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Business Plans: Why Your Company Needs One

Jul 8, 2008
Business planning is an essential part of starting a business and running it. In maintaining a business it is important to set goals for your business and determine what steps to take to ensure business growth. And this is what creating a business plan provides - direction. A business without a plan is like a rudderless boat, there is no direction and just whipped around by day-to-day factors.

But there are some entrepreneurs that are still leery about the merits of creating a business plan. Here are some reasons why a business plan is essential to any business:

Make an effective battle plan for the future. A business plan is a great aid in helping you manage your business. An effective business plan is a great tool for charting your course of action that will help you take your business to the next level. It can also specify alternative courses of action for certain business scenarios.

Help in getting funding and sustaining growth. At some point in your business' life cycle, funding will be needed to spur expansion and growth. But sometimes external funding is required especially if the expansion to the next level is of a greater degree. Fund managers and venture capitalists will only take your business seriously and consider investing if you can provide a detailed business plan along with your Income Statements and Profit/Loss Statements. Your business plan gives prospective investors a glimpse into your business' future while supported by its performance in the past (the documents).

Detail a course of action. A business plan allows a business to adhere to a particular course of action in order to remain focused on its goals and visions. Committing these strategies on paper effectively commits your company/business to these actions and marginalizing other options that are not as important. It also gives others in your company a map as to what the company will take even without you to spearhead all processes and actions.

Lay out a Strategic Exit. All businesses have a specific "life cycle". At some point in the business, you may decide that it is time to make an exit. By devising a good exit strategy (which is detailed in the business plan), present day decisions and plans can still be made with these strategies in mind, making for informed choices at every step of the way. Some of the more common exit strategies a businessman can take are:

Competitor Acquisition
Family succession
Stock IPO (Initial Public Offering)
Management buy-outs

With an exit strategy, present management decisions can be made with a conscious realization of its effects in the future. A good example is a business whose exit strategy is eventual competitor acquisition. Even at the early part of its life cycle, business decisions can be made that are not only beneficial for company growth but also designed to make the company more attractive to the competitor.
About the Author
Stella Stevens has been involved in private limited company formation for several years. For more information visit Dolphin Formations
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