Purposes / Uses of Business Plan:
A business plan serves multiple purposes. It can be used in the following situations;
- Starting your business –
A sound business plan is a must at the time when the entrepreneur wants to start his business. Existence of a sound business plan can make all the difference in success or failure of a business. It helps entrepreneurs resolve conflicting goals & keep the business set up on the right tract. A good business plan helps an entrepreneur answer important questions like; “What business am I in? What products am I producing? Who are my competitors? What is the best marketing strategy? etc
- Expanding your business –
Expansion of business is a crucial stage in an entrepreneurs business life. It is associated with opportunities & risks. A business may expand its business prematurely when it has not mastered its current level of activities or it may be too late when the market is already saturated with similar products. A well designed business plan helps an entrepreneur in deciding about issues such as timing of expansion, rate of expansion (annual growth rate of 5% or 10%) & the type of expansion (new markets, new location, new products etc).
- Developing new products –
A business entrepreneur cannot continue with the same product all his life. He will develop his business by adding new products & improving the existing ones. Customers needs are constantly changing & to remain competitive in the market, entrepreneurs must prepare a business plan to anticipate & correspond to customers changing needs. Invention of developed technologies for manufacturing low electricity consumption & high energy, efficient air conditioners & CFL bulbs are the results of well developed business plans that anticipated customers desire to save their electricity bills.
- Obtaining finance –
When an entrepreneur wants to raise money from investors (by issuing shares) or banks/financial institutions (as loans), investors, banks, financial institutions will provide finance to the entrepreneur only if they are satisfied that financing a business will enable them to; earn a substantial return on their investment. A sound business plan will show them, where the business is going & how t heir venture is worthwhile. Thus, a sound business plan helps an entrepreneur in raising finance for his enterprise in the form of loan & capital.
- Making management decisions –
A business plan helps in making management decisions. It specifies business objectives, assesses the enterprises internal & external environment & helps the entrepreneur in making decisions that are in the overall business interest. It helps in developing an ‘Outsider-looking’ in approach, that is, how an outsider would look at the business & making decisions to maintain objectivity of the business.
- Maintaining control –
A business plan acts as a control device. It helps in answering questions like; Are the goals met? Have the sales reached their target? Are the costs within limits? etc. It helps in measuring actual performance with standard performance & if business is going in a different direction taking action to get things back in line with targets.
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