When does a company need a business plan, and why?

Business Plan

A business plan is a formal document containing details of a business concept and various strategies that will propel the growth of a given business. It is considered a crucial document that you can use when you want to share your idea with a private investor, a financial institution, or other interested parties to prove that you are committed to establishing the business.

In general, a business plan consists of three important parts. These are market research, business model, and financial model. Market research analyzes the existing demand for a product or service and the existing supply to meet this demand, identifies main competitors in the market. The business concept and business model is the part that describes the information directly related to the project, such as the project implementation goal, geographical area, production technology, management and human resources, marketing strategy, pricing, and sales channels, etc. The financial model includes information on the financial resources required for the project, forecasted revenues, and expenses, as well as the evaluation of the investment required to implement the project using various financial instruments.

Mentioned below are the main instances when a company would need to use a business plan and why.

  • To analyze the demand and supply for the product or the service you offer. As already mentioned, an integral part of the business plan is market research, which allows for the development of various assumptions for the financial model. Such as demand (number of sales or services provided), market prices, competitive advantage, and more.
  • To understand the competition in the industry and assess the feasibility of the business concept. The feasibility of a business concept, among other factors, is determined by the level of competition in a given industry. Therefore, it is crucial to market research and competitors analysis to outline various strategies that you can put in place to beat the competition in the industry.
  • To document a company’s business model. A business plan contains a business model, which offers a framework for how a business will operate to make profits. In practice, it encompasses the value proposition, procedures, strategies, organizational structure, operational business processes, production technology, etc.
  • Analysis of the revenue sources. Various models can be used to analyze the value chain and to assess the revenue sources that will help you to identify the main directions or activities for revenue sources and plan long terms stability of your business.
  • To attract other partners. Some businesses may require huge capital to establish. In order to have access to financing, the owner of a business idea may choose to collaborate with other parties such as investors and financial institutions, Local or international funds. The interested partners are likely to ask for a business plan to get details of how the proposed business will run. Also, donor-funded projects require to be well planned for in a business plan.