The Advantages of a Business Plan

A business plan provides numerous advantages in the corporate arena. It sets a tone for a company and allows a company to easily present itself to potential investors. A business plan is ultimately a reference guide for understanding a company and serves as a valuable tool in daily operations.

History

In the 1900s, the newest innovation for corporations was the use of business plans. New companies began documenting their operating procedures and short-term and long-term goals in order to better serve their investors. The use and availability of business plans grew in tandem with the stock market. As more companies and investors participated in the market, more companies generated business plans as a way to distinguish themselves from the competition.

Function

Business plans provide a guideline for employees by outlining a company's best practices and mission statement. Employees can reference the business plan when unclear about what direction the company is headed. Business plans inspire employees to act in conjunction with the goals of the organization.

Significance

A business plan typically outlines where a company has been (history) and where it would like to go (goals/objectives). A business plan outlines the steps necessary to reach a company's target and identifies possible challenges and obstacles. Business plans are particularly significant in today's economic environment because they are a primary resource considered by investors when evaluating a company for potential investment.

Potential

A business plan can make or break a new company. A clear business plan conveys the appearance of strong management and leadership. A business plan also tells investors how the company is positioned in a market segment and the areas and tasks it will focus on to retain/improve that position. Venture capitalists and investors often evaluate only a business plan when making the decision whether to invest in a new company.

Expert Insight

A business plan often contains financial performance measures based on a company's previous years of operation and its forecasts. Investors pay particular attention to financial performance and measures; however, many companies spend the least amount of time developing this information. Without projections that can be supported proven, an investor will most likely identify the information as insufficient.