The Importance of Formal Business Planning
A business plan is basically a formal written document that contain the strategies for attaining the desired objectives of an organization, the details of how these objectives are attainable, and the period of time for the accomplishment of these objectives. It is usually prepared by the management or leadership of an organization for a purpose of raising funds, increasing profitability, or as a basis for borrowing funds from banks or other financial institutions. It can serve as a tool for the organization to decide upon important decisions such as merging with another company, selling of its assets, or deciding to enter into a particular industry. Business plans also play an important role in decision making of major strategic decisions like merging the operating divisions of an organization into a single division, selling of certain businesses, and deciding to open a new business.
A formal business plan helps an organization to understand, foresee, evaluate, and anticipate the future circumstances. This helps them to make quick decisions and secure future for its long-term existence. Formal business plans help an organization to plan for future requirements, identify new opportunities, and realize the most suitable methods for achieving them. They are helpful in forecasting market trends and help to determine what consumers will demand in the market in the near future. Moreover, a formal business plan helps an organization to set up an action strategy, analyze the present circumstances and options for the future, and take necessary steps for realizing its goals and objectives.
The purpose of writing a business plan is to prepare and maintain a strategic structure that guides the way the management team of an organization goes about the day to day activities. They help in aligning the short-term and long-term objectives with one another. They are important documents that lay down the foundation for all future work in an organization. They affect the way the management team works and therefore, they should be well written, clear, and concise in order to ensure the best results at all times.
A formal business plan helps identify the short-term as well as the long-term goals. It provides a well-defined strategy that enables the management team to make informed decisions and secure strategic positions for the organization. A formal business plan helps the management team came up with a strategy in case of an emergency or when there is a need to revise the strategy. Formal business plans also help develop a culture within the organization, lay down the foundation for future working, provide an identity for the company, and set up the corporate vision.
In order to achieve the organizational goals, a formal business plan helps in the development of strategies for marketing, financial projections, staffing, manufacturing and distribution, research and development, environmental issues, government policy, advertising, finance, and human resources. All these areas require detailed analysis, and a detailed analysis requires the use of financial projections. A financial projection is an analysis of expected sales, expenditures, and other relevant factors such as demographics and market trends.
Most organizations do not have the resources, time or expertise to create long-term strategic plans or short-term operational plans. The lack of knowledge often leads to poor decisions, which can lead to operational problems within the organization. This can result in loss of reputation, and even cause the company to fold. On the other hand, if the organization has a good set of strategic and operational plans in place, it can be able to derive short-term and long-term benefits by using available resources effectively. Formal business planning is an essential part of the overall organization management process and it helps in realizing long-term business goals.