4 reasons to create a business plan

A business plan is a blueprint and communication tool for your business. It is a device that helps you, as the owner, spell out how you intend to operate your business and serves as a road map to tell others how you expect to get there. A business plan can detail alternative future scenarios and set specific objectives and goals.It can also include the resources that may be required to achieve these goals.

Many business owners believe that a business plan is intended only to show investors that they are making a good investment if they choose to lend money to your business.However, business plans are a valuable part of everyday management.Without a business plan, businesses often find themselves `shooting at the hip', so to speak.They are forced to be reactive rather than proactive and managing business can be a chaotic event.Business plans that are implemented well will give you and your business direction and purpose so that everyone is working towards achieving the same goals.

The top four reasons that you should create a business plan are:

1.To Support Growth and Secure Funding
Almost every small business will at some point or another be faced with making an investment decision.There will be times, whether it be at the startup phase or further down the line, that you may need more money than your cash flow can provide and so you must seek external funding.

Any lender (investor) that has had any experience will require certain documentation from you to get a clear picture of what they are investing their money into.Just as with any type of loan that you apply for, a business lender will want to know how reliable you and your business are for repaying their money.They will require access to your company's recent Income Statements/Profit and Loss Statements to see where you are
coming from, as well as an up-to-date business plan to see where you are going.

A well-written business plan can help you convey to investors why their money is better off you're your business rather than somewhere else.Just remember that the most crucial component for them will be clear evidence of your business's future ability to generate sufficient cash flows to meet its debt obligations, while also enabling the business to operate effectively.

2.To Develop and Communicate a Course of Action
A business plan will help your company assess future opportunities and commit to a particular course of action.By putting your plan on paper, you can explore the different options, determine which is the best course of action to take, and get everyone focused and working towards these same key activities.The plan can assign milestones to specific individuals and ultimately help management to monitor progress.Once written, a plan can prompt further questions and feedback by readers and individuals involved which will help to continually improve upon the business plan.

3.To Help Manage Cash flow
Cash flow management is a fundamental requirement if a business wishes to succeed.If money coming in does not exceed the money coming out, a business will most likely fail.Your business should have a well structured business plan that will help you manage your business finances.

For example, if your business is involved in an investment opportunity where there are significant cash flow going out in advance of the cash flows coming in, careful management of cash flow is imperative.These opportunities need to be assessed, keeping in mind any seasonal variations in the business and the timing of the flows.Also, if you are a `cash-only' business, you can bank the income immediately.However, if you sell on credit, you receive the cash in the future and therefore you may need to pay some of your own expenses before that income hits your account.All these things are important to consider when creating your business plan because it will make your business run smoothly and efficiently as well as predictably.

4.To Support an Exit Strategy
At some point, you may decide that the time has come to exit the business, whether it be because you are selling it, transferring it, merging it, closing it, etc.You will want to consider the likely exit strategy in advance because it can help inform and direct present day decisions.For example, if the most attractive exit route appeared to be selling to a competitor, present day management and investment decisions could focus on activities that would increase the company's attractiveness to that competitor.

The goal of your exit strategy should be to liquidate the entire investment so that you, other owners, and investors are all given the option of cashing out when they want.By planning for an exit, you can make sure that you are focusing now on things that will appeal to your future successor.Some common exit strategies include:
- Initial Public Offering of stock (IPO's)
- Acquisition by competitors
- Mergers
- Family succession
- Management buy-outs