importance of business plan in an organization

14 Reasons Why You Need a Business Plan

10 min. read

Updated May 10, 2024

There’s no question that starting and running a business is hard work. But it’s also incredibly rewarding. And, one of the most important things you can do to increase your chances of success is to have a business plan.

A business plan is a foundational document that is essential for any company, no matter the size or age. From attracting potential investors to keeping your business on track—a business plan helps you achieve important milestones and grow in the right direction.

A business plan isn’t just a document you put together once when starting your business. It’s a living, breathing guide for existing businesses – one that business owners should revisit and update regularly.

Unfortunately, writing a business plan is often a daunting task for potential entrepreneurs. So, do you really need a business plan? Is it really worth the investment of time and resources? Can’t you just wing it and skip the whole planning process?

Good questions. Here’s every reason why you need a business plan.

• 1. Business planning is proven to help you grow 30 percent faster

Writing a business plan isn’t about producing a document that accurately predicts the future of your company. The  process  of writing your plan is what’s important. Writing your plan and reviewing it regularly gives you a better window into what you need to do to achieve your goals and succeed. 

You don’t have to just take our word for it. Studies have  proven that companies that plan  and review their results regularly grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to become one of those woeful failure statistics, or experience  cash flow crises  that threaten to close them down. 

• 2. Planning is a necessary part of the fundraising process

One of the top reasons to have a business plan is to make it easier to raise money for your business. Without a business plan, it’s difficult to know how much money you need to raise, how you will spend the money once you raise it, and what your budget should be.

Investors want to know that you have a solid plan in place – that your business is headed in the right direction and that there is long-term potential in your venture. 

A business plan shows that your business is serious and that there are clearly defined steps on how it aims to become successful. It also demonstrates that you have the necessary competence to make that vision a reality. 

Investors, partners, and creditors will want to see detailed financial forecasts for your business that shows how you plan to grow and how you plan on spending their money. 

• 3. Having a business plan minimizes your risk

When you’re just starting out, there’s so much you don’t know—about your customers, your competition, and even about operations. 

As a business owner, you signed up for some of that uncertainty when you started your business, but there’s a lot you can  do to reduce your risk . Creating and reviewing your business plan regularly is a great way to uncover your weak spots—the flaws, gaps, and assumptions you’ve made—and develop contingency plans. 

Your business plan will also help you define budgets and revenue goals. And, if you’re not meeting your goals, you can quickly adjust spending plans and create more realistic budgets to keep your business healthy.

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• 4. Crafts a roadmap to achieve important milestones

A business plan is like a roadmap for your business. It helps you set, track and reach business milestones. 

For your plan to function in this way, your business plan should first outline your company’s short- and long-term goals. You can then fill in the specific steps necessary to reach those goals. This ensures that you measure your progress (or lack thereof) and make necessary adjustments along the way to stay on track while avoiding costly detours.

In fact, one of the top reasons why new businesses fail is due to bad business planning. Combine this with inflexibility and you have a recipe for disaster.

And planning is not just for startups. Established businesses benefit greatly from revisiting their business plan. It keeps them on track, even when the global market rapidly shifts as we’ve seen in recent years.

• 5. A plan helps you figure out if your idea can become a business

To turn your idea into reality, you need to accurately assess the feasibility of your business idea.

You need to verify:

• If there is a market for your product or service
• Who your target audience is
• How you will gain an edge over the current competition
• If your business can run profitably

A business plan forces you to take a step back and look at your business objectively, which makes it far easier to make tough decisions down the road. Additionally, a business plan helps you to identify risks and opportunities early on, providing you with the necessary time to come up with strategies to address them properly.

Finally, a business plan helps you work through the nuts and bolts of how your business will work financially and if it can become sustainable over time.

6. You’ll make big spending decisions with confidence

As your business grows, you’ll have to figure out when to hire new employees, when to expand to a new location, or whether you can afford a major purchase. 

These are always major spending decisions, and if you’re regularly reviewing the forecasts you mapped out in your business plan, you’re going to have better information to use to make your decisions.

7. You’re more likely to catch critical cash flow challenges early

The other side of those major spending decisions is understanding and monitoring your business’s cash flow. Your  cash flow statement  is one of the three key financial statements you’ll put together for your business plan. (The other two are your  balance sheet  and your  income statement  (P&L). 

Reviewing your cash flow statement regularly as part of your regular business plan review will help you see potential cash flow challenges earlier so you can take action to avoid a cash crisis where you can’t pay your bills. 

• 8. Position your brand against the competition

Competitors are one of the factors that you need to take into account when starting a business. Luckily, competitive research is an integral part of writing a business plan. It encourages you to ask questions like:

• What is your competition doing well? What are they doing poorly?
• What can you do to set yourself apart?
• What can you learn from them?
• How can you make your business stand out?
• What key business areas can you outcompete?
• How can you identify your target market?

Finding answers to these questions helps you solidify a strategic market position and identify ways to differentiate yourself. It also proves to potential investors that you’ve done your homework and understand how to compete. 

• 9. Determines financial needs and revenue models

A vital part of starting a business is understanding what your expenses will be and how you will generate revenue to cover those expenses. Creating a business plan helps you do just that while also defining ongoing financial needs to keep in mind. 

Without a business model, it’s difficult to know whether your business idea will generate revenue. By detailing how you plan to make money, you can effectively assess the viability and scalability of your business. 

Understanding this early on can help you avoid unnecessary risks and start with the confidence that your business is set up to succeed.

• 10. Helps you think through your marketing strategy

A business plan is a great way to document your marketing plan. This will ensure that all of your marketing activities are aligned with your overall goals. After all, a business can’t grow without customers and you’ll need a strategy for acquiring those customers. 

Your business plan should include information about your target market, your marketing strategy, and your marketing budget. Detail things like how you plan to attract and retain customers, acquire new leads, how the digital marketing funnel will work, etc. 

Having a documented marketing plan will help you to automate business operations, stay on track and ensure that you’re making the most of your marketing dollars.

• 11. Clarifies your vision and ensures everyone is on the same page

In order to create a successful business, you need a clear vision and a plan for how you’re going to achieve it. This is all detailed with your mission statement, which defines the purpose of your business, and your personnel plan, which outlines the roles and responsibilities of current and future employees. Together, they establish the long-term vision you have in mind and who will need to be involved to get there. 

Additionally, your business plan is a great tool for getting your team in sync. Through consistent plan reviews, you can easily get everyone in your company on the same page and direct your workforce toward tasks that truly move the needle.

• 12. Future-proof your business

A business plan helps you to evaluate your current situation and make realistic projections for the future.

This is an essential step in growing your business, and it’s one that’s often overlooked. When you have a business plan in place, it’s easier to identify opportunities and make informed decisions based on data.

Therefore, it requires you to outline goals, strategies, and tactics to help the organization stay focused on what’s important.

By regularly revisiting your business plan, especially when the global market changes, you’ll be better equipped to handle whatever challenges come your way, and pivot faster.

You’ll also be in a better position to seize opportunities as they arise.

Further Reading: 5 fundamental principles of business planning

• 13. Tracks your progress and measures success

An often overlooked purpose of a business plan is as a tool to define success metrics. A key part of writing your plan involves pulling together a viable financial plan. This includes financial statements such as your profit and loss, cash flow, balance sheet, and sales forecast.

By housing these financial metrics within your business plan, you suddenly have an easy way to relate your strategy to actual performance. You can track progress, measure results, and follow up on how the company is progressing. Without a plan, it’s almost impossible to gauge whether you’re on track or not.  

Additionally, by evaluating your successes and failures, you learn what works and what doesn’t and you can make necessary changes to your plan. In short, having a business plan gives you a framework for measuring your success. It also helps with building up a “lessons learned” knowledge database to avoid costly mistakes in the future.

• 14. Your business plan is an asset if you ever want to sell

Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. 

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• Writing your business plan

By taking the time to create a business plan, you ensure that your business is heading in the right direction and that you have a roadmap to get there. We hope that this post has shown you just how important and valuable a business plan can be. While it may still seem daunting, the benefits far outweigh the time investment and learning curve for writing one. 

Luckily, you can write a plan in as little as 30 minutes. And there are plenty of excellent planning tools and business plan templates out there if you’re looking for more step-by-step guidance. Whatever it takes, write your plan and you’ll quickly see how useful it can be.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• 6. You’ll make big spending decisions with confidence
• 7. You’re more likely to catch critical cash flow challenges early

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The importance of a business plan

Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.

Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.

What is a business plan?

A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.

Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success. ‍

Why is a business plan important?

A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business is on the right path and worth putting money into.

Business plans typically include detailed information that can help improve your business’s chances of success, like:

• A market analysis : gathering information about factors and conditions that affect your industry
• Competitive analysis : evaluating the strengths and weaknesses of your competitors
• Customer segmentation : divide your customers into different groups based on specific characteristics to improve your marketing
• Marketing: using your research to advertise your business
• Logistics and operations plans : planning and executing the most efficient production process
• Cash flow projection : being prepared for how much money is going into and out of your business
• An overall path to long-term growth

What is the purpose of a business plan?

A business plan is like a map for small business owners, showing them where to go and how to get there. Its main purposes are to help you avoid risks, keep everyone on the same page, plan finances, check if your business idea is good, make operations smoother, and adapt to changes. It's a way for small business owners to plan, communicate, and stay on track toward their goals.

10 reasons why you need a business plan

I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.

The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.

To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.

1. To help you with critical decisions

The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.

Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.

Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.

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2. To iron out the kinks

Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.

3. To avoid the big mistakes

Only about half of small businesses are still around to celebrate their fifth birthday . While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.

According to data from CB Insights , some of the most common reasons businesses fail include:

• No market need : No one wants what you’re selling.
• Lack of capital : Cash flow issues or businesses simply run out of money.
• Inadequate team : This underscores the importance of hiring the right people to help you run your business.
• Stiff competition : It’s tough to generate a steady profit when you have a lot of competitors in your space.
• Pricing : Some entrepreneurs price their products or services too high or too low—both scenarios can be a recipe for disaster.

The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s cash flow forecasts or a product-market fit analysis , every piece of a business plan can help spot some of those potentially critical mistakes before they arise. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!

Get a jumpstart on your business plan by creating your own cash flow projection .

4. To prove the viability of the business

Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.

Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.

A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.

Want to prove there’s a market gap? Here’s how you can get started with market research.

5. To set better objectives and benchmarks

Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.

6. To communicate objectives and benchmarks

Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.

Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.

7. To provide a guide for service providers

Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.

8. To secure financing

Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.

Learn what you need to get a small business loan.

9. To better understand the broader landscape

No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.

10. To reduce risk

Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.

Business plan FAQs

How does having a business plan help small business owners make better decisions.

Having a business plan supports small business owners in making smarter decisions by providing a structured framework to assess all parts of their businesses. It helps you foresee potential challenges, identify opportunities, and set clear objectives. Business plans help you make decisions across the board, including market strategies, financial management, resource allocation, and growth planning.

What industry-specific issues can business plans help tackle?

Business plans can address industry-specific challenges like regulatory compliance, technological advancements, market trends, and competitive landscape. For instance, in highly regulated industries like healthcare or finance, a comprehensive business plan can outline compliance measures and risk management strategies.

How can small business owners use their business plans to pitch investors or apply for loans?

In addition to attracting investors and securing financing, small business owners can leverage their business plans during pitches or loan applications by focusing on key elements that resonate with potential stakeholders. This includes highlighting market analysis, competitive advantages, revenue projections, and scalability plans. Presenting a well-researched and data-driven business plan demonstrates credibility and makes investors or lenders feel confident about your business’s potential health and growth.

Understanding the importance of a business plan

Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.

Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.

Related Posts

Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

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What is a Business Plan and Why is it Important?

What is a business plan.

Whether you’re starting a small business or exploring ways to expand an existing one, a business plan is an important tool to help guide your decisions. Think of it as a roadmap to success, providing greater clarity on all aspects of your business, from marketing and finance to operations and product/service details.

While some owners may be tempted to jump directly into startup mode, writing a business plan is a crucial first step for budding entrepreneurs to check the viability of a business before investing too much time or money. The purpose of a business plan is to help articulate a strategy for starting your business. It also provides insight on steps to be taken, resources required for achieving your business goals and a timeline of anticipated results.

In fact, businesses that plan grow 30% faster than those that don’t. 1

For existing small businesses, a business plan should be updated annually as a way to guide growth and navigate the expansion into new markets.

Studies show that nearly 71% of the fastest-growing businesses have business plans, indicating that even existing businesses can benefit from updating their plans. 2

Your plan should include explicit objectives for hiring new employees , market analysis, financial projections, and potential investors. The objectives should indicate how they’ll help your business prosper and grow.

Building an asset management business plan

Committing resources to capital improvements and new assets such as computers, software or cars/trucks is never an easy decision for budget-conscious small business owners. But a business plan can bring clarity to the process of whether to buy or lease and help determine the optimal amount allocated to those assets. A good business plan can also help you decide if it’s feasible to take on additional office, retail or work space.

Creating a marketing strategy

Marketing and market potential are important aspects of a plan for aspiring small businesses.

Getting your business in front of customers on a consistent basis is one of the keys to ensuring your business not only stays afloat but also thrives.

Marketing strategies can be simple, but before you decide on how you will get the word out, getting clear on your target audience and why your business solves their problem can make sticking to your marketing plan easier.

Knowing your unique market positioning can help you determine your messaging. Your marketing strategy should include who your target audience is, the platforms or methods you will connect with them on, and a measurement framework to determine if your efforts are working.

Take entrepreneur Scott Sultzer, who opened Sandwich Joint restaurant in downtown Los Angeles in 2009. “I included the potential marketing demographic of all those who lived in a certain area of the city,” he said of his marketing strategy. “My goal was to capture a certain percentage of all those people who lived and worked nearby.” 4

Created primarily as a marketing tool, Sulzer’s 10-page plan included such topics as target market breakdown, marketing strategy and market penetration. “My business plan was mostly about market projections,” he said. “How are we going to get those people that lead to an increase in our daily sales? And how are we going to reach them to let them know we’re here?” 4

Depending on your business, it’s important to have both brick-and-mortar marketing strategies as well as a plan for marketing your business online .

Seeking investment for your business

In addition to providing a roadmap for progress and a marketing plan , your business plan could also be important in securing funding .

Whether you’re seeking a credit line from a bank or an influx of capital from investors, a business plan that answers questions about profitability and revenue generation can make the difference between whether someone decides to invest – or how much they might choose to invest.

In fact, a study showed that businesses with a plan were more likely to receive formal financial support, such as funding, than businesses without one. 3

Hiring the right talent

A business plan may also be needed to retain other professional services as well, such as attorneys, landlords, consultants or accountants. Sulzer used his business plan to secure a lease.

