Business Planning is a vital tool whenever a proposal is put forward for funding internally or externally. Furthermore, a business plan can be used to attract new talent to a start-up. Existing businesses can make use of the planning approach as a basis for the long term management control. It is important to construct a business plan whenever:
- A new business is to be formed and capital is required.
- A new investment project is being proposed and a maximum capital need must be specified.
- A new product line or project is being proposed.
A Business plan consists of a number of integrated elements covering the product or business proposal, the objectives that the company wishes to achieve, the strategy for delivering those objectives, and a range of marketing and organisational issues that flow from the strategy described. All of this will then be summarised into a financial plan that lays out the implications of the proposal in terms of cash flow, financial requirements, project financial statements and a range of planning rations and financial performance targets.
It is important to note that what matters for a business is not so much the plan itself but the process of creating it. Good business planning allows managers and entrepreneurs, in the case of new business ventures, to work through implications of what they are proposing and to minimise the impact of the law of unintended consequences.
This is why most banks, finance houses and investors insists that company's seeking finance have in place an effective business planning processes.