What is the purpose of a business plan?
How can you come up with a concept, turn it into a business, and then operate it if you don’t have any concrete blueprints to work from?
Such basic inquiries should already provide some insight into the goal of a company plan. Worryingly, many small firms do not have this information documented.
It’s critical that you accomplish this before to launch (or at the very least in the early stages), since if you don’t, your startup will:
- Lack clear objectives
- Struggle to monitor and communicate progress
- Be rudderless with activities reactive in nature and lacking any clarity of purpose
Making a business plan is a difficult task. Working through it with an advisor can make it easier and more productive. Finally, getting your ideas down on paper will help you secure start-up capital and, as a result, ensure the future success of your business.
What is the purpose of a business plan?
A business plan is used to assist in the management of an organisation by establishing goals, how they will be met, and when they will be completed. The plan will also serve as a summary of the company’s mission, purpose, and future goals.
For investors, partners, employees, and management, your company plan will act as a critical point of reference for gauging progress toward goals.
Provide a road map
A detailed plan can assist you in properly managing your organisation as the owner and founder. In the same way that a road map establishes a path and course of action, writing down and drawing both your thoughts and strategies establishes a path and course of action. This will provide you with a tangible metric by which to track and evaluate your development.
Even if it seems counterintuitive, you should consider collaborating with your accountant on this project early on. Why? A good professional counsellor, on the other hand, will have aided many startups. Given how close a professional accountant is to a company’s operations and strategic direction, they’ll be able to draw on their previous client experience to see what’s worked and what hasn’t.
This implies they’ll be in a good position to assist you in testing your assumptions. Always keep in mind that you want your business concept to be as well-thought-out as feasible. Having a fresh pair of eyes look over your ideas from a different angle could make all the difference in terms of your company model’s sustainability. An accountant will understand what success entails, as well as what is necessary and when it must be achieved.
When deciding on a potential course of action, you may discover that your company has several options. As a result, it’s a good idea to sketch out the most likely scenarios and tactics for these various eventualities. If your company is significantly reliant on exports, for example, you may need to think about global and political developments. What effect might this have in the near future on currencies in your chosen markets?
What does a 10% increase or decrease in currency value entail in terms of sales, revenues, profits, and cashflow? Working through this with your accountant will guarantee that you can determine the financial implications of such situations. You’ll be able to design ways to deal with such situations as a result.
Your mind will be focused if you create a clear plan and approach. What resources will you require and when will you need them to achieve each of your objectives? This gives you a clear picture of how much money you’ll need to invest at each step of the company’s existence. Based on your expected cash flow, you’ll know when you’ll require cash infusions.
Understand what to focus on
Where should you focus your efforts and concentrations as an entrepreneur? It’s a common occurrence. The early stages of a business can be chaotic. There is a lot to set up, consider, implement, and develop. It’s an emotional roller coaster with highs and lows of exhilaration and anxiety. With all of this going on and an ever-growing to-do list, it’s easy to lose touch of what’s important.
When you write a business plan, you’re outlining exactly what your company is now and what it wants to be in the future. This clarity on the objective of your company and the path you’re taking is priceless. By doing so, you’ll be able to see what needs to be done in order to go forward.
For instance, your strategy should include a description of your ideal consumer, as well as their goals and desires. Then you’d go into detail about how your products or services meet their needs. What marketing strategy would you use to reach out to these potential customers? What are your plans for getting your name out there? What strategy will you use to increase sales and revenue?
These are critical issues to address right away. New clients and repeat business are the two main sources of growth. As a result, your progress toward profitability is determined. You’re setting yourself yardsticks to work towards by laying it all out on paper. This means that all of your tasks as an entrepreneur should be aimed toward reaching your next goal. In a nutshell, that’s where you should concentrate your efforts.
Projections and the need for an accountant
Supporting your expansion is likely to necessitate additional money. That is, unless your business concept is incredibly cash-generative. Most of the time, you won’t have enough clients, and so no free cash flow, to fund the next chance. You’ll need working capital, which means you’ll need to invest money that isn’t inside your company’s budget.
You’ll almost certainly need to approach potential sources of funding, and they’ll want to look over your financial statements, profit and loss statements, and company strategy. If you’re still in the concept stage or haven’t started selling, their judgement will be based completely on your and your business plan’s strength.
The financial statements aid prospective lenders and investors in understanding the company’s past performance. The business plan gives them an idea of where you want to go in the future. They’ll be looking for a variety of things in your strategy. Finally, they’ll want to know if your company’s expansion or development will create enough cash to allow it to function efficiently while also meeting its debt obligations.
This means you’ll need to include profit and cash flow estimates in your plan. Forecasting and planning are viewed as important tools for understanding income and expenses. This is very important for preventing payment complications with suppliers and employees’ paychecks. When such problems occur, many businesses close.
Manage your business effectively
However, the value of a cash flow projection does not end there. As you may have learned, managing your financial position is critical to your company’s long-term success. “Most businesses fail because they run out of money,” according to a popular saying. This indicates that they are unable to pay their bills when they are due.
Your cashflow predictions in your business strategy should be referred to on a regular basis. There will be huge outflows of money before any cash comes in when you invest in your firm. As a result, you must analyse the timing of your investments in relation to your estimates and statements. Take into account trade patterns, seasonal fluctuations, and the potential influence on cash flows.
If you sell something on a credit card, for example, you’ll get paid later. That is, after the commodities or services have been transferred. The possibility is that you’ll have to make payments related to your business’s regular operations before that cash from your customer arrives.
As a result, you can see how bad cash management causes significant problems. Make sure you collaborate with your accountant while creating your business strategy and tracking your progress against it. Documenting well-thought-out ideas, paired with a savvy strategy and well calculated projections, will significantly boost your chances of long-term survival and growth.