“I had to have a viable document that they could trust,” said Sulzer, who leased from one of the largest landowners in downtown Los Angeles. 4

“With a corporate landlord, they wouldn’t deal with me unless I had a business plan. I had to submit all my information and a plan that presented what I wanted to do, with financial breakdowns and percentages, demographics, and how I was going to get customers.” 4

For a small business to succeed, attracting talented workers and partners is of vital importance. A part of a business plan for hiring employees is to help bring in the right talent, from the executive level to skilled staff, by showing them the direction and growth potential of the business. It can also help secure vendor accounts, especially with exclusive suppliers.

Setting business plan objectives for management

Finally, a business plan can be important in providing structure and management objectives to a small business. It can become a reference tool to keep management on track with sales targets and operational milestones. When used properly and consulted regularly, it can help you measure and manage what you’re working so hard to create.

Ready to take the next step? Learn how to write a business plan .

Don’t forget to consider insurance coverage in your business plan. When the unexpected happens, you want to make sure your small business is covered. Customized insurance solutions are crucial to protecting and keeping your operation going.

Find out how small business insurance from Nationwide can help you build and protect your business whether you are just starting up or already established.

1 https://www.effectuation.org/wp-content/uploads/2017/06/The-Multiple-Effects-of-Business-Planning-onNew-Venture-Performance-1.pdf , Accessed October 2021. 2 https://onlinelibrary.wiley.com/doi/abs/10.1111/0447-2778.00006 , Accessed October 2021. 3 https://www.tandfonline.com/doi/abs/10.1080/13504851.2014.967377 , Accessed October 2021. 4 Nationwide Interview with Scott Sultzer, 2016.

Disclaimer: The information included is designed for informational purposes only. It is not legal, tax, financial or any other sort of advice, nor is it a substitute for such advice. The information may not apply to your specific situation. We have tried to make sure the information is accurate, but it could be outdated or even inaccurate in parts. It is the reader’s responsibility to comply with any applicable local, state, or federal regulations. Nationwide Mutual Insurance Company, its affiliates and their employees make no warranties about the information nor guarantee of results, and they assume no liability in connection with the information provided. Nationwide, Nationwide is on your side, and the Nationwide N and Eagle are services marks of Nationwide Mutual Insurance Company. © 2021 Nationwide.

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The importance of business plan: 5 key reasons.

A key part of any business is its business plan. They can help define the goals of your business and help it reach success. A good business plan can also help you develop an adequate marketing strategy. There are a number of reasons all business owners need business plans, keep reading to learn more!

Here’s What We’ll Cover:

What Is a Business Plan?

5 reasons you need a well-written business plan, how do i make a business plan, key takeaways.

A business plan contains detailed information that can help determine its success. Some of this information can include the following:

• Market analysis
• Cash flow projection
• Competitive analysis
• Financial statements and financial projections
• An operating plan

A solid business plan is a good way to attract potential investors. It can also help you display to business partners that you have a successful business growing. In a competitive landscape, a formal business plan is your key to success.

Check out all of the biggest reasons you need a good business plan below.

1. To Secure Funding

Whether you’re seeking funding from a venture capitalist or a bank, you’ll need a business plan. Business plans are the foundation of a business. They tell the parties that you’re seeking funding from whether or not you’re worth investing in. If you need any sort of outside financing, you’ll need a good business plan to secure it.

2. Set and Communicate Goals

A business plan gives you a tangible way of reviewing your business goals. Business plans revolve around the present and the future. When you establish your goals and put them in writing, you’re more likely to reach them. A strong business plan includes these goals, and allows you to communicate them to investors and employees alike.

3. Prove Viability in the Market

While many businesses are born from passion, not many will last without an effective business plan. While a business concept may seem sound, things may change once the specifics are written down. Often, people who attempt to start a business without a plan will fail. This is because they don’t take into account all of the planning and funds needed to get a business off of the ground.

Market research is a large part of the business planning process. It lets you review your potential customers, as well as the competition, in your field. By understanding both you can set price points for products or services. Sometimes, it may not make sense to start a business based on the existing competition. Other times, market research can guide you to effective marketing strategies that others lack. To have a successful business, it has to be viable. A business plan will help you determine that.

4. They Help Owners Avoid Failure

Far too often, small businesses fail. Many times, this is due to the lack of a strong business plan. There are many reasons that small businesses fail, most of which can be avoided by developing a business plan. Some of them are listed below, which can be avoided by having a business plan:

• The market doesn’t need the business’s product or service
• The business didn’t take into account the amount of capital needed
• The market is oversaturated
• The prices set by the business are too high, pushing potential customers away

Any good business plan includes information to help business owners avoid these issues.

5. Business Plans Reduce Risk

Related to the last reason, business plans help reduce risk. A well-thought-out business plan helps reduce risky decisions. They help business owners make informed decisions based on the research they conduct. Any business owner can tell you that the most important part of their job is making critical decisions. A business plan that factors in all possible situations helps make those decisions.

Luckily, there are plenty of tools available to help you create a business plan. A simple search can lead you to helpful tools, like a business plan template . These are helpful, as they let you fill in the information as you go. Many of them provide basic instructions on how to create the business plan, as well.

If you plan on starting a business, you’ll need a business plan. They’re good for a vast number of things. Business plans help owners make informed decisions, as well as set goals and secure funding. Don’t put off putting together your business plan!

If you’re in the planning stages of your business, be sure to check out our resource hub . We have plenty of valuable resources and articles for you when you’re just getting started. Check it out today!

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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12 Key Elements of a Business Plan (Top Components Explained)

Starting and running a successful business requires proper planning and execution of effective business tactics and strategies .

You need to prepare many essential business documents when starting a business for maximum success; the business plan is one such document.

When creating a business, you want to achieve business objectives and financial goals like productivity, profitability, and business growth. You need an effective business plan to help you get to your desired business destination.

Even if you are already running a business, the proper understanding and review of the key elements of a business plan help you navigate potential crises and obstacles.

This article will teach you why the business document is at the core of any successful business and its key elements you can not avoid.

Let’s get started.

Why Are Business Plans Important?

Business plans are practical steps or guidelines that usually outline what companies need to do to reach their goals. They are essential documents for any business wanting to grow and thrive in a highly-competitive business environment .

1. Proves Your Business Viability

A business plan gives companies an idea of how viable they are and what actions they need to take to grow and reach their financial targets. With a well-written and clearly defined business plan, your business is better positioned to meet its goals.

2. Guides You Throughout the Business Cycle

A business plan is not just important at the start of a business. As a business owner, you must draw up a business plan to remain relevant throughout the business cycle .

During the starting phase of your business, a business plan helps bring your ideas into reality. A solid business plan can secure funding from lenders and investors.

After successfully setting up your business, the next phase is management. Your business plan still has a role to play in this phase, as it assists in communicating your business vision to employees and external partners.

Essentially, your business plan needs to be flexible enough to adapt to changes in the needs of your business.

3. Helps You Make Better Business Decisions

As a business owner, you are involved in an endless decision-making cycle. Your business plan helps you find answers to your most crucial business decisions.

A robust business plan helps you settle your major business components before you launch your product, such as your marketing and sales strategy and competitive advantage.

4. Eliminates Big Mistakes

Many small businesses fail within their first five years for several reasons: lack of financing, stiff competition, low market need, inadequate teams, and inefficient pricing strategy.

Creating an effective plan helps you eliminate these big mistakes that lead to businesses' decline. Every business plan element is crucial for helping you avoid potential mistakes before they happen.

5. Secures Financing and Attracts Top Talents

Having an effective plan increases your chances of securing business loans. One of the essential requirements many lenders ask for to grant your loan request is your business plan.

A business plan helps investors feel confident that your business can attract a significant return on investments ( ROI ).

You can attract and retain top-quality talents with a clear business plan. It inspires your employees and keeps them aligned to achieve your strategic business goals.

Key Elements of Business Plan

Starting and running a successful business requires well-laid actions and supporting documents that better position a company to achieve its business goals and maximize success.

A business plan is a written document with relevant information detailing business objectives and how it intends to achieve its goals.

With an effective business plan, investors, lenders, and potential partners understand your organizational structure and goals, usually around profitability, productivity, and growth.

Every successful business plan is made up of key components that help solidify the efficacy of the business plan in delivering on what it was created to do.

Here are some of the components of an effective business plan.

1. Executive Summary

One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.

In the overall business plan document, the executive summary should be at the forefront of the business plan. It helps set the tone for readers on what to expect from the business plan.

A well-written executive summary includes all vital information about the organization's operations, making it easy for a reader to understand.

The key points that need to be acted upon are highlighted in the executive summary. They should be well spelled out to make decisions easy for the management team.

A good and compelling executive summary points out a company's mission statement and a brief description of its products and services.

An executive summary summarizes a business's expected value proposition to distinct customer segments. It highlights the other key elements to be discussed during the rest of the business plan.

Including your prior experiences as an entrepreneur is a good idea in drawing up an executive summary for your business. A brief but detailed explanation of why you decided to start the business in the first place is essential.

Adding your company's mission statement in your executive summary cannot be overemphasized. It creates a culture that defines how employees and all individuals associated with your company abide when carrying out its related processes and operations.

Your executive summary should be brief and detailed to catch readers' attention and encourage them to learn more about your company.

Components of an Executive Summary

Here are some of the information that makes up an executive summary:

• The name and location of your company
• Products and services offered by your company
• Mission and vision statements
• Success factors of your business plan

2. Business Description

Your business description needs to be exciting and captivating as it is the formal introduction a reader gets about your company.

What your company aims to provide, its products and services, goals and objectives, target audience , and potential customers it plans to serve need to be highlighted in your business description.

A company description helps point out notable qualities that make your company stand out from other businesses in the industry. It details its unique strengths and the competitive advantages that give it an edge to succeed over its direct and indirect competitors.

Spell out how your business aims to deliver on the particular needs and wants of identified customers in your company description, as well as the particular industry and target market of the particular focus of the company.

Include trends and significant competitors within your particular industry in your company description. Your business description should contain what sets your company apart from other businesses and provides it with the needed competitive advantage.

In essence, if there is any area in your business plan where you need to brag about your business, your company description provides that unique opportunity as readers look to get a high-level overview.

Components of a Business Description

Your business description needs to contain these categories of information.

• Business location
• The legal structure of your business
• Summary of your business’s short and long-term goals

3. Market Analysis

The market analysis section should be solely based on analytical research as it details trends particular to the market you want to penetrate.

Graphs, spreadsheets, and histograms are handy data and statistical tools you need to utilize in your market analysis. They make it easy to understand the relationship between your current ideas and the future goals you have for the business.

All details about the target customers you plan to sell products or services should be in the market analysis section. It helps readers with a helpful overview of the market.

In your market analysis, you provide the needed data and statistics about industry and market share, the identified strengths in your company description, and compare them against other businesses in the same industry.

The market analysis section aims to define your target audience and estimate how your product or service would fare with these identified audiences.

Market analysis helps visualize a target market by researching and identifying the primary target audience of your company and detailing steps and plans based on your audience location.

Obtaining this information through market research is essential as it helps shape how your business achieves its short-term and long-term goals.

Market Analysis Factors

Here are some of the factors to be included in your market analysis.

• The geographical location of your target market
• Needs of your target market and how your products and services can meet those needs
• Demographics of your target audience

Components of the Market Analysis Section

Here is some of the information to be included in your market analysis.

• Industry description and statistics
• Demographics and profile of target customers
• Marketing data for your products and services
• Detailed evaluation of your competitors

4. Marketing Plan

A marketing plan defines how your business aims to reach its target customers, generate sales leads, and, ultimately, make sales.

Promotion is at the center of any successful marketing plan. It is a series of steps to pitch a product or service to a larger audience to generate engagement. Note that the marketing strategy for a business should not be stagnant and must evolve depending on its outcome.

Include the budgetary requirement for successfully implementing your marketing plan in this section to make it easy for readers to measure your marketing plan's impact in terms of numbers.

The information to include in your marketing plan includes marketing and promotion strategies, pricing plans and strategies , and sales proposals. You need to include how you intend to get customers to return and make repeat purchases in your business plan.

5. Sales Strategy

Sales strategy defines how you intend to get your product or service to your target customers and works hand in hand with your business marketing strategy.

Your sales strategy approach should not be complex. Break it down into simple and understandable steps to promote your product or service to target customers.

Apart from the steps to promote your product or service, define the budget you need to implement your sales strategies and the number of sales reps needed to help the business assist in direct sales.

Your sales strategy should be specific on what you need and how you intend to deliver on your sales targets, where numbers are reflected to make it easier for readers to understand and relate better.

6. Competitive Analysis

Providing transparent and honest information, even with direct and indirect competitors, defines a good business plan. Provide the reader with a clear picture of your rank against major competitors.

Identifying your competitors' weaknesses and strengths is useful in drawing up a market analysis. It is one information investors look out for when assessing business plans.

The competitive analysis section clearly defines the notable differences between your company and your competitors as measured against their strengths and weaknesses.

This section should define the following:

• Your competitors' identified advantages in the market
• How do you plan to set up your company to challenge your competitors’ advantage and gain grounds from them?
• The standout qualities that distinguish you from other companies
• Potential bottlenecks you have identified that have plagued competitors in the same industry and how you intend to overcome these bottlenecks

In your business plan, you need to prove your industry knowledge to anyone who reads your business plan. The competitive analysis section is designed for that purpose.

7. Management and Organization

Management and organization are key components of a business plan. They define its structure and how it is positioned to run.

Whether you intend to run a sole proprietorship, general or limited partnership, or corporation, the legal structure of your business needs to be clearly defined in your business plan.

Use an organizational chart that illustrates the hierarchy of operations of your company and spells out separate departments and their roles and functions in this business plan section.

The management and organization section includes profiles of advisors, board of directors, and executive team members and their roles and responsibilities in guaranteeing the company's success.

Apparent factors that influence your company's corporate culture, such as human resources requirements and legal structure, should be well defined in the management and organization section.

Defining the business's chain of command if you are not a sole proprietor is necessary. It leaves room for little or no confusion about who is in charge or responsible during business operations.

This section provides relevant information on how the management team intends to help employees maximize their strengths and address their identified weaknesses to help all quarters improve for the business's success.

8. Products and Services

This business plan section describes what a company has to offer regarding products and services to the maximum benefit and satisfaction of its target market.

Boldly spell out pending patents or copyright products and intellectual property in this section alongside costs, expected sales revenue, research and development, and competitors' advantage as an overview.

At this stage of your business plan, the reader needs to know what your business plans to produce and sell and the benefits these products offer in meeting customers' needs.

The supply network of your business product, production costs, and how you intend to sell the products are crucial components of the products and services section.

Investors are always keen on this information to help them reach a balanced assessment of if investing in your business is risky or offer benefits to them.

You need to create a link in this section on how your products or services are designed to meet the market's needs and how you intend to keep those customers and carve out a market share for your company.

Repeat purchases are the backing that a successful business relies on and measure how much customers are into what your company is offering.

This section is more like an expansion of the executive summary section. You need to analyze each product or service under the business.

9. Operating Plan

An operations plan describes how you plan to carry out your business operations and processes.

