Why Prepare a Business Plan and Financial Forecast?
Business plans and financial forecasts are the most
important and effective management tools that business owners have at their
disposal. It is a written summary of what the business hopes to accomplish and
how resources are organized and used to meet the goals of the business.
The business plan is the road map of where the business is
headed, an outline of the various routes that can be taken, the stages of
development, and the destination of the business. The process of developing a
business plan forces the entrepreneur to think about the obstacles that will
need to be overcome; e.g. the information required to be researched; the skills
required to implement and manage the plan and the business; and the strategies
needed for sales and marketing, production and product development, financing,
growth and expansion, and management.
Benefits of a well-prepared business plan include:
- Helping
to focus in an organized and logical manner on the future of the business;
- Getting
the owner to consider the real mission and vision that the business will try
to attain;
- Helping
to anticipate the hurdles and detours that the business will face;
- Helping
to identify potential customers, the market area, pricing strategy, and
competitive conditions under which the business must operate. This process
can help to discover a competitive advantage, a new opportunity or
deficiencies in the plan;
- Helping
in determining the break-even point in profitability and cash flow, and the
anticipated return on investment;
- Encouraging
realism instead of over-optimism. When the plan is put in writing, the
assessment and quantification of the various financial and logistical needs
of the company, make the picture clearer of the next steps to take.
- By
committing the business plan to paper, the overall ability to manage the
business will improve. Management will be able to concentrate their efforts
on the alterations to the plan before conditions become critical. It helps
to avoid problems by anticipating them in advance;
- Exposing
the management to the methods and merits of the planning, budgeting,
forecasting, and reporting process that is so essential to the success of
the business;
- Providing
a budget that will help the lender or investor make an early assessment of
the business’s feasibility and viability;
- Establishing
the amount of financing (both internal and external) required, and when it
is needed. It helps reduce the time that it takes for a prospective lender
or investor to assess and accept or reject the proposal.
- Creating
an important first impression to a lender, investor or potential partner in
assessing you as a competent business manager;
- Identifying
the number of employees needed, when they are needed, the skills they must
have, and the salary or wage they must be paid;
- Helping
establish the size and location of plants and facilities for office space;
- Helping
identify the factors critical to the success of the business concept;
- Providing
the opportunity on a dry-run basis to operate the business without financial
outlay or risk.
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