Uses of Business Plan

By: Lucy Yan

When starting up a venture, seeking additional capital for an existing product line, or setting up a new business process, you will need to write a plan detailing the project's resource requirements, marketing decisions, financial projections, production demands, and personnel needs. The plan must reflect the viewpoints of three constituencies- that of the customer, the investor, and the producer. A well-constructed business plan is essential to the success of an enterprise. A business-person without a plan will not be able to convince a venture capitalist.

An excellent business plan is one that focuses on addressing a number of issues. These issues relate to the four factors critical to the success of every new venture: the human factor, the opportunity, the context, and the possibilities for both risk and reward. By analyzing these issues, a business plan illustrates how the new enterprise will seize the opportunity to carve out a market niche, how it will stand out among its competitors and how it plans to maintain a continuing growth trend. A prudent person needs to see this level of detail before making a financial commitment to the new venture.

A business plan should always demonstrate how the venture firm plans to carry out the following action steps:

To Obtain Funding-- The purpose of writing a business plan is to raise capital from one or more private investors. Very often a business plan does not seek to sell equity but rather to arrange for long term debt financing. The structure of debt financing may require the venture firm to generate certain amount of annual income in order to pay current overhead and meet the capital gains expectation from the capital portfolio.

To Hire Executive Staff -- Executive staff can be a blessing or a curse. Whether you take one, or more, into your business venture depends on your needs for additional depth in management, marketing, technology, or financing. Selecting your executive staffs is not much different from choosing your spouse, and it should be done with the same care. A wrong partner can put the entire venture in jeopardy. Marriages are relatively easy to start. A marriage license and a blood test only cost a few dollars. If one fails, you can try again. In business it is not always so easy.

Long term Strategy -- No one knows for sure what makes one corporate strategy work and others fail. It is known that those companies that succeed have better strategies than those, which failed. It is not clear whether success defines strategy or success results from strategy. Consequently, it is difficult to offer reliable advice about setting corporate strategy in entrepreneurial ventures. However, a practical strategy will effectively set up a clear long-term goal for the firm and help direct its senior management.

A strategy should establish the mission of an organization, which requires a definite and meaningful statement of an organization's goals, objectives, and purposes with comprehensive analysis of the strengths and weaknesses of the firm, taking into consideration the firm's needs within a changing marketplace.

The consequences of lacking a well-defined strategy could result in mismanagement and consequently cause disastrous financial results. This is especially evident with small companies. A poorly managed small company can quickly cease to exist, whereas its larger competitors do not face such frightening consequences. Without a doubt, the issues that separate success and failure for small companies focus on a suitable business strategy.

Internal Planning Document -- Business plans are extensive documents, which often require several months to build. Although they vary in length and complexity, the process of writing one requires the expertise in legal, financial, and accounting fields. In addition, business plan should distinguish its internal analysis on areas such as on manufacturing, finance, or marketing from external ones on customers, creditors, etc. Internal entrepreneur's responsibility to put the company's best foot forward once the business is underway. A professional business plan will direct a rigorous and thorough process of documenting the company's mission, structure, strategies, tactics, and milestones. A well-done business plan will be tailored to meet the needs and desires of the potential investors. This does not mean that you should exaggerate, lie or inflate the sale projections; rather, you should use reliable financial figures to render confidence.

Conclusion:

The so-called "good" business plan is one that raises money; a "bad" plan does not attract investors. It is that simple; but an entrepreneur must remember that the terms "good plan" and "good business" are not synonymous. A good plan may raise money, but the business can still fail. In order to succeed and build a profitable business, a good business plan must be combined with an effective implementation.