The operating plan for your business should include:

• Information about how your company plans to carry out its operations.
• The base location from which your company intends to operate.
• The number of employees to be utilized and other information about your company's operations.
• Key business processes.

This section should highlight how your organization is set up to run. You can also introduce your company's management team in this section, alongside their skills, roles, and responsibilities in the company.

The best way to introduce the company team is by drawing up an organizational chart that effectively maps out an organization's rank and chain of command.

What should be spelled out to readers when they come across this business plan section is how the business plans to operate day-in and day-out successfully.

10. Financial Projections and Assumptions

Bringing your great business ideas into reality is why business plans are important. They help create a sustainable and viable business.

The financial section of your business plan offers significant value. A business uses a financial plan to solve all its financial concerns, which usually involves startup costs, labor expenses, financial projections, and funding and investor pitches.

All key assumptions about the business finances need to be listed alongside the business financial projection, and changes to be made on the assumptions side until it balances with the projection for the business.

The financial plan should also include how the business plans to generate income and the capital expenditure budgets that tend to eat into the budget to arrive at an accurate cash flow projection for the business.

Base your financial goals and expectations on extensive market research backed with relevant financial statements for the relevant period.

Examples of financial statements you can include in the financial projections and assumptions section of your business plan include:

• Projected income statements
• Cash flow statements
• Balance sheets
• Income statements

Revealing the financial goals and potentials of the business is what the financial projection and assumption section of your business plan is all about. It needs to be purely based on facts that can be measurable and attainable.

11. Request For Funding

The request for funding section focuses on the amount of money needed to set up your business and underlying plans for raising the money required. This section includes plans for utilizing the funds for your business's operational and manufacturing processes.

When seeking funding, a reasonable timeline is required alongside it. If the need arises for additional funding to complete other business-related projects, you are not left scampering and desperate for funds.

If you do not have the funds to start up your business, then you should devote a whole section of your business plan to explaining the amount of money you need and how you plan to utilize every penny of the funds. You need to explain it in detail for a future funding request.

When an investor picks up your business plan to analyze it, with all your plans for the funds well spelled out, they are motivated to invest as they have gotten a backing guarantee from your funding request section.

Include timelines and plans for how you intend to repay the loans received in your funding request section. This addition keeps investors assured that they could recoup their investment in the business.

12. Exhibits and Appendices

Exhibits and appendices comprise the final section of your business plan and contain all supporting documents for other sections of the business plan.

Some of the documents that comprise the exhibits and appendices section includes:

• Legal documents
• Licenses and permits
• Credit histories
• Customer lists

The choice of what additional document to include in your business plan to support your statements depends mainly on the intended audience of your business plan. Hence, it is better to play it safe and not leave anything out when drawing up the appendix and exhibit section.

Supporting documentation is particularly helpful when you need funding or support for your business. This section provides investors with a clearer understanding of the research that backs the claims made in your business plan.

There are key points to include in the appendix and exhibits section of your business plan.

• The management team and other stakeholders resume
• Marketing research
• Permits and relevant legal documents
• Financial documents

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The Undeniable Importance of a Business Plan

We often hear about business plans in the context of early-stage companies; however, constructing excellent business plans is difficult and time-consuming, so many entrepreneurs avoid them. But, is this a mistake?

While most people may be aware of the “soft” arguments for and against writing a business plan, in this article, a Toptal Finance Expert takes a data-driven approach to addressing the debate. In it, he finds strong evidence to support the notion that writing an excellent business plan is time well spent.

By Sean Heberling

Sean has analyzed 10,000+ companies, built complex models, and helped facilitate $1+ billion in investment transactions.

PREVIOUSLY AT

Executive Summary

• Individuals who write business plans are 2.5x as likely to start businesses.
• Business planning improves corporate executive satisfaction with corporate strategy development.
• Angels and venture capitalists value business plans and their [financial models](https://www.toptal.com/finance/tutorials/what-is-a-financial-model).
• Companies who complete business plans are 2.5x as likely to get funded.
• Even if a small-scale early-stage venture seeking just $250,000 in capital spent almost $40,000 on business planning and another almost $40,000 on capital raising, it should still expect to "break even" on a probability-weighted basis.
• Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge.
• Company Overview: An explanation of why your company is relevant and the need you are addressing.
• Market Overview: A description of the state of your market and its important trends, a detailed description of your customers, and a description of your current competitors and their advantages.
• Product/Service Overview: A description of your product(s), how they compete with other brands, why they are needed, and why customers will pay a fair economic value for it.
• Financial Projections: Three thorough financial plans with conservative, moderate, and optimistic assumptions.
• The process of writing forces the author to ask introspectively how they reached their conclusions and each of the sub-conclusions along the way because they must explain their logic to a cynical reader.
• The written author needs to support all conclusions with facts and logic to prove that they are not "making it up" or relying upon popular "myths."
• Outlined reports and outlined business plans are not generally subject to the same level of reader scrutiny.

We often hear about business plans in the context of early-stage companies , but constructing excellent business plans is difficult and time-consuming, so many entrepreneurs avoid them. That’s a mistake, as there is strong evidence demonstrating that business plans generate positive returns on time and money invested .

The business world has long debated the importance of business plans, and most involved understand the “soft” arguments. However, this article delves into the data to conclude that writing an excellent business plan is time well spent. I developed a similar view over my 20+ year financial career , during which I have analyzed well over 10,000 different types of companies. I have noticed that while a business plan may not be required for a venture to become successful, having one does seem to greatly improve the probability of successful outcomes.

Expert Opinions Support the Value of Business Planning

Expert opinions support the four following conclusions:

• Angels and venture capitalists value business plans and their financial models.

Individuals Who Write Business Plans Are 2.5x More Likely to Become Entrepreneurs

Many people have business ideas over the course of their careers, but often, these ideas never come to fruition, or they get lost amidst our daily obligations. Interestingly, studies support the notion that those who write business plans are far more likely to launch their companies. Data from the Panal Study of Entrepreneurial Dynamics in fact suggests that business planners were 2.5x as likely to get into business . The study, which surveyed more than 800 people across the United States who were in the process of starting businesses, therefore concluded that “writing a plan greatly increased the chances that a person would actually go into business.”

Of course, causation of this phenomenon is hard to pin down. There are several different possible reasons why this correlation between writing business plans and actually starting a business may exist. But William Gartner, Clemson University Entrepreneurship Professor and author of the Panal Study, believes that “‘research shows that business plans are all about walking the walk. People who write business plans also do more stuff.’ And doing more stuff, such as researching markets and preparing projections, increases the chances an entrepreneur will follow through.”

Research shows that business plans are all about walking the walk. People who write business plans also do more stuff. And doing more stuff, such as researching markets and preparing projections, increases the chances an entrepreneur will follow through.

William Bygrave, a professor emeritus at Babson College, reached a similar conclusion despite having previously shown “that entrepreneurs who began with formal plans had no greater success than those who started without them.” Bygrave does admit, however, that “40% of Babson students who have taken the college’s business plan writing course go on to start businesses after graduation, twice the rate of those who didn’t study plan writing.”

Business Planning Improves Corporate Executive Satisfaction

Another important way in which business plans can provide tangible help is by aligning everyone in an organization with the vision and strategy going forward. And this, in turn, has important ramifications on corporate executive satisfaction. A study by McKinsey & Company which surveyed nearly 800 corporate executives across a range of industries confirms this conclusion. In it, McKinsey found that “formal strategic-planning processes play an important role in improving overall satisfaction with strategy development. That role can be seen in the responses of the 79 percent of managers who claimed that the formal planning process played a significant role in developing strategies and were satisfied with the approach of their companies, compared with only 21 percent of the respondents who felt that the process did not play a significant role. Looked at another way, 51% of the respondents whose companies had no formal process were dissatisfied with their approach to the development of strategy, against only 20% of those at companies with a formal process.”

Of course, not all planning is equal. Planning just for the sake of planning doesn’t have the desired effects. As McKinsey itself noted in their study, “Just 45% of the respondents said they were satisfied with the strategic planning process. Moreover, only 23% indicated that major strategic decisions were made within its confines. Given these results, managers might well be tempted to jettison the planning process altogether.” As such, entrepreneurs and business managers should take the time and effort required to put together a well-written and well-researched business plan. Later in the article, I outline some of the elements of a well-written plan.

Business Plans and Their Financial Models Are Valuable to Angels and Venture Capitalists

Many entrepreneurs will eventually need to raise outside capital to grow and develop their businesses. In my experience, a business plan is a crucial tool in maximizing the chances of raising money from external investors. A well-written plan not only helps investors understand your business and your vision, but also shows them that you’ve taken the time to carefully assess and think through the issues your business will face, as well as the more detailed questions surrounding the economics and fundamentals of your business model.

Nathan Beckford, CFA, is the CEO of FounderSuite, the funding stack used by startups in Y Combinator, TechStars, 500s, and more to raise over $750 million. Nathan illustrates the above point nicely in an email he wrote to me recently: “Prior to starting Foundersuite.com, I ran a startup consulting business called VentureArchetypes.com. For the first few years, our primary business was cranking out bold, bullish, beautifully-written business plans for startups to present to investors. Around the mid-2000s, business plans started to go out of favor as the ‘Lean Startup’ methodology became popular. Instead of a written plan, we saw a huge uptick in demand for detailed financial models. Bottom line, I still see value in taking time to be contemplative and strategic before launching a startup. Does that need to be in the form of a 40-page written document? No. But if that’s the format that best works for you, and it can help you model scenarios and ‘see around the corner’ then that’s valuable.”

Nathan and I have frequently interacted, as I maintain a subscription to FounderSuite, software I use when running capital campaigns for early-stage companies on whose boards I sit, or when raising capital for my own firm’s investment projects. Nathan’s feedback is helpful, as he frequently interacts with thousands of entrepreneurs simultaneously running capital campaigns, providing him with a great perspective on which approaches work and which don’t. Clearly, he sees that financial models and business plans in some form help entrepreneurs raise capital.

Companies Who Complete Business Plans Are 2.5x as Likely to Get Funded

Following the section above, naturally, if business plans are useful to outside investors, these are therefore likely to also increase one’s chances of successfully raising capital. A study by Palo Alto Software confirms this hypothesis. The study showed that although 65% of entrepreneurs had NOT completed business plans, the ones who had were twice as likely to have secured funding for their businesses.

This study surveyed 2,877 entrepreneurs. Of those, 995 had completed business plans, with 297 of them (30%) having secured loans, 280 of them (28%) having secured investment capital, and 499 of them (50%) having grown their businesses. Contrast these percentages with the results for the 1,882 entrepreneurs who had not completed business plans, where just 222 of them (12%) had secured loans, 219 of them (12%) had secured investment capital, and 501 of them (27%) had grown their businesses. (Note that the percentages among the business plan population sum to over 100% because of some overlap between each of the sub-categories.) These results led the study authors to conclude that “Except in a small number of cases, business planning appeared to be positively correlated with business success as measured by our variables. While our analysis cannot say that completing a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to run a successful business.”

Calculating the Return on Investment for Business Planning

The data and studies outlined above all serve to prove something that I have come to understand very clearly throughout my career. Nevertheless, I still often find that startups struggle with the idea of having to put together a business plan, and in particular with the option of hiring an outside professional to help them do that. As such, I quantified the ROI of such an activity, using data and numbers based on my many years of business consulting. The results of the exercise are summarized in the table at the end of the section, but there are two overarching conclusions:

• Even a small-scale early-stage company can “afford” to pay a finance expert $191 per hour both to create a business plan and to guide the capital raising process, at worst “breaking even” on the investment.
• Larger early-stage companies can expect significant returns on investments in business planning, perhaps as much as 6,700% (67x the amount of money invested).

Diving into the analysis, my inputs included:

• My professional experience with writing business plans. I have spent 25 - 200 hours apiece creating business plans I feel comfortable sharing with founders, advisors, and investors.
• Data from the Palo Alto study discussed earlier in this article. This study showed that 30% of early-stage ventures with business plans had secured funding, 2.5x as great as the 12% of early-stage ventures without business plans who managed to secure funding despite the absence of such plans.
• The hourly rate for a finance expert x (150 to 200 hours) for one round of financing, OR
• 10% of the amount of capital targeted

My analysis illustrates the following:

• Early-stage companies should expect to spend $4,000 - $40,000 on business planning, including the financial modeling associated with it.
• Early-stage companies should expect to spend $30,000 - $200,000 for an initial round of financing between $250,000 and $2 million in size, resulting in net financing of $200,000 - $1.8 million.
• Even if a small-scale early-stage venture seeking just $250,000 in capital spent almost $40,000 on business planning and another almost $40,000 on capital raising, it should still expect to “break even” on a probability-weighted basis. In other words, because the odds of success with a professional business plan are 2.5x greater than without one, small-scale early-stage ventures can justify such a significant investment. This also assumes NO additional odds for success from engaging a professional to coordinate the fundraising effort. I suspect that doing so may push the odds of success from 12% without a business plan and 30% with a business plan to above 50%. It is also likely that a smaller-scale venture may require significantly fewer hours for business planning and capital raising that what is outlined in the “worst case” below.
• Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge, and this analysis just assumes ONE round of equity financing. Most successful startups will experience several rounds of financing.

Thoughts on Writing an Excellent Business Plan

An extensive overview of how to write an excellent business plan is beyond the scope of this article. However, here are two key thoughts that have emerged from my years of experience with startups.

First, there are four common elements to an excellent business plan. In Alan Hall’s Forbes article, “ How to Build a Billion Dollar Business Plan: 10 Top Points ,” he interviews Thomas Harrison, Chairman of Diversified Agency Services, an Omnicom division that has purchased “a vast number of firms,” to share his views on the key elements of a great business plan. Although each of these ten elements is essential, I reorganized the list into four broad categories:

1. Company Overview

• An explanation of why your company is relevant and the need are you addressing
• A description of corporate priorities and the processes to achieve them.
• An overview of the various resources, including the people that will be needed, to deliver what’s expected by the customer.

2. Market Overview

• A description of the state of your market and its important trends.
• A detailed description of your customers.
• A description of your current competitors and their advantages. Which ones will you displace?

3. Product/Service Overview

• A description of your products, how they compete with other brands, and why they are needed.
• An explanation of why customers will pay a fair economic value for your product or service. This element is conspicuously absent from some of today’s most expensive unicorns. Companies such as Uber and Tesla are losing massive amounts of money on rapidly growing sales because these companies may not be selling their services/products for fair economic value. Of course, sales grow rapidly when customers can buy your services/products for far less than their fair economic values!

4. Financial Projections

• Conservative
• Each scenario should have realistic and achievable sales, margins, expenses, and profits on monthly, quarterly, and annual bases. Again, these elements appear to be conspicuously absent from some of today’s most expensive unicorns.

