One major reason why a company should spend time in creating a business plan is because it will serve as a roadmap of where they want to bring their business. Going into a business without a plan is like a embarking on a journey without a map, the possibility of getting off course is very likely. A business plan contains the objectives and goals of the company and the resources they have on hand. The start-up costs, operating expenses, cash flows and financial projections are essential information which are included in the business plan and which will assist the owners on how to go about their business.
A business plan is key to avoiding business failure because it helps management understand their industry, their market and their competitors. Through the business plan, the owners can anticipate the possible opportunities and risks that they will encounter even before it actually happens; thus, they are able to formulate the appropriate strategies in advance to meet these challenges. A business plan makes critical thinkers and analysts out of the owners of a business. The third reason why a business plan is important is because it is a vital tool for companies who want to obtain funding from outside sources. Banks and other financial institutions would usually require a business plan for organizations to get an overview of the business. Financial projections, which are part of the business plan are crucial to the decision of a bank to grant a loan or an investor to invest in one’s business. They will also look at the future plans of the business to determine whether they are capable of paying the loan or whether putting money in the company is a worthwhile investment.
Lastly, a business plan provides a reference point for management to review a project at any point in time. According to Topfer, it is a good tool for motivation (par 4). Moreover, it determines whether the company is veering away from its objectives and original vision and keeps the business on track.
No company can undermine the importance of a business plan. Other entrepreneurs may find it too time consuming and costly; however, if the benefits of the plan are weighed against these concerns, it can be concluded that it is worth the effort to create a well-thought of business plan.
BusinessDictionary.com. "Business plan." 2012. businessdictionary.com. Web. 11 December 2012
Duermyer, Randy. "Definition of a business plan - What is a business plan?" 2012. homebusiness.about.com. Web. 11 December 2012
Topfer, Stefan. "The importance of business planning." 25 February 2011. community.nasdaq.com. Web. 11 December 2012