A businesses daily activities are likely to be unorganized compared to other businesses implementing a well thought out business plan.
If you are still on the fence regarding why you should develop a business plan, the following 3 points should help you decide.
Business plans help with;
- Mapping out the future
- Managing cash flows
- Developing and communicating courses of action
1. Mapping out the future
As well as helping to secure funding at the start-up phase, business plans allow owners and managers to effectively run the business. It is much easier to understand the business and lay out courses of action by preparing a plan. Improvement of the business will be much easier.
By understanding your business and the market a little better and planning how best to operate within this environment, you will be well placed to ensure your long-term success.
2. Managing cash flows
Careful management of cash flow is a fundamental requirement for all businesses. The reason is quite simple–many businesses fail, not because they are unprofitable, but because they ultimately become insolvent (i.e., are unable to pay their debts as they fall due). While the break-even point–where total revenue equals total costs–is a highly important figure for start-ups, once a business is up and running profitably, it becomes less important.
Cash flow management then becomes more vital when businesses pursue investment opportunities where there are significant cash out flows, in advance of the cash flows coming in. These opportunities need to be assessed against any seasonal variations in the business and the timing of the flows. 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 hence may need to pay some of your own expenses before that income hits your account. This will put a further strain on the company’s solvency and hence a well structured business plan will help you manage funding requirements in advance.
3. Developing and communicating courses of action
A business plan helps a company assess future opportunities and commit to a particular course of action. By committing the plan to paper, all other options are effectively marginalized and the company is aligned to focus on key activities. The plan can assign milestones to specific individuals and ultimately help management to monitor progress. Once written, a plan can be disseminated quickly and will also prompt further questions and feedback by the readers helping to ensure a more collaborative plan is produced.
Kilcoyne & Co. Accountants provides technical accounting consulting, international tax planning, state and local tax services, audit and assurance solutions, IT Risk Evaluation, Secretarial and compliance services. For cash flow queries or any general accounting questions, don’t hesitate to contact us! We also provide FREE consultations…
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