The Importance of Business Planning

The Importance of Business Planning –

Having a clear business plan from day one keeps you focused on the goals that are crucial
for success and provides guidelines for day-to-day operations and decisions.

Why do I need a business plan?

There is no logical reason to wait for external motivation, like your bank manager asking to
see your business plan, before you write one. Committing your plans to writing helps to
sharpen your focus and identify your priorities, and can be used as a benchmark to measure
your progress towards achieving your goals.

Business plans are an essential management tool that tells you what you plan to achieve,
how you plan to achieve it, and when you hope to achieve it by. Set time aside to assess
actual progress against your business plan to keep your business on track, and update your
plan as economic, market and individual circumstances change.

The primary purpose of your business plan is to map out a strategy and action plan for your
business, but it also serves a useful secondary purpose as a reference document for external
parties with an interest in your business.

Who will read your business plan?

Your business plan is likely to be read by people in your company as well as other people
and businesses who are entering some form of partnership or association with you.
Since your business plan contains your strategy and action plan for your business, it will be
referred to by your staff to ensure the decisions they make match the overall plans and
objectives of your business.

Your business plan (or selected portions of it) is likely to be shown to people outside your
business, like your bank manager or other lenders, when looking to raise finance or
investment capital. Similarly, if you are looking to employ a new senior staff member, a
professional business plan could help clinch the deal.

Potential business partners or representatives are also likely to be favorably impressed by a
comprehensive business plan, and your plan will also play an important role in presenting
your business to potential buyers when the time comes to sell your business.
People from outside your business will primarily be interested in using your business plan to
assess the viability and profitability of your business.

Setting your goals

Your business will not operate as efficiently and effectively as it could without specific and
defined goals. Your business plan is likely to outline goals for some, or all, of the following.

 Financial objectives – for example, to increase turnover or reduce operating costs by
5% this year.

 Strategic objectives – for example, to increase the number of corporate clients by
20% within two years.

 Operational objectives – for example, to increase output by 10% within six months.
 Marketing objectives – for example, to increase total sales to existing customers by
10% next year.

 Social/Environmental objectives – for example, to decrease your carbon footprint
by 5% each year for three years.

Holding a staff brainstorming session is a good way to benefit from the expert knowledge of
your staff and get their buy-in and support for your business goals and objectives.

Depending on the size of your business, you might hold only one brainstorming session or
several, to cover the objectives for various business units.

Keep your goals realistic and pertinent to current general economic conditions, and to your
specific industry conditions. For example, in a period of global economic downturn, it is
more effective to look at ways to decrease costs than to increase sales.

Identify your strategy

Your business plan will also include your business strategy and will outline the steps you
plan to follow to achieve the goals and objectives you have identified. This, in turn, will
direct the day-to-day operations of your business. Each of your business goals will need a
plan of action that needs to be followed to achieve the objective.

Forecast the financial implications

The financial implications of your goals and strategies will be reflected in the financial
forecasts in your business plan. Your goals will identify the areas of improvement, like an
increase in sales or a reduction in costs, and your strategy will identify any additional
expenditure needed to achieve these goals.

Most business plans will include a 12-month cash flow forecast, a profit and loss forecast,
and a two- or three-year projection.

Review your business plan

Your business plan is a living document that grows and changes over the lifespan of your
business. Reviewing your progress against your business plan, on an annual basis, is a good way to
measure actual performance, and will form the basis for revising and updating your plans.

If you would like help to improve your business performance give us a call today.

Call Oaktree Accounting on 9495 4700 or email