The Purpose of a Business Plan

1st, Identifies nature and context of business opportunity

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

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

4th, Serves as a tool for raising capital


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

1st, 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

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

3rd, 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.

4th, 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

5th, 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

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

External Uses for a Business Plan

1st, 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

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

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

4th, 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.