Second, written business plans are superior to those just “outlined.” As an adjunct professor of finance for Villanova University, I require my students to write research reports prior to developing slide decks to present their findings from a full semester of industry research. The process of writing forces the authors to ask themselves how they reached their conclusions and each of the sub-conclusions along the way because they must explain their logic to cynical readers. The written authors need to support their conclusions with facts and logic to prove that they are not “making it up” or relying upon popular “myths.” Outlined reports and outlined business plans are not generally subject to the same level of reader scrutiny. Therefore, written business plans are superior to those just “outlined.” Outlined plans are often kept on 10-12 slide decks, and the slide deck is an important tool in the capital raising process, but the written business plan that stands behind it will differentiate an entrepreneur from their seemingly infinite competition.

Parting Thoughts

Some argue that many public multi-billion-dollar companies such as Apple or Google never had formal business plans before they started, but this argument is flawed because most of these companies likely developed business plans either during the solicitation of venture capital or during the process of going public. Apple and Google were both funded with venture capital, and soliciting venture capital involves business planning. The founders of Apple and Google likely created financial projections and outlined strategic paths.

Moreover, Apple and Google are both public companies, and going public involves business planning. Underwriters employ research analysts creating financial forecasts based on business plans projected by management at the companies going public. Buy-side firms purchasing and holding shares in newly public companies create forecasts based upon the business plans projected by public company management teams.

Admittedly, you don’t need a written business plan to have a successful company. You may not even need a business plan at all to have a successful company. However, the probability of success without a business plan is much lower. Angels and venture capitalists like to know about your business plan, and public companies need to project business plans to persuade underwriters and investors to purchase their securities.

Further Reading on the Toptal Blog:

• Creating a Narrative from Numbers
• Business Plan Consultants: Who They Are and How They Create Value
• Building a Business Continuity Plan
• Building the Next Big Thing: A Guide to Business Idea Development
• Mission Statements: How Effectively Used Intangible Assets Create Corporate Value

Understanding the basics

Why it is important to have a business plan.

Expert opinions and numerous studies show that business plans improve corporate satisfaction, are useful for angel investors and venture capitalists, and increase a company’s chances of raising capital by 2.5x.

What are the benefits of a business plan?

Individuals who write business plans are 2.5x as likely to start businesses. Moreover, business planning improves corporate executive satisfaction with corporate strategy development. Finally, investors value business plans, making the chances of raising capital 2.5x greater.

What does an investor look for in a business plan?

The four key sections of a business plan are: the company overview, a market overview, your product/service overview, and the financial projections.

• BusinessPlan

Sean Heberling

Philadelphia, PA, United States

Member since October 18, 2017

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15 Reasons Why You Need a Business Plan in 2024

Posted august 5, 2024 by noah parsons.

Imagine you’re going on a road trip. You know your final destination, but you haven’t figured out how to get there. 

While it might be fun to start driving and figure things out as you go, your trip will likely take longer than expected and end up costing more. But, if you take the time to look at a map and chart the best way to get to your destination—you’ll arrive on time and on budget. 

Planning for your business isn’t much different, which is why a business plan is so important to your continued success.

What is the purpose of a business plan? 

The primary purpose of a business plan is to help you figure out where you want to go with your business and how you will get there. Writing a business plan helps you set your direction and determine a winning strategy. A solid business plan will set your business up for success and help you build an unbeatable company.

If you start off without a plan, you may go down some interesting detours, but you’re unlikely to grow quickly or stick to your budget.

15 reasons why you need a business plan

“Creating a road map for my business is all well and good, but do I really need a business plan? I’d rather just get started.”

If you’re still thinking like this and decide to skip writing a business plan, you’re making a big mistake and setting yourself up to fail. Even if your business survives, without a plan, you’ll miss valuable growth opportunities and never truly be in control.

Still not convinced? Here are the critical reasons why a business plan is important for small businesses. 

1. You’re more likely to start

Documenting your business idea makes it more official. It takes rough ideas and turns them into the making of a real business. 

According to a study by the Harvard Business Review , entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don’t.

Even if it’s just notes about your potential business, writing things down will make you more likely to proceed with your business. Without a plan, you can’t prove to yourself, partners, mentors, or investors that you’re serious about starting.

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2. Reduce potential risks

Writing a business plan takes some of the risk out of starting a business. It helps you think through every facet of your business to determine if it can truly be viable. 

• Does your solution fit the market? Are your startup or operational costs manageable?
• Will your proposed business model actually generate sales?
• What sort of milestones would you need to hit to achieve profitability?

Your business plan can answer these startup questions .

For those already running a business, writing a plan can help you better manage ongoing risk. 

• Should you bring on a new employee?
• What does cash flow look like for your next month, quarter, or even year?
• Will you meet your milestones or do you need to change your focus?

Keep your plan up to date, review it regularly and you can easily answer these growth questions and mitigate risk.

3. Test a new business idea and prove it’s viable

When you have a new business idea, it helps to spend time thinking through all the details. 

A business plan will help you think about your:

• Target market
• How much money you’ll need to launch
• How your idea will actually work before you spend any real money

A business plan will also help you easily share your idea with other people to get input and feedback before you get started. 

There’s no need to create a detailed business plan either. 

Instead, I recommend using a one-page business plan to quickly test your ideas and determine if you have a viable business. 

4. Understand your market and build a marketing plan

No matter how good your idea is, you have to figure out who your ideal customers are and how you will get the word out to them. 

That’s where a marketing plan comes in. It can be an indispensable tool to figure out how you get your first customers as well as your thousandth customer. It can start as a simple bulleted list of potential marketing channels that expands in detail as you need it.

5. Build a better budget and a financial forecast

Without a business plan, it’s impossible to know how much money it will cost to start and run a business. You don’t just need money for your initial purchases; you need enough cash in the bank to maintain your cash runway and keep your business afloat while you get fully up and running.

When you plan, you’ll need to create your expense budget , set sales goals, and identify how much cash is needed to keep your doors open, purchase inventory, and more. 

The beauty of incorporating forecasts into your business plan is that you don’t need exact numbers to start. You can work with general assumptions and compare against competitive benchmarks to set a baseline for your business. 

As you operate and collect financial data, you can revisit your business plan and update your forecasts to generate a more accurate picture of your business’s future.

6. Attract investors and get funding

Sharing your business idea with investors requires a business plan. 

Investors may never actually ask for your full business plan, but they will certainly ask you questions that you’ll only be able to answer if you’ve taken the time to write a plan. 

At the very least, they’ll want to see your financial forecasts, so you should be prepared for this. If you pitch your business to investors, having a business plan makes it much easier to translate the right information into a pitch deck. 

In short, you’ll have all of the right information ready and available to show why your business is worth investing in.

7. Plan for different scenarios

Things rarely actually go to plan. The world is always changing, customer tastes change, and new competitors arrive. 

Having a plan allows you to experiment with different scenarios to see how changes to your business will impact your forecasts, budgets, profitability, and cash flow.

Without a business plan, you’ll be reacting blindly with no way to track if your decisions are making a real impact.

8. Attract employees

Especially if you’re a young startup company, attracting employees can be hard. Without a proven track record, why should someone take a risk to work for you? 

Having a business plan can help solve that problem. Your plan can help prospective employees understand your business strategy and growth plans so that they can feel confident joining your team. It’s also incredibly useful in determining when and if it’s feasible for you to hire more employees . 

9. Get your team on the same page

A great business strategy can only be successful if your team understands it. By documenting your strategy with a business plan, you can easily get everyone on the same page and working towards the same goals. 

It’s even better if you regularly review your plan with members of your team. Have everyone revisit your core strategy, analyze it, and explore how it impacts individual and team goals .

10. Manage your business better 

A business plan is all about setting goals for your company — both financial goals and milestones you hope to accomplish. 

When you use your business plan to manage your business, you’ll see which parts of your strategy are working and which aren’t. 

For example, you may have invested in new marketing efforts to sell one of your products, but that strategy just isn’t working out. With a business plan in hand, you’ll be able to see what’s going to plan and where you need to adjust your strategy, pivoting to new opportunities that will drive profitability.

Regular business plan reviews , ideally monthly, will help you build a strong, resilient business.

11. Effectively navigate a crisis

Having a business plan not only helps you create a roadmap for your business but also helps you navigate unforeseen events. Large-scale economic downturns, supply shortages, payment delays, cash flow problems, and any number of other issues are bound to pop up. But by leveraging your business plan, you can be prepared to face each crisis head-on.

A plan helps you assess your current situation, determine how the crisis will alter your plan, and explore what it will take to recover. 

With a little planning, you can even prepare your business for future downturns with this same process. Having the right plan and processes in place will make crisis planning easier and, ideally, recession-proof your business .

12. You’ll be ready to sell

You might decide to sell your business or position yourself for acquisition down the road. Having a solid business plan helps make the case for a higher valuation. 

Your business is likely worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. 

Remember, if you were buying a business , you’d likely want to see their business plan and any previous documentation. So, the more organized and professional your plan is, the easier it will be for a buyer to say yes.

13. It’s easier than you think

You may be procrastinating in writing a business plan because it sounds like a lot of work. The truth is that planning is much less complicated than you think. 

Start small by writing a simple business plan you can complete in about half an hour. With the emergence of AI business plan generators , getting stuck with a blank page is a thing of the past. Just be sure that you don’t just let AI write your plan for you and keep yourself involved in the planning process.

From there, refine your plan until your idea is solid. At that point, you can invest more time in a more detailed business plan. Just start with the basics and expand from there.

14. You’ll sleep better at night

When you have a plan for your business, you have peace of mind. You know that you’ve invested the time to figure out a business model that works, and you’ve considered different financial scenarios so you can handle the unexpected. 

Plus, you have a management tool to run your business better than your competitors. 

15. Research shows that business plans work

A Journal of Management Studies study found that businesses that take the time to plan grow 30% faster than those that don’t. 

Our own 2021 small business research study found that 58% of small business owners who have or are working on a plan feel confident in their business, even amidst a crisis. 

A study in Small Business Economics found that entrepreneurs who write business plans for their ideas are 152% more likely to actually start their businesses.

There’s plenty of additional research linking business planning with success, so it’s a proven fact that you won’t waste time when you write your plan.

Why is a business plan important? Because it sets you up for success

There are plenty of reasons to write a business plan, but they all relate to one thing—increasing the likelihood of success for you and your business. 

Taking the time to plan is an investment in yourself and your business that will pay dividends, whether you’re starting a new business or taking your existing business to the next level. 

If you’ve been putting off writing a business plan, now is the time to do it. Start by downloading one of the many free business plan templates out there, or for additional guidance, invest in an online business plan builder .

No matter what business planning tool you choose, just deciding to write a business plan will set you up to build, run, and grow your business. So, don’t wait—start planning today.

What is a business plan?

A business plan is a structured document that outlines the goals, strategies, target market, and financial forecasts of a business. It serves as a roadmap for the business, detailing the steps necessary to achieve success.

Why is planning necessary?

Business planning is essential because it helps businesses set clear goals, allocate resources efficiently, identify potential challenges, and develop strategies to overcome them. It also provides a framework for decision-making and helps attract investors by demonstrating the viability of the business.

What happens if a business doesn’t plan?

Without planning, a business may lack direction and clarity, leading to inefficient use of resources, missed opportunities, and an inability to respond effectively to market changes. This can result in financial difficulties, operational challenges, and ultimately, business failure.

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Noah Parsons

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Organizational Planning Guide: Types of Plans, Steps, and Examples

Organizational planning is like charting your company’s path on a map. You need to know what direction you’re headed to stay competitive.

But what exactly is organizational planning and how do you do it effectively? This guide will cover:

The Different Components or Types of Organizational Plans?

The 5 Process Steps of Organizational Planning

Organizational planning examples.

Organizational Planning Tools

What is Organizational Planning?

Organizational planning is the process of defining a company’s reason for existing, setting goals aimed at realizing full potential, and creating increasingly discrete tasks to meet those goals.

Each phase of planning is a subset of the prior, with strategic planning being the foremost

There are four phases of a proper organizational plan: strategic, tactical, operational, and contingency. Each phase of planning is a subset of the prior, with strategic planning being the foremost.

Types of Organizational Planning

A strategic plan is the company’s big picture. It defines the company’s goals for a set period of time, whether that’s one year or ten, and ensures that those goals align with the company’s mission, vision, and values. Strategic planning usually involves top managers, although some smaller companies choose to bring all of their employees along when defining their mission, vision, and values.

The tactical strategy describes how a company will implement its strategic plan. A tactical plan is composed of several short-term goals, typically carried out within one year, that support the strategic plan. Generally, it’s the responsibility of middle managers to set and oversee tactical strategies, like planning and executing a marketing campaign.

Operational

Operational plans encompass what needs to happen continually, on a day-to-day basis, in order to execute tactical plans. Operational plans could include work schedules, policies, rules, or regulations that set standards for employees, as well as specific task assignments that relate to goals within the tactical strategy, such as a protocol for documenting and addressing work absences.

Contingency

Contingency plans wait in the wings in case of a crisis or unforeseen event. Contingency plans cover a range of possible scenarios and appropriate responses for issues varying from personnel planning to advanced preparation for outside occurrences that could negatively impact the business. Companies may have contingency plans for things like how to respond to a natural disaster, malfunctioning software, or the sudden departure of a C-level executive.

The organizational planning process includes five phases that, ideally, form a cycle.

Strategic, tactical, operational, and contingency planning fall within these five stages.

1. Develop the strategic plan

Steps in this initial stage include:

Review your mission, vision, and values

Gather data about your company, like performance-indicating metrics from your sales department

Perform a SWOT analysis; take stock of your company’s strengths, weaknesses, opportunities, and threats

Set big picture goals that take your mission, vision, values, data, and SWOT analysis into account

2. Translate the strategic plan into tactical steps

At this point, it’s time to create tactical plans. Bring in middle managers to help do the following:

Define short-term goals—quarterly goals are common—that support the strategic plan for each department, such as setting a quota for the sales team so the company can meet its strategic revenue goal

Develop processes for reviewing goal achievement to make sure strategic and tactical goals are being met, like running a CRM report every quarter and submitting it to the Chief Revenue Officer to check that the sales department is hitting its quota

Develop contingency plans, like what to do in case the sales team’s CRM malfunctions or there’s a data breach

3. Plan daily operations

Operational plans, or the processes that determine how individual employees spend their day, are largely the responsibility of middle managers and the employees that report to them. For example, the process that a sales rep follows to find, nurture, and convert a lead into a customer is an operational plan. Work schedules, customer service workflows, or GDPR policies that protect prospective customers’ information all aid a sales department in reaching its tactical goal—in this case, a sales quota—so they fall under the umbrella of operational plans.

This stage should include setting goals and targets that individual employees should hit during a set period.

Managers may choose to set some plans, such as work schedules, themselves. On the other hand, individual tasks that make up a sales plan may require the input of the entire team. This stage should also include setting goals and targets that individual employees should hit during a set period.

4. Execute the plans

It’s time to put plans into action. Theoretically, activities carried out on a day-to-day basis (defined by the operational plan) should help reach tactical goals, which in turn supports the overall strategic plan.

