The Purpose of a Business Plan

1^st, Identifies nature and context of business opportunity

2^nd, Presents approach entrepreneur will take to exploit the opportunity

3^rd, Identifies factors that most likely determine whether or not the venture will be successful

4^th, Serves as a tool for raising capital

PURPOSE OF A BUSINESS PLAN

General Considerations:

• To sell yourself on the business concept “Sanity Check”
• To help you turn your idea into a reality --- to determine the feasibility of pursuing the difficult steps necessary to start a new company or new venture within an existing company

Operating Considerations:

• To serve as an internal planning tool

§         To guide an organization towards meeting its goals and objectives

§         To keep management headed in a predetermined direction

§         To tell how the company will be run over the next 3-5 years

§         To serve as a tool for analyzing your business

§         To provides tools to implement change

• To give you a firm basis for developing a more detailed operating plan
• To help you evaluate your strengths/weaknesses in order to develop viable strategies for future actions

Financing Considerations:

• To obtain financing for the start-up or new venture
• To help you persuade lenders and investors to back your business
• To tell you the type of information you will need to present in raising capital from outside investors

Other Considerations:

·        To form strategic alliances, joint ventures, or partnerships

·        To capture large contracts from key customers

·        To attract and recruit key managers

Internal Uses of a Business Plan

1^st, it can improve performance by identifying the strengths and weaknesses of the company’s operations.

• Identify any potential or emerging problem area
• Develop strategies that simultaneously build on the company’s strengths and weaknesses
• To provide strategic guidance, operating tactics, and objectives

2^nd, it can communicate to management and staff clear expectations regarding the company’s performance and priorities.

3^rd, for companies with multiple divisions/subsidiaries, or points of management responsibility, a business plan can effectively coordinate and ensure consistency in the plans and operations of the various units.

4^th, a business plan provides a solid basis for measuring performance of the overall company and of individual units and managers.

·        Framework for reviewing key decisions in the ongoing management of the company

·        Serves as a rationale structure for evaluating new developments and opportunities

5^th, a business plan and the process of developing it can be used to educate and motivate the key staff – such as managers and supervisors – of the company.

·        The process gets management commitment to the plan

·        The process helps define management responsibility in achieving the plan

6^th, to establish the operational and financial structure of a management buy-out

External Uses for a Business Plan

1^st, it can be used to educate outside parties regarding the objectives, structure, and performance of the company.

·        Very important if the support of outside parties is important to the company’s success

·        Examples:  Support of current or potential stockholders or investors

·        To promote relationships with joint venture partners and large customers, suppliers, distributors

·        To arrange strategic alliances

·        To obtain large contracts

·        To attract key employees

2^nd, it can be used to secure funding from outside investors. 

3^rd, it can be used to complete mergers and acquisitions

4^th, it can communicate planned actions, deflecting competitive or regulatory moves that may be under consideration by outside parties.

·        By formalizes its intentions in a business plan, a company commits itself to action

·        By communicating these intentions to interested parties as appropriate, a company may preempt actions that could have a negative impact on its own plans and actions.

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