investor on the reasons why your team is the perfect team to execute the business opportunity. This section provides a detailed overview of your company. This is where you are to include the company’s vision, mission and purpose, a history of the company and its founders, where the business is based, where the company currently stands and any notable achievements of the company so far. This is ultimately where you can go into detail about the information that is relevant but you are unable to include them in the summary.

After which, would be on the products and services. This section list out the products and services your company has to provide and distributing. Give a breakdown of your products and services according to the revenue each generated as well as how your clients and suppliers are contributing in your supply chain. This enables you to determine whether are there concentration risks both up and downstream, thereby justifying whether diversification is needed. Also, this is the section to discuss your pricing strategy and future anticipated products and services to be developed and rolled out.

Following that is the marketing plan which is one of the key pieces of information that potential investors will look at. This is basically a guide on what needs to be done and the execution plan. The points that need to be included in this section are competition and market research, SWOT analysis (Strengths, Weaknesses, Opportunities & Threats), target market research [total market size and total addressable market (TAM)], brand and product positioning, elevator pitches and tag-lines, target customer personas and profiles, results of any tests conducted so far, marketing channels to be used, marketing budget, as well as estimates of cost per action (CPAs).

You will also need an operational plan which will consist of your understanding of this industry and business. This section will contain more on the technical sides of the company such as the facilities and physical space required, technological and equipment needs, supply chain management, logistics and distribution plans, order and fulfilment processes, quality control checks and legal and accounting. Here it will be explained in detail what is required for your company to be fully operational from the start to the end of the process chain.

Next will be management and organization. Introduce your team by listing out and explaining in detail regarding the key roles and responsibility of the management and organizational structure of your company. Points to include are the founders and executive team, owners and shareholders, board of directors, consultants and special advisors and key team members and department heads. This basically shows the potential investor that the key team members are skilled in their respective areas of responsibilities and hence great probabilities of success is expected.

Not forgetting the financial plan, here you will provide an honest snapshot of where you’re at and where you want to go in the near, mid and long term, using existing internal resources as well as how the externally sourced financial resource can help to leapfrog the process. A few key things to include are the current balance sheet, past two (2) years’ financials, annual financial projections for the next five (5) years, break-even analysis, cash flow projections, income and expenses, startup cost and capitalization requirements and funding requests. Through providing a reasonable forward estimate and snapshot of current and recent past performance, stakeholders can have a more reasonable expectation of your projected performance as well.

The last part will be appendices which will include all other information, references and documentation that is required. This usually contains Articles of Incorporation and status, resume of founders and key team members, copies of insurances, licenses, trademarks and patent registrations, contracts, appraisals and research data or reference links. These will supplement the earlier sections to boost legitimacy and stakeholder confidence of claims and forward performance projections.

Understand the Importance of a Business Plan

To conclude, a business plan is an integral part of a company. Both for external and internal use, establishing and maintaining it will prove to be a highly worthwhile endeavour.