Now that the New Year has dawned, one of the top
priorities 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
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