Importance of a Business Plan and Financial Projections

Developing a business plan and financial projections does not have to be a difficult task, the simple business plan tells a story.

Starting a business without a plan is like setting out on a journey without knowing your destination

Don’t be put off by thinking you have to create a massive fifty page document, any plan is better than none, so keep it simple.

Purpose of a Business Plan

To help you appreciate the importance of a business plan and financial projections, we’ve set out below a number of reasons why they are necessary and the type of business situation they can be used for.

  1. Support a loan application to a lender
  2. Raise equity funding from investors
  3. To test ideas to see whether they make sense without incurring any cost
  4. Define the business model by changing assumptions
  5. Define goals, targets and objectives for the business
  6. To create a road map for the business
  7. To attract talented people to your start up
  8. Analyse strengths and weaknesses
  9. To focus and inspire employees towards the goals of the business
  10. Increase productivity and sharpen competitive edge
  11. To show the impact of selling part of the business
  12. To grow the business without causing problems such as overtrading
  13. To show the effect of a new product or service
  14. Define agreements between founders
  15. Value the business for purchase or sale
  16. To avoid underestimating required capital and resources
  17. To counteract emotions and provide a reality check
  18. To allow actual performance to be monitored against plan so weaknesses can be corrected
  19. Forces the owners to think ahead
  20. To test out assumptions on paper before committing finance
  21. Assess needs such as, equipment, people, and finance for the business to operate effectively
  22. To estimate whether the the break even position is achievable given the available resources

The time invested in preparing a business plan and financial projections will pay for itself many times over, so get started by reading our tutorials on the contents of a business plan and how to make financial projections.

Last modified September 27th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.

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