5. Monitor progress and adjust plans

No plan is complete without periods of reflection and adjustment. At the end of each quarter or the short-term goal period, middle managers should review whether or not they hit the benchmarks established in step two, then submit data-backed reports to C-level executives. For example, this is when the manager of the sales department would run a report analyzing whether or not a new process for managing the sales pipeline helped the team reach its quota. A marketing team, on the other hand, might analyze whether or not their efforts to optimize advertising and landing pages succeeded in generating a certain number of leads for the sales department.

Depending on the outcome of those reviews, your org may wish to adjust parts of its strategic, tactical, or operational plans. For example, if the sales team didn’t meet their quota their manager may decide to make changes to their sales pipeline operational plan.

These templates and examples can help you start thinking about how to format your organizational plan.

This is a single page two-year strategic plan for a fictional corporation. Notice that the goals listed in the “Strategic Objectives and Organization Goals” section follow the SMART goals model: They’re specific, measurable, actionable, relevant, and time-based.

Workforce Planning

Companies need to use workforce planning to analyze, forecast, and plan for the future of their personnel. Workforce planning helps identify skill gaps, inefficiencies, opportunities for employee growth, and to prepare for future staffing needs.

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This is a two-year action plan for an administration, which could also be described as a tactical plan. Organization-wide goals—aka strategic goals—that are relevant to this department are listed in the top section, while the more tactical goals for the manager of this department are listed below.

Check out this strategic plan template . You’ll notice that tasks for an individual employee fall under operational planning. Note the space within each item for the manager to leave feedback for the employee.

Organizational Planning is Vital for a Successful Business

While organizational planning is a long and complex process, it’s integral to the success of your company. Luckily, the process becomes more automatic and intuitive with regular planning and review meetings.

Use Pingboard’s org chart software to help you plan and communicate your strategy. With Pingboard users can build and share multiple versions of their org chart to help with succession plans, organization redesigns, merger and acquisitions plans. Pingboard also helps with hiring plans by allowing you to communicate open roles in your live org chart so employees understand where their company is growing and what roles they can apply for. Pingboard’s employee directory helps find successors for specific roles by allowing managers to search through their workforce for the skills and experience needed to fill a position.

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The Importance of Planning in an Organization

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• Business Planning & Strategy
• Importance of Business Plans
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Writing an Organization's Goals & Objectives

Analytical tools for developing a strategic plan, definition of a successful strategic business plan.

• What Happens When Businesses Have Contingency Plans?
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Planning helps an organization chart a course for the achievement of its goals. The process begins with reviewing the current operations of the organization and identifying what needs to be improved operationally in the upcoming year. From there, planning involves envisioning the results the organization wants to achieve, and determining the steps necessary to arrive at the intended destination – success, whether that is measured in financial terms, or goals that include being the highest-rated organization in customer satisfaction.

Efficient Use of Resources

All organizations, large and small, have limited resources. The planning process provides the information top management needs to make effective decisions about how to allocate the resources in a way that will enable the organization to reach its objectives. Productivity is maximized and resources are not wasted on projects with little chance of success.

Establishing Organizational Goals

Setting goals that challenge everyone in the organization to strive for better performance is one of the key aspects of the planning process. Goals must be aggressive, but realistic. Organizations cannot allow themselves to become too satisfied with how they are currently doing – or they are likely to lose ground to competitors.

The goal setting process can be a wake-up call for managers that have become complacent. The other benefit of goal setting comes when forecast results are compared to actual results. Organizations analyze significant variances from forecast and take action to remedy situations where revenues were lower than plan or expenses higher.

Managing Risk And Uncertainty

Managing risk is essential to an organization’s success. Even the largest corporations cannot control the economic and competitive environment around them. Unforeseen events occur that must be dealt with quickly, before negative financial consequences from these events become severe.

Planning encourages the development of “what-if” scenarios, where managers attempt to envision possible risk factors and develop contingency plans to deal with them. The pace of change in business is rapid, and organizations must be able to rapidly adjust their strategies to these changing conditions.

Team Building and Cooperation

Planning promotes team building and a spirit of cooperation. When the plan is completed and communicated to members of the organization, everyone knows what their responsibilities are, and how other areas of the organization need their assistance and expertise in order to complete assigned tasks. They see how their work contributes to the success of the organization as a whole and can take pride in their contributions.

Potential conflict can be reduced when top management solicits department or division managers’ input during the goal setting process. Individuals are less likely to resent budgetary targets when they had a say in their creation.

Creating Competitive Advantages

Planning helps organizations get a realistic view of their current strengths and weaknesses relative to major competitors. The management team sees areas where competitors may be vulnerable and then crafts marketing strategies to take advantage of these weaknesses. Observing competitors’ actions can also help organizations identify opportunities they may have overlooked, such as emerging international markets or opportunities to market products to completely different customer groups.

• “The Art of the Long View: Planning for the Future in an Uncertain World”; Peter Schwartz; 1996
• MITRE Corporation: Transformation Planning and Organizational Change

Brian Hill is the author of four popular business and finance books: "The Making of a Bestseller," "Inside Secrets to Venture Capital," "Attracting Capital from Angels" and his latest book, published in 2013, "The Pocket Small Business Owner's Guide to Business Plans."

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Business Plan Section 3: Organization and Management

This section explains how your business runs and who’s on your team. Learn how to present the information in this section of your business plan.

This section of your business plan, Organization and Management, is where you’ll explain exactly how you’re set up to make your ideas happen, plus you’ll introduce the players on your team.

As always, remember your audience. If this is a plan for your internal use, you can be a little more general than if you’ll be presenting it to a potential lender or investor. No matter what its purpose, you’ll want to break the organization and management section into two segments: one describing the way you’ve set up the company to run (its organizational structure), and the other introducing the people involved (its management).

Business Organization

Having a solid plan for how your business will run is a key component of its smooth and successful operation. Of course, you need to surround yourself with good people, but you have to set things up to enable them to work well with each other and on their own.

It’s important to define the positions in the company, which job is responsible for what, and to whom everyone will report. Over time, the structure may grow and change and you can certainly keep tweaking it as you go along, but you need to have an initial plan.

If you’re applying for funding to start a business or expand one, you may not even have employees to fit all the roles in the organization. However, you can still list them in your plan for how the company will ideally operate once you have the ability to do so.

Obviously, for small businesses, the organization will be far more streamlined and less complicated than it is for larger ones, but your business plan still needs to demonstrate an understanding of how you’ll handle the workflow. At the very least, you’ll need to touch on sales and marketing, administration, and the production and distribution of your product or the execution of your service.

For larger companies, an organizational plan with well-thought-out procedures is even more important. This is the best way to make sure you’re not wasting time duplicating efforts or dealing with internal confusion about responsibilities. A smooth-running operation runs far more efficiently and cost-effectively than one flying by the seat of its pants, and this section of your business plan will be another indication that you know what you’re doing. A large company is also likely to need additional operational categories such as human resources and possibly research and development.

One way to explain your organizational structure in the business plan is graphically. A simple diagram or flowchart can easily demonstrate levels of management and the positions within them, clearly illustrating who reports to whom, and how different divisions of the company (such as sales and marketing) relate to each other.

Here is where you can also talk about the other levels of employees in your company. Your lower-level staff will carry out the day-to-day work, so it’s important to recognize the types of people you’ll need, how many, what their qualifications should be, where you’ll find them, and what they’ll cost.

If the business will use outside consultants, freelancers, or independent contractors, mention it here as well. And talk about positions you’d want to add in the future if you’re successful enough to expand.

Business Management

Now that we understand the structure of your business, we need to meet the people who’ll be running it. Who does what, and why are they onboard? This section is important even for a single practitioner or sole proprietorship, as it will introduce you and your qualifications to the readers of your plan.

Start at the top with the legal structure and ownership of the business. If you are incorporated, say so, and detail whether you are a C or S corporation. If you haven’t yet incorporated, make sure to discuss this with your attorney and tax advisor to figure out which way to go. Whether you’re in a partnership or are a sole owner, this is where to mention it.

List the names of the owners of the business, what percent of the company each of them owns, the form of ownership (common or preferred stock, general or limited partner), and what kind of involvement they’ll have with day-to-day operations; for example, if they’re an active or silent partner.

Here’s where you’ll list the names and profiles of your management team, along with what their responsibilities are. Especially if you’re looking for funding, make sure to highlight the proven track record of these key employees. Lenders and investors will be keenly interested in their previous successes, particularly in how they relate to this current venture.

Include each person’s name and position, along with a short description of what the individual’s main duties will be. Detail his or her education, and any unique skills or experience, especially if they’re relevant to the job at hand. Mention previous employment and any industry awards or recognition related to it, along with involvement with charities or other non-profit organizations.

Think of this section as a resume-in-a-nutshell, recapping the highlights and achievements of the people you’ve chosen to surround yourself with. Actual detailed resumes for you and your management team should go in the plan’s appendix, and you can cross-reference them here. You want your readers to feel like your top staff complements you and supplements your own particular skill set. You also want readers to understand why these people are so qualified to help make your business a success.

This section will spell out the compensation for management team members, such as salary, benefits, and any profit-sharing you might be offering. If any of the team will be under contract or bound by non-compete agreements, you would mention that here, as well.

If your company will have a Board of Directors, its members also need to be listed in the business plan. Introduce each person by name and the position they’ll hold on the board. Talk about how each might be involved with the business (in addition to board meetings.

Similar to what you did for your management team, give each member’s background information, including education, experience, special skills, etc., along with any contributions they may already have had to the success of the business. Include the full resumes for your board members in the appendix.

Alternately, if you don’t have a Board of Directors, include information about an Advisory Board you’ve put together, or a panel of experts you’ve convened to help you along the way. Having either of these, by the way, is something your company might want to consider whether or not you’re putting together the organization and management section or your business plan.

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Why Planning is Important in an Organization?

By Simpliaxis

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In this article, we will see the importance of strategic planning in an organization, as well as the influence it has on the achievement of small and large objectives, and we will analyze the most objective way how to carry out adequate planning from a global point of view, taking advantage of everything that surrounds us for the achievement of the goals set.

About Planning

Planning is part of the life of every person: going shopping, activities that will be carried out during the day, a family reunion, or the birthday party, etc., It is present in the family circle, at work, in people, in companies, and we can say that it is an integral part of each and every one of us. In the same way, organizations need planning for effective decision-making. This particular planning is called strategic planning.  For many people, making decisions causes them fear of the unknown or of what will happen if they venture to something new, and this is also lived in organizations, whether small, medium, or large. On the other hand, not planning is not knowing how things are going to be done. For this reason, both people and companies can be afraid of the way they can achieve their objectives because not knowing how to plan correctly will make it very difficult to achieve what is desired.  This is why they need strategic planning, which will help predict what would be the different scenarios of what could be or happen and thus enable them to make decisions based on what they want in the future. In this process, all areas of the company are involved: accounting and finance, marketing, purchasing, production, etc.

Strategic Planning

First of all, it is important to understand the concept of Strategic Planning. It is a tool used to organize the present based on the projections of the desired future, that is, a roadmap to guide an organization from where it is now to where it would like to be in the future.

For a great strategic planning strategy, objectives must be clear, realistic, achievable, and measurable, using the means and resources we have as well as the elaboration of a good SWOT (Strengths, Opportunities, Weaknesses, Threats) that helps us know what direction to take. Moreover, it must be simple, clear, and based on the current situation with enough time to make it happen.

Importance of Planning in an Organization

Having the concept of strategic planning clear, now we will proceed on listing the main reasons why this process is extremely important in an organization:

1. It helps set different key elements for the organization

The first reason why strategic planning is so important for an organization is that it will determine a pattern of vital factors within it. First and most importantly, the decisions for your organization, which will also set and reveal its objectives, purposes, or goals, and produce the main policies, and plans to achieve them and defines the range of businesses that the company must follow, the type of human organization that it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities.

2. It allows the organization to understand their current position and goal position

Through Strategic Planning, organizations can understand what their current state is, where they want to be, and, therefore, what they must carry out to achieve it. It is an exercise that defines what they want to achieve and the ways in which it will be done, always considering the available resources. For this reason, it is an extremely powerful tool for diagnosis, analysis, reflection, and collective decision-making.

3. It allows small organizations to increase their value

When you hear the concept of strategic planning, it is very commonly associated with a large corporation. However, the majority of corporations in most countries are small, which is a critical mass of businesses that undoubtedly need to increase their value in the market and achieve greater competitiveness in an increasingly complex context.

Throughout our history, we have faced the same barriers when it comes to implementing a methodology of reflection and strategic execution.  The SME is usually eminently operational. "I have to sell, I can't think about theories", are some of the most common objections in the implementation of this philosophy in the management of an SME. In this way, researching, planning, and aligning the organization towards the achievement of objectives to increase the organization’s value is a difficult task that can be achieved through strategic planning.

4. It is the ideal tool in changing environments (present)

"In the middle of difficulties, there is an opportunity"

The crisis caused by the coronavirus (COVID-19), like any other, supposes a volatile and changing economic environment, which gives rise to a rethinking of the established strategic models and plans. It is time for new planning, in which it is essential to make strategic decisions in an Agile and correct way, to set the course of the organization around the new needs.

Strategic direction is to be prepared to face these new situations and take advantage of them successfully through a strategic plan. To do this, the opportunities that arise in this environment of great challenges in the business activity must be detected in time, both in a new company and in an already consolidated one. Today, due to the constant changes to which companies are subjected, it is more essential than ever to carry out Strategic Planning. Before, when there were not so many permanent changes, company managers could set plans and goals based on their experience and intuition. Today this is impossible, organizations must be prepared to face threats and take advantage of opportunities. Only through this organizations will be able to successfully achieve the objectives that are set and become sustainable over time.

5. It allows better decision making

Every time we make a decision, we make it aware that we give up other options that could also be effective. That is why during this process it is always advisable to ask questions about different scenarios since they will allow us to generate alternative strategies if our environment or organization itself were to change. This is an activity that can be simplified with strategic planning, as it involves considering different situations and times in regards to the specific goals that the organization sets through it, too.

6. It ensures the future of the organization

The next reason why having a strategic plan is important in your organization is because it will give it a sense of security when it comes to its future behavior and yields. This part of the plan involves the formulation of different key elements like the organizational mission, vision, values, and objectives. All these elements will be a guide for the organization to keep the way in the difficult task of staying current up to date in a market, but without losing the initial essence and purpose.

Some things to keep in mind

Despite the direction and order that strategic planning will give to an organization, there are some things that have to be considered in order to get the best out of this tool, understand the extent of what it covers, and learn what it does not so that can also be taken care of. In this way, strategic planning does not decide future action, as it can only be taken at the moment, so it does not represent the programming of the future. This is why it needs to be understood that strategic planning will not give you forecast sales of the product or service that your organization provides.

Also, keep in mind that this planning should in no way try to replace the intuition, effort, and criteria of the organization’s directors, but it should work hand in hand with those elements for the best results.

Strategic plans can also change along the way, so do not try to use them as recipes or molds for every single situation that you face or wish to plan on. They have to be adapted and thought depending on the current problem and solution that you wish to get from it. This is a reason why they cannot be replicated from other organizations, as every situation is unique and needs different.

Simpliaxis  is one of the leading professional certification training providers in the world offering multiple courses related to Agile methodologies. We offer numerous Agile related courses such as Certified ScrumMaster (CSM)® Certification Training ,  Certified Scrum Product Owner (CSPO)® Certification Training ,  Certified Scrum Developer (CSD) Certification Training ,  Agile and Scrum Training ,  PMI-ACP® Certification Training ,  Professional Scrum with Kanban™ (PSK) Training ,  Certified Scrum Professional® - Product Owner (CSP®-PO) Certification Training ,  Agile Sales Management Training ,  Behaviour Driven Development (BDD) Training  and much more. Simpliaxis delivers training to both individuals and corporate groups through instructor-led classroom and online virtual sessions.

Dreams, goals and the way managers see things give the members of the companies a vision of how they can be seen in the future. This provides the company with a sense and identification of individuality and those dreams are possible to achieve, and without a doubt, they will achieve it. The existence of various sources of thought in planning, direction, and strategy are elements that are key in this process. These strategies have ventured into the economic-administrative areas and have allowed developing strategic planning efficiently and effectively, achieving an optimal functioning of an organization.

As we have already discussed, the importance and advantages of making strategic planning in organizations are mainly that it helps them improve their competitiveness, be at the forefront, innovate continuously and successfully, as well as their collaborators to maintain and grow in this globalized and technological world, which requires a high degree of preparation,  dexterity, and anticipation of social needs and the needs of the organization itself. After reading this article, you know how important it is that you highly consider this strategy to make the best out of your organization.

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More From Forbes

Why your business-planning process is more important than the plan itself.

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Shane Jackson, President of  Jackson Healthcare , a $1.5 billion healthcare staffing and technology company built on a values-led culture

There is an old adage that no battle plan survives contact with the enemy. Or, as Mike Tyson is famously known to have said, “Everybody has a game plan until they get punched in the face.”

I don’t know about you, but I feel like all my plans for the past two years were punched. It’s that time of year again where so many businesses are kicking off the New Year with fresh plans and budgets. I have written a lot of business plans over the years and created many, many financial forecasts. There was one thing that was consistent about all of them: They were all wrong.

Here’s the thing: Plans are based on assumptions. I make plans for dinner based on the assumption that my family will eat with me. Then I learn my teenage kids have made other plans to hang out with their friends. I made an incorrect assumption. Now, what do I do with all these groceries?

Business leaders have never faced as many unknowns as they have during the pandemic. Just when we think we are starting to get some certainty back, we add inflation, supply chain issues and Covid-19 variants. As a result, planning is harder than ever.

You might be tempted, as I have been lately, to just throw planning out the window completely. Why take the time to do a financial forecast when changes in the pandemic could make it irrelevant in 30 days? 

But I would argue the answer is not to stop planning; it is to do more planning.

Put aside for a moment that plans and budgets can be necessary for pesky things like resource allocation. The real value of planning lies in the questions you must consider when creating the plan. Who is your customer? What are their needs? How can you best solve their problems? What should you be paying attention to in the market? What can you learn from your latest successes and failures?

The business plans I’ve written in the past weren’t wrong because I’m not good at my job or because I had bad ideas or reached bad conclusions. They were wrong because the information I had when creating the plan was limited and sometimes incorrect. I had hypotheses about how the market would react but not proof. I made an assumption that the way a small group of customers behaved was representative of the way the rest of the market would behave. I thought I could hire people with certain skills at a specific time but had not yet done so.

As leaders, we are sometimes lulled by the notion that we can run our businesses as though we can forecast the year ahead with complete accuracy. We create business plans assuming we know everything about the market, exactly what the solutions are to the market problem we want to solve, and exactly how our people and processes will act in delivering those solutions. Then we take this plan and put it on a shelf to collect dust until perhaps we pull it out to reference in next year’s plan. Or, worse, we actually operate the company using it.

Perhaps you’ve had a conversation that goes something like this: “Hey, we’ve got this great new product that will really boost sales. Can we hire this person to help us get it to market faster?” And you find the answer is, “No, sorry; we created a budget 14 months ago and that position isn’t in there. Wait another three months for your meeting with the CFO, and maybe you can get it approved.”

I believe the most important part of writing a business plan is the process, not the plan itself. Planning shouldn’t happen once a year; it should happen all year long. The questions one attempts to answer in strategic planning should be asked and answered as often as you have new information. 

A big part of leaders' job is to build a rhythm of learning in their organizations. Make sure you are instilling disciplines that force you to regularly work on the business — versus working in the business — in a way that helps you identify and challenge the assumptions behind your decisions. What has changed in the market or in your ability to deliver? You built this plan thinking one thing, but then discovered that something else actually happened. Now, how do you react?

The ripple effect of the pandemic has created an environment that forced all of us to become more agile. Let’s codify that agility into our businesses and all become better planners, all year long.

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20 Reasons Why You Need a Business Plan in 2024

Written by Dave Lavinsky

What is a Business Plan?

A business plan is a document that details your business concept and strategy for growth. It provides details about your company, a competitive analysis, a market analysis, a marketing strategy to reach potential customers, and a financial plan so that you make the best possible decisions to start or grow your company. A good business plan will help you take your business idea and turn it into a tangible action plan for success.

What is the Purpose of a Business Plan?

A business plan serves as an essential tool for guiding a company’s direction and decision-making processes. Its core purpose is to provide a detailed roadmap that communicates the company’s mission and vision, long-term objectives, and tailored strategies intended to steer the business towards success. This living document plays a pivotal role in streamlining operations, achieving goals, and setting a foundation for sustained growth. The purposes of a business plan include:

• Creating an Effective Growth Strategy : It outlines a comprehensive plan that identifies clear steps and strategies for expanding the market presence and ideal customer base for the business.
• Determining Future Financial Needs : By creating financial projections, a business plan helps in understanding the capital requirements to fuel growth initiatives and sustain operations.
• Attracting Investors and Lenders : A well-crafted business plan is instrumental in drawing attention from potential investors, including angel investors and venture capitalists, by showcasing the growth potential and profitability prospects of the business.

By leveraging a business plan template , entrepreneurs can significantly enhance their ability to communicate their vision, attract necessary funding, and ensure that all stakeholders are aligned with the company’s strategic direction.

20 Reasons Why You Need a Business Plan

There are countless reasons why having a well-crafted business plan is essential to the success of any company. Here are top 20 reasons why a business plan is important:

1. To Prove That You’re Serious About Your Business

A formal business plan is necessary to show all interested parties — employees, investors, partners and yourself — that you are committed to building the business. Creating your plan forces you to think through and select the strategies that will propel your growth.

2. To Establish Business Milestones

The business plan should clearly lay out the long-term milestones that are most important to the success of your business. To paraphrase Guy Kawasaki, a milestone is something significant enough to come home and tell your spouse about (without boring him or her to death). Would you tell your spouse that you tweaked the company brochure? Probably not. But you’d certainly share the news that you launched your new website or reached $1M in annual revenues.

3. To Better Understand Your Competition

Creating the business plan forces you to analyze the competition. All companies have competition in the form of either direct or indirect competitors, and it is critical to understand your company’s competitive advantages or unique value proposition. And if you don’t currently have competitive advantages, to figure out what you must do to gain them.

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4. To Better Understand Your Customer

Why do they buy when they buy? Why don’t they when they don’t? An in-depth customer analysis is essential to a great business plan and to a successful business. Understanding your customers will not only allow you to create better products and services for them, but will allow you to more cost-effectively reach them via advertising and promotions.

5. To Enunciate Previously Unstated Assumptions

The process of actually writing a business plan helps to bring previously “hidden” assumptions to the foreground. By writing them down and assessing them, you can test them and analyze their validity. For example, you might have assumed that local retailers would carry your product; in your business plan, you could assess the results of the scenario in which this didn’t occur.

6. To Assess the Feasibility of Your Venture

How good is this opportunity? The business plan process involves researching your target market, as well as the competitive landscape, and serves as a feasibility study for the success of your venture. In some cases, the result of your business planning will be to table the venture. And it might be to go forward with a different venture that may have a better chance of long-term success.

7. To Document Your Revenue Model

How exactly will your business make money? This is a critical question to answer in writing, for yourself and your investors. Documenting the revenue model helps to address challenges and assumptions associated with the model. And upon reading your plan, others may suggest additional revenue streams to consider.

8. To Determine Your Financial Needs

Does your business need to raise funds? How much? One of the purposes of a business plan is to help you to determine exactly how much capital you need and what you will use it for. This process is essential for raising capital for business and for effectively employing the capital. It will also enable you to plan ahead, particularly if you need to raise additional funding in the future.

9. To Attract Investors

A formal business plan is the basis for financing proposals. The business plan answers investors’ questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s exit strategy? While investors will generally want to meet you in person before writing you a check, in nearly all cases, they will also thoroughly review your business plan.

10. To Reduce the Risk of Pursuing the Wrong Opportunity

The process of creating the business plan helps to minimize opportunity costs. Writing the business plan helps you assess the attractiveness of this particular opportunity, versus other opportunities. So you make the best decisions.

11. To Force You to Conduct Market Research and Really Know Your Market

What are the most important trends in your industry? What are the greatest threats to your industry? Is the market growing or shrinking? What is the size of the target audience for your product/service? Creating the business plan will help you to gain a wider, deeper, and more nuanced understanding of your marketplace. And it will allow you to use this knowledge to make decisions to improve your company’s success.

12. To Attract Employees and a Management Team

To attract and retain top quality talent, a business plan is necessary. The business plan inspires employees and management that your great idea is sound and that the business is poised to achieve its strategic goals. Importantly, as you grow your company, your employees and not you will do most of the work. So getting them aligned and motivated will be key to your success.

13. To Plot Your Course and Focus Your Efforts

The business plan provides a roadmap from which to operate, and to look to for direction in times of doubt. Without a business plan, you may shift your short-term strategies constantly without a view to your long-term milestones. You wouldn’t go on a long driving trip without a map; think of your business plan as your map.

14. To Attract Partners

Partners also want to see a business plan, in order to determine whether it is worth partnering with your business. Establishing partnerships often requires time and capital, and companies will be more likely to partner with your venture if they can read a detailed information about your company.

15. To Position Your Brand

Creating the business plan helps to define your company’s role in the marketplace. This definition allows you to succinctly describe the business and position the brand to customers, investors, and partners. With the industry, customer and competitive insight you gain during the business planning process, you can best determine how to position your brand.

16. To Judge the Success of Your Business

A formal business plan allows you to compare actual operational results versus the business plan itself. In this way, it allows you to clearly see whether you have achieved your strategic, financing, and operational goals (and why you have or have not).

17. To Reposition Your Business to Deal with Changing Conditions

For example, during difficult economic conditions, if your current sales and operational models aren’t working, you can rewrite your business plan to define, try, and validate new business ideas and strategies.

18. To Document Your Marketing Plan

How are you going to reach your customers? How will you retain them? What is your advertising budget? What price will you charge? A well-documented marketing plan is essential to the growth of a business. And the marketing strategies and tactics you use will evolve each year, so revisiting your marketing plan at least annually is critical.

19. To Understand and Forecast Your Company’s Staffing Needs

After completing your business plan, you will not be surprised when you are suddenly short-handed. Rather, your business plan provides a roadmap for your staffing needs, and thus helps to ensure smoother expansion. Importantly your plan can not only help you understand your staffing needs, but ensure your timing is right as it is time consuming to recruit and train great employees.

20. To Uncover New Opportunities

Through the process of brainstorming, white-boarding and creative interviewing, you will likely see your business in a different light. As a result, you will often come up with new ideas for marketing your product/service and running your business. It’s coming up with these ideas and executing on them which is often the difference between a business that fails or just survives and one that thrives.

Make Your Business Planning Count

One of the most common reasons businesses fail is the lack of a clear, strategic plan that addresses key components of running a business. Business plans help in identifying and navigating the challenges that can derail a business’s success, including poor market analysis, inadequate financial planning, and an unclear business model. By taking the time to write a business plan, entrepreneurs can clarify their business strategy, identify potential obstacles before they arise, and establish company goals that will set you up for success.

About Growthink Since 1999, Growthink’s business plan experts have assisted thousands of clients in launching and growing their businesses, and raising more than $2.5 billion in growth financing.

Need help with your business plan? 

• Speak with a professional business plan consultant from our team.
• Use our simple business plan template .
• Check out our business plan examples .
• Or, if you’re creating your own PPM, you can save time and money with Growthink’s private placement memorandum template .
• Learn more about us via our Growthink Business Plan Review page

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Why Is Budgeting Important in Business? 5 Reasons

• 06 Jul 2022

There are few skills as critical to running a business as budgeting. Yet, over half of the executives surveyed in a 2019 McKinsey study report feeling dissatisfied with the transparency surrounding their organizations’ budgets.

Any employee—especially managers—should understand budgeting and how it can profoundly impact an organization.

Here’s a primer on the importance of budgeting in business.

Access your free e-book today.

What Is Business Budgeting?

Budgeting is the process of preparing and overseeing a financial document that estimates income and expenses for a period. For business owners, executives, and managers, budgeting is a key skill for ensuring organizations and teams have the resources to execute initiatives and reach goals.

A basic budget consists of projected income and expenses for a given period (for instance, the upcoming quarter or year). After expenses are subtracted from projected income, the leftover money can be allocated to projects and initiatives, ensuring you’re not planning to overspend.

Budgets from previous periods can be compared to the company’s actual financial allocation and performance, giving an idea of how close predictions were to actual spend.

For example, imagine you allocated $10 million for your company’s annual corporate social responsibility (CSR) project. Unforeseen circumstances caused it to run $1 million over budget, and that money had to come out of other projects’ budgets.

During the project’s postmortem, you ask questions like, “Why did we run over budget? Was this an issue of inefficiency or misallocation?” When creating the budget for next year, you use those insights to tighten the process and keep the project’s spend at $10 million or more accurately allocate funds to other projects.

Types of Budgeting

There are several budgeting types that each prioritize different factors when approaching a financial plan. These include:

• Zero-based budgeting , which sets each item at zero dollars at the start of periods before reallocating
• Static budgeting or incremental-based budgeting , which uses historical data to add or subtract a percentage from the previous period to create the upcoming period’s budget
• Performance-based budgeting , which emphasizes the cash flow per unit of product or service
• Activity-based budgeting , which starts with the company’s goals and works backward to determine the cost of attaining them
• Value proposition budgeting , which assumes no line item should be included in the budget unless it directly provides value to the organization

The right budgeting type varies by company and situation. If your organization is in financial distress, the zero-based method may be the best fit, as it starts from scratch each period. Trying out several methods is a good way to determine which is ideal; when doing so, ensure your entire organization is aligned.

Related: 6 Budgeting Tips for Managers

Why Is Budgeting Important?

Budgeting involves number-crunching, attention to detail, and making informed decisions about fund allocation—but it’s well worth the effort. Here are five reasons budgeting is important in business.

1. It Ensures Resource Availability

At its core, budgeting’s primary function is to ensure an organization has enough resources to meet its goals. By planning financials in advance, you can determine which teams and initiatives require more resources and areas where you can cut back.

If, for instance, your team needs to hire an additional employee to scale efforts, budgeting for that in advance can allow you to plan other spending.

2. It Can Help Set and Report on Internal Goals

Budgeting for an upcoming period isn’t just about allocating spend; it’s also about determining how much revenue is needed to reach company goals.

You can use budgeting to set company-wide and team financial goals that align with them. This is especially prominent when using activity-based budgeting, but it’s beneficial no matter which type you use.

Financial goals should be attainable enough that you count on them to inform the rest of your budget allocations. Your goals inform the expenses needed to reach them and vice versa.

You can also use budgeting to update employees on progress and revisit the next period’s goals. For instance, if your company aimed to gain 10,000 new users this past year but fell short by 4,000, what could you have done differently? Does the initiative require fund redistribution? What resources could have propelled progress?

Tracking progress, or lack thereof, allows you to align your team and plan for growth in the next period.

3. It Helps Prioritize Projects

A byproduct of the budgeting process is that it requires prioritizing projects and initiatives. When prioritizing, consider the potential return on investment for each project, how each aligns with your company’s values, and the extent they could impact broader financial goals.

The value proposition budgeting method forces you to determine and explain each line item's value to your organization, which can be useful for prioritizing tasks and larger initiatives.

4. It Can Lead to Financing Opportunities

If you work at a startup or are considering seeking outside investors , it’s important to have documented budgetary information. When deciding whether to fund a company, investors highly value its current, past, and predicted financial performance.

Providing documents for previous periods with budgeted and actual spend can show your ability to handle a company’s finances, allocate funds, and pivot when appropriate. Some investors may ask for your current budget to see your predicted performance and priorities based on it.

5. It Provides a Pivotable Plan

A budget is a financial roadmap for the upcoming period; if all goes according to plan, it shows how much should be earned and spent on specific items.

Yet, the business world is anything but predictable. Circumstances outside your control can impact your revenue or cause priorities to change at a moment’s notice.

Consider the onset of the coronavirus (COVID-19) pandemic in 2020. The economic impact of travel bans, lockdowns, and other safety precautions was far-reaching and unexpected. Executives were forced to quickly—yet thoughtfully—rework budgets to account for major losses and newfound safety concerns.

More than two years later, executives are rethinking their budgeting procedures to make it easier to pivot if needed. One shift noted by McKinsey is the turn toward zero-based budgeting to determine the minimum resources necessary to survive as a business—should the circumstances call for it.

A budget gives you a plan; maintaining an agile mindset enables you to pivot that plan and help lead your organization through turbulent times.

Learn to Budget Effectively

Anyone can learn to budget effectively and reap the benefits. To build a foundation of financial literacy , gain a deeper understanding of the levers that impact an organization’s finances, and discover how budgeting can enable you to become a better leader and manager, consider taking an online financial accounting course .

Do you want to take your career to the next level? Explore Financial Accounting —one of three online courses comprising our Credential of Readiness (CORe) program —which teaches the key financial topics needed to understand business performance and potential. Not sure which course is right for you? Download our free flowchart .

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Organizational planning: 5 steps to success

Empower your workforce development plans with talent assessments.

Companies that lack detailed organizational plans are planning to fail. You might think that “winging it” is a rarity, but this couldn’t be further from the truth – a survey from Bridges Consultancy found that only 48% of businesses achieve planning success.

So, how can you give your business the best possible chance of reaching its goals?

You need to create a solid organizational plan. 

Organizational planning enables you to enact your business strategy, clearly communicate objectives to every team member, and ensure you have a well-defined process. It also helps you account for contingencies should the worst happen.

Read on to learn how to elevate your company with an organizational plan and how skills testing can help you along the way.

Table of contents

What is organizational planning , the importance of organizational planning, what are the 4 types of organizational planning, 4 organizational plan examples, how to create an organizational plan: the 5 steps of organizational planning, organizational planning is the key to success, organization plan faqs.

Organizational planning is a map of your complex, long-term business objectives. It helps your organization define success, prepare for the future, and attain goals in shifting market conditions. An organizational plan in business planning also guides change management, organizational structure, and initiatives like company-wide restructuring .

However, nobody likes complicated plans. Good planning involves setting goals that are simple, measurable, and attainable – and involve contingency planning to mitigate risk.

In plain English, an organizational plan prevents your team from wandering aimlessly, unsure of roles, responsibilities, or expectations. 

Careful organizational planning avoids these problems. But what kind of planning is needed to steer the company in the right direction? 

To begin, a solid organizational plan improves your company’s performance and boosts your financial figures. Research backs us up by proving that businesses with strong plans are 16% more likely to succeed than their peers.

Organizational plans also clarify the roles and responsibilities of employees in your organization. 

For example, both your sales team and your support team strive to increase business revenue. With a strategic plan, everyone is clear that the sales team's role is to convert new customers, while the support team is responsible for keeping customers happy and upselling more profitable services.

Finally, a business organizational plan empowers your company to stay flexible with shifting markets and global disruption . You’re more resilient thanks to contingency plans, which enable you to follow a defined “plan B” when it comes to adopting new technology, launching innovative products and services, and filling new roles.

Okay, so what does an effective organizational plan look like? 

Let’s cover the four phases of organizational planning to give you a better idea.

1. Strategic planning

Every great business idea starts with a carefully considered strategy. 

Organizational strategic planning involves creating broad, long-term goals for your company. These goals should cover the long term, say the next five to ten years. An example of a strategic goal would be to “become the leading brand in terms of sales and brand recognition in the electronic consumer goods sector within five years.”

Strategy is usually overseen by senior management and C-level executives. A strategic plan rights the ship, setting the vision that the entire company needs to follow to achieve success over the long term.

2. Tactical planning

Next, you need to transform your high-level strategy into tactical steps that empower your organization to reach its long-term goals.

Your strategy consists of multiple tactical plans, each of which typically takes up to a year to complete. Middle managers generally establish objectives and guide their teams to accomplish them. 

Senior management uses metrics and key performance indicators (KPIs) to track progress and ensure that the executive tactical plans are inching the company closer to its final goal.

3. Operational planning

Operational planning sets up a roadmap at the departmental or team-specific level. These are the daily and monthly objectives to be checked off by finance, marketing, IT, sales, and other departments. 

Using the example strategic goal from above, an operational goal for marketing could be to “boost brand awareness by 0.5% each month.”

4. Contingency planning

Even the best plans can be derailed by unexpected market forces (e.g., a competitor launching an innovative new service) or a force majeure (e.g. a global war or pandemic.

This is why you must always prepare your organization to deal with uncertainty and the unknown with contingency planning.

Including meticulous risk management as part of your organizational plan helps you rise above your competitors when times get tough. It gives your people structure and processes to follow when the unexpected strikes.

Now that we’ve covered the definition of organizational plans and the four key types, let’s spend a few minutes examining four examples of organizational planning in action.

1. Workforce development planning

During workforce development planning, you identify and address current and future staffing needs. You typically implement talent planning strategies to enhance your employees’ skills, knowledge, and abilities to stay relevant in your industry and niche.

It begins by assessing the capabilities of your current workforce.

This translates into creating a comprehensive talent map for all employees, including your C-level team members. The goal is to understand your talent baseline, identify skills gaps, determine what kind of training workers require to acquire new skills , and whether you require external hires to meet your workforce needs.

But what’s the best way to assess the skills of your workers ? 

We highly recommend that you use a talent assessment tool, like our test library of more than 400 candidate-friendly skills and personality tests. This is a modern, efficient, and bias-free way to measure your people’s skills and pinpoint strengths and weaknesses within your workforce.

Ready to try it?

Sign up for the Test Gorilla free forever plan and start assessing your employees’ skills today.

Once you’ve established a skills baseline for your organization, it’s time to create two plans: a learning and development plan and a talent acquisition plan.

According to Emeritus, the value of a skill is cut in half about every four years, and the average skill half-life is constantly decreasing. Continuously upskilling your workforce and hiring top external talent helps you stay relevant, successful, and profitable.

Last but not least, you need to prepare skilled employees to jump into crucial vacant roles in the organization. This is a pivotal part of contingency planning because it gives you the ability to quickly fill roles that make or break your company. 

For example, if one of your executives suddenly leaves the business, you won’t need to panic and rush hiring. You can rely on your temporary (or permanent) in-house replacement thanks to your succession planning strategy .

2. Financial planning

Your organization can’t get far without a robust financial plan. Managing debt and reinvesting profits are two of the best ways to ensure your business is sustainable. 

A financial plan assesses and estimates your future revenue, profit margins, and expected expenses, including employee salaries. It also helps you research and evaluate strategic investments to strengthen your business and drive more revenue.

Financial analysts create these plans, so seek their recommendations about financial performance and how to optimize your overall decision-making processes.

3. Products and services planning

Your business wants to make its products and services more appealing to target audiences. However, to do so effectively, you need to be able to recognize gaps in the market and strategically create schemes that set your business apart from competitors . 

You should start by analyzing how your products and services are performing in your respective markets. Are they doing well, or are they struggling? 

Markets and trends also change, which means you need to be aware that you might need to adapt your products regularly to best serve your customers.

Once you determine the size of the gap, you can determine whether:

Your product is well-suited to your audience and doesn’t need updates for now

You need to modify your offering to better serve customer demands

You must innovate and launch another product or service

Developing an updated (or new) product or service requires extensive testing to achieve a solid product-market fit, so make sure to include this in your organization plan.

4. Expansion planning

A good business is always focused on growth. Hence, expansion plans identify growth opportunities and roadblocks your organization might face in its industry, helping you develop marketing strategies or other initiatives to take advantage of those opportunities and overcome the obstacles.

Expansions require hiring more people, using different approaches, and sometimes even developing new products and services. All of this requires a detailed business plan. 

You’re ready to start, so here are 5 steps to get you on the right track with organizational strategic planning:

Come up with a big picture strategic plan

Transform the strategic plan into practical steps

Plan your day-to-day operations

Execute daily operations and monitor performance

Adjust organizational planning

1. Come up with a strategic plan

A strategic plan involves business executives defining the company’s direction for a set period of time, usually 5 to 10 years, and is closely related to the organization’s mission. 

With a strategic plan, the company creates a defined qualitative goal such as “Become the industry leader in the Chicago real estate market” or “Create the most diverse workforce in our niche.” 

Data plays an integral role because reliable information guides you in making strategic decisions based on previous performance and market indicators. 

Ask yourself questions like “Have you tried to achieve a similar objective before? What were the results like?” 

Then, examine existing data and trends and conduct a SWOT analysis (strengths, weaknesses, opportunities, and threats) to determine the path to success.

2. Transform the strategic plan into practical steps

With a tactical plan, you set clear milestones, checkpoints, and metrics that identify whether the company is going in the right direction. 

In the previous section, we mentioned two examples: 

Become the industry leader

Create the most diverse workforce in your niche

Both of these business goals are strategic and qualitative. To become an industry leader, you could make a tactical goal of creating and launching three new products in the next year. A long-term objective would be to increase your market share by 25%.

A tactical plan to create a diverse workforce would be to implement skills testing for the entire team within six months to reduce unconscious bias and increase overall diversity by 20% over the next year.

3. Plan your day-to-day operations

Now that we have concrete goals set, it’s time to plan out the roadmap for everyday operations and how to achieve them in your team’s workflows.

Let’s return to our previous example of an organizational plan that aims to create a highly diverse workforce. 

Here, we create a template for the specific tasks that can achieve the goal of increasing overall diversity by 20% in one year:

Tactical goal 1 : In the next six months, implement tools and processes that empower objective and fair hiring decisions

Find platforms that meet your requirements (for example, for skills testing, try out TestGorilla )

Switch to a structured interview process

Implement and assess the impact of the changes and talent assessments

For example, you could use this talent assessment test to assess human resource professionals and find staff committed to achieving diversity objectives:

For more example questions, see our full test preview.

Tactical goal 2 : Increase the number of women in the workforce by 20%

Use gender-neutral language when writing job descriptions

Make benefits relevant to women a key part of your employer branding 

Share salary and benefits information openly and develop a skills-based compensation system

Make sure your company is able to support moms at work

Tactical goal 3 : Create a diverse management team by increasing the presence of underrepresented groups by 10%

Create a leadership program that focuses on upskilling underrepresented groups and helping them gain the essential managerial skills

Rework your onboarding process to support workers with non-traditional backgrounds

Create a bias-free employee promotion policy

Once you have set these tasks, you need to create a roadmap with concrete timelines, task owners, and measurable KPIs.

4. Execute daily operations and monitor performance

Once your overall organizational plan is set, it’s time to implement all the planning from the previous steps to enable your organization to reach its strategic goals.

No matter how strong your strategic, tactical, and operational plans are, even the best plans fail if the execution isn’t right. 

We suggest you:

Monitor relevant analytics metrics to track targets and performance and ensure that employees are executing the plan correctly and have the right tools and support

Set benchmarks based on past project performance and available industry insights

Use communication and collaboration tools to stay in touch with managers and team leaders

Keep key stakeholders informed if performance is lagging behind expectations

Implement contingency plans if you start falling behind

5. Adjust organizational planning

The business world rarely goes entirely to plan (hence the importance of organizational planning and contingency measures). 

What should you do if you’re struggling to stay on track to reach your organization’s goals?

A successful business plan is continuously monitored and adapted based on the real world. You need to review, change, and iterate each level of your organizational plan to ensure your actions remain aligned with your strategic objectives. 

For example, if you’re struggling to attract diverse managerial applicants, you could update your action plan to include a budget for attending local industry events for underrepresented groups and networking with top talent.

No one succeeds 100% of the time, but by creating an organizational plan, you set yourself up for success and create a blueprint for building an all-star team.

No matter what the future brings, you’ll be able to respond and guide every area of your business, from product planning to workforce development. 

Speaking of workforce development, TestGorilla is here for all your employee planning needs thanks to our library of 400+ assessments that help you implement better talent acquisition and retention strategies.

Sign up for a demo or try our free forever plan to discover what TestGorilla can do for your organizational plan today!

To conclude this article, we answer three of the most commonly asked questions about organizational planning.

What purpose does an organizational plan serve?

An organizational plan outlines a company’s goals and objectives and how it intends to manage change and uncertainty. Organizational planning ensures companies make decisions that align with their strategic vision. 

At the granular level, it gives managers a blueprint for determining how each team member spends their time and how their effort helps the business achieve its overarching goals. 

What are the three levels of organizational planning?

The three levels of organizational planning are strategic, tactical, and operational. Strategic planning deals with long-term goals, while tactical planning breaks these down into achievable short-term goals. Operational planning revolves around the daily and monthly objectives for each department, linking them back to the longer-term goals.

However, there’s another critical level of organizational planning: contingency planning. Scroll up to the "What are the 4 types of organizational planning?" section to find out more.

What are the elements of the organizational planning process?

Develop an organizational strategic plan

Translate the strategic plan into shorter, tactical steps

Plan daily operations, activities, and measurable for departments and individual teams

Execute the strategy and continuously monitor the plan's progress

Make necessary adjustments

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• Talent Management
• 13 Practical Performance Management Strategies...

13 Practical Performance Management Strategies To Implement (In 2024)

Only 2% of Fortune 500 CHROs think their organizations’ performance management strategies are effective. The problem is obvious: business success relies on employee performance, but without a good performance management strategy, companies struggle to remain competitive.

What is performance management?

What are the 4 approaches to performance management.

• Planning: This stage involves setting performance expectations and goals and defining individual success metrics.
• Monitoring: HR and managers track employee performance in relation to the goals set and provide regular feedback.
• Developing and reviewing: At this stage, HR and managers analyze performance data to help employees correct underperformance. Employees performing exceptionally well may be assigned extra projects so they can excel further. 
• Rating and rewards: HR and managers regularly track and rate employee performance. Continually underperforming employees could face dismissal while the organization recognizes and rewards top performers. 

What are performance management strategies?

Enhance your skills with aihr’s performance management course, why are performance management strategies important.

• Enhanced employee engagement, motivation, and morale: Performance management helps employees understand their role and importance in organizational success, which can lead to higher motivation and engagement. 
• Improved organizational performance: When each individual works towards goals aligned with broader business objectives of the business, the organization’s overall performance improves.
• Greater career development opportunities: Regular check-ins and feedback help employees understand their strengths and weaknesses, undertake training to improve their knowledge and skills, and advance in their careers within the organization. 
• Enhanced talent retention: Employees who are more engaged and motivated at work are more likely to remain with the organization.
• Comprehensive data for informed decision-making: Performance management strategies collect quantitative and qualitative data to track employee performance, allowing HR to make evidence-based decisions on training, mentoring, and career progression.
• Greater readiness for succession planning: Regularly monitoring performance gives companies a better understanding of skills gaps . They can then train employees for promotions sooner rather than later to minimize business disruptions. 

13 examples of performance management strategies

1. set smart goals, 2. ensure continuous feedback and check-ins, 3. create personalized employee development plans, 4. implement 360-degree feedback, 5. conduct performance appraisals, 6. introduce recognition and reward programs, 7. use performance management software, 8. establish competency-based management.

9. Clearly define OKRs (objectives and key results)

10. balanced scorecard, 11. employee engagement surveys, 12. mentorship and coaching programs, 13. talent reviews and succession planning, performance management techniques for hr professionals.

• Behavioral observation scales (BOS): These help measure the behaviors you want employees to cultivate on a rating scale.
• Management by objectives (MBO): Managers detail the requirements of a specific role, determine how these align with organizational goals, then set achievable goals for the employee. HR then collects data to measure progress and provide employees with feedback.
• Critical incident technique: Managers observe and report critical incidents (behaviors related to outstanding or substandard performance), then give employees feedback so they know what to do and what not to do at work.
• Assessment centers: Typically lasting between half a day to a whole day, assessment centers require employees to complete a range of exercises in order to test skills other performance management methods cannot.

7 steps to develop an effective performance management strategy

Step 1: assess organizational needs and goals, step 2: engage stakeholders, step 3: define clear objectives and kpis, step 4: design the performance management framework, step 5: implement the strategy, step 6: choosing the appropriate strategies and tools, step 7: monitor and evaluate, best practices for developing a performance management strategy.

• Offer training: Provide ongoing training and support to employees and managers to help them build on strengths and improve their weaknesses. Don’t forget your own upskilling. Take a course in performance management to refine your strategy. For example, AIHR offers a self-paced Performance Management Online Course .
• Communicate clearly: Explain to employees the goal of your performance management strategy, how it will work, and how it will influence their performance evaluation. If you want your strategy to succeed, you must get all employees involved and engaged.
• Use more than one method: A mix of formal meetings with managers, self-assessments, and team feedback can create a more holistic and comprehensive view of performance, which also reduces bias.

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What is a Disaster Recovery Plan?

Aug 21, 2024 | Corporate Planning

A business faces many threats.  Those threats can be in the form of markets, competition, threats, or litigation.  Those threats can also include natural disasters, power outages, and cyberattacks. While it is important to have a business continuity plan in place to ensure your company continues to operate in the event of a disruption, business owners should also implement a disaster recovery plan. These plans have a much narrower goal — a disaster recovery plan focuses specifically on the response and recovery stages of a disaster, particularly when it comes to restoring IT systems to get your business back on its feet and working.   

What is Included in a Disaster Recovery Plan?

A disaster recovery plan is a series of steps meant to reduce the effects of a disaster so the organization can continue to thrive. While every disaster recovery plan is unique and must be specifically tailored to the needs of the organization, three primary goals should be outlined. These include 1) prevention of threats; 2) detection of threats; and 3) correction of any issues that were learned while addressing a threat.

In addition to outlining the organization’s goals, a disaster recovery plan should also address:

• Procedures for ensuring the physical safety of personnel
• The process for conducting an IT inventory 
• Backup procedures for data resources
• How access to utilities will be provided
• Procedures for ensuring the safety of physical items
• The process for inventorying damage
• The location for disaster recovery sites
• The process for contacting insurance providers
• Best practices for restoration procedures 

To develop a disaster recovery plan, you will first need to perform a risk assessment to identify and address the potential disasters that could affect your business. Next, evaluate the critical needs of each department in your company. Establish clear goals and determine which applications and equipment will be needed to support the important functions of your organization. 

After the data has been collected, you will need to create the written disaster recovery plan document. It’s best to work with an experienced business attorney who can assess the data and organize it into a well-drafted document. The next step is to test the plan and train management and employees in how to carry out the procedures. Any problems with the plan should be immediately identified and addressed. 

A business should regularly review and update your plan as needed. Stay informed about any potential threats and assess your plan to ensure it will be effective.             

What are the Benefits of Creating a Disaster Recovery Plan? 

Although the goal is to reduce the interruptions that occur after a disaster and resume business operations quickly, a disaster recovery plan has several other benefits. For example, they can help your business achieve cost-efficiency, increased productivity, and compliance with industry regulations. They can also streamline the entire IT process for your company. 

Despite the size of your company, a disaster recovery plan can ensure the resiliency of your business and help it maintain competitiveness in the industry. It is essential to the long-term growth of your organization and its bottom line.  

Contact an Experienced New York Business Attorney

If you are a business owner, it’s imperative to create a disaster recovery plan to avoid disruption of your company in the event a cyberattack, power outage, or disaster occurs. Offering skillful counsel and trusted legal services, Brinen & Associates advises clients regarding a wide variety of business matters, including those involving disaster planning. Call (212) 330-8151 or send us a message to learn more about how we can assist you. 

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Business Capabilities Guide - Everything you need to know

As business digitization has accelerated, and every business project is an IT project, IT is under pressure to enable and support business transformation. 

By defining what the organization does, business capabilities are a key concept that allows business and IT teams to speak the same language. 

Business capability definition

A Business capability is defined as a representation of an organization's needs.

Business capabilities represent an organization's needs and what it does and can do. They depict the core functions of the business and break down the industry into building blocks, which are laid out in a business capability diagram called business capability maps. If needed, they can be broken down into sub-capabilities. 

Their regular assessment will help enterprise or business architects identify and prioritize the corresponding IT initiatives with business needs.  

Of course, since they depict an organization, business capabilities are not static and evolve; some might even become irrelevant and be replaced or consolidated by another capability. Business capabilities assessment can be based on various parameters, including efficiency, priority, and complexity.

What is a business capability example?  

Take a car rental company, for example. An excellent example of business capability might be an "online booking" capability. This competence is supported by one or multiple applications, like the car rental mobile app.  

Another example would be a "mortgage loan" capability for a bank supported by an in-house application that computes loans. 

The example below shows the capability map of an airport, including applications. Each application has been assessed using color-coded icons to understand better how applications support business capabilities. 

Business capability map with applications 

Business capability mapping helps IT leaders shape the IT architecture to meet business needs. 

Business capabilities are an essential concept that enables enterprise architects to link IT operations to the business.  

Through business capability planning, organizations can develop strategic plans that incorporate IT investments and prioritize projects.  

Business Capability mapping allows companies to see what is done to reach their objectives. 

To help shape the map of an organization, there is a list of concepts that "business people" connect to: 

Business objectives

From the business side, capabilities connect objectives as defined by the business. By doing so, enterprise architects ensure that the company’s goals are well supported by capabilities and reciprocally that a business capability is not unreliable to the organization's needs.

Customer Experience

One can identify the business capabilities necessary to support the desired customer experience. Customer journey maps describe the customer experience, designing the buying cycle (research, evaluate, purchase), and the various channels available to customers, such as a company website, a mobile app, or a store.  

During their journey, customers follow various touchpoints to interact with the organization.  

Each touchpoint is linked to business capabilities, providing an outside-in perspective on the capabilities needed to support the customer experience. 

Map customer experience in customer journey maps

Value streams.

In today’s world, especially in Agile environments, a customer-centric approach is critical to ensuring that released products deliver value and match customers' needs.  

By describing the stages needed to deliver value to customers, value streams translate to IT customers' needs thanks to business capabilities.  

Each stage is enabled by business capabilities so that enterprise architects can identify the required capabilities and the missing ones and plan the related IT projects. 

Value stream with supporting business capabilities

To map an organization, here is a list of concepts that the "it side" can link to business capabilities: , applications   .

As we mentioned previously in our examples, business capabilities are supported by one or multiple applications.  

The link between applications and business capabilities enables enterprise architects to understand the business value of applications and whether an application supports a critical capability. 

Projects 

Organizations must build the corresponding strategic projects and link them to business capabilities to transform or create new business capabilities.  

By doing so, enterprise architects understand how projects impact business capabilities and their related applications.

Business capabilities, along with projects displayed in a business capability map  

Business processes.

Finally, the organizational view with business process mapping brings the perspective on the different organizational tasks people must perform to support business capabilities.  

The importance of business capabilities and business capability mapping

The ability of a business to achieve its objectives depends on its capabilities. Business capability mapping is essential to identify the capabilities required to achieve specific business objectives and to track progress over time. This helps businesses focus on the right things, invest in the right areas, and make better resource allocation decisions. 

Strategic planning

Business capabilities are the foundation for strategic planning. An organization's strategic plan provides long-term visibility on a company's direction and includes action plans and resources to achieve these goals.  

By associating strategy with capabilities, an enterprise architect can view the impact of business projects on their application and the IT landscape. 

 It will help them plan future architecture to support these business capabilities. 

Strategic roadmap with supporting business capabilities

Customer experience in agile developments..

Agile enterprises are organized around the customer. Even though product owners translate business requirements into user stories and software developments, they don't necessarily have the complete picture of the value delivered to the customer or the customer experience. Using value streams, enterprise architects can formalize the delivered value.  

They also use customer journey maps to describe the desired customer experience. Enterprise architects plan the required business capabilities by connecting touchpoints and stages of the value streams to business capabilities. Most importantly, they can link these business capabilities to Epics and user stories so software developments are directly tied to customer experience! 

Application Rationalization

Organizations have often accumulated many applications and other IT assets due to company growth or past mergers and acquisitions.  

Many IT organizations fail to rationalize their  application portfolio  because they only have a cost perspective.  

Indeed, organizations won't eliminate a business-critical application simply because it costs too much! 

By linking applications to business capabilities, IT organizations can see how an application supports the business, whether it supports a critical or minor capability.  

Using business capabilities also helps identify redundant applications, especially in the case of mergers and acquisitions, where the new company gains applications from the acquired company. 

Technology Risk Management

In EA repositories , underlying technology components supporting applications, such as databases or software frameworks, are linked to applications linked to business capabilities and objectives.  

By monitoring the end-of-life of these technology components, enterprise architects can easily understand the impact of an obsolete technology component on strategic goals. 

This is also the case for an application that would use a technology that has been prohibited, as set by the company policy.  

Reciprocally, enterprise architects can monitor critical business capabilities and view if they are not being put at risk due to obsolete or prohibited technology. 

Benefits of business capabilities

There are many benefits to having well-defined business capabilities. The main advantages are listed below. 

Increased visibility of the business value of an IT asset

Capabilities are a great way to organize IT assets from a business standpoint. CMDBs are a critical component when managing IT assets, but they are often difficult to maintain and do not provide visibility into the business value of IT assets.  

Business capabilities give an immediate understanding of the value for the business by linking IT assets to capabilities.  

They enable IT departments to focus on critical assets. It is also a communication tool that offers a common language between business and IT. 

Reduce IT Costs

By mapping applications to business capabilities, redundancies are more accessible to analyze and reduce costs. If two applications support the same business capability, they will likely provide the same functionalities or functional overlaps.  

Adding other information, such as application cost, end-of-life, or technology obsolescence, also helps improve decision-making to remove or modernize an application. 

Greater flexibility 

IT departments are often swamped with existing projects or assets when managing IT projects. Don’t they see how new projects or applications fit into their existing IT systems? How will the new project impact the IT landscape? Is it redundant with another project or application? Thanks to business capabilities, IT departments increase their ability to embrace new projects by streamlining the IT landscape.  

They can also focus their resources on projects critical to the business and work on what matters the most. 

Improved IT investments 

Business capabilities are crucial to linking strategy to execution. Business capabilities are planned in time, with strategic objectives forming the strategic roadmap.  

Based on this roadmap, IT leaders determine the related IT projects, the applications, and the impacted architecture.  

By aligning projects with business needs, IT departments ensure that resources are spent on suitable projects and that investments are better planned through greater visibility into upcoming projects.  

It is also easier to reprioritize projects as strategic objectives change, especially in agile environments. 

How do you map business capabilities?

Business capabilities link business needs to IT assets so that IT assets genuinely support the business. Additionally, business-capability planning helps enterprise architects map strategic plans and ensure that projects are aligned with business objectives.  

To make sure capability maps are named and defined in business terms. Here are our guidelines for doing so: 

1 - Understand your organization’s strategic goals

Understanding where your organization is heading and the strategic goals defined by the executive team is crucial.  

Define the mission, vision, strategies, tactics, objectives, and goals using the business motivation model to help you with this task.  

Enterprise architects must work closely with the business to get insights into the organization's strategy and ensure that the business's capabilities are comprehensive. 

Map out business strategy, including tactics, objectives, goals, mission, and vision 

2 - break down the business into building blocks .

Meet with business leaders to understand the relevant level of detail that fits your organization’s needs and then break down capabilities into sub-business capabilities.  

Note that business capability templates are available to speed up this step. They are either generic or industry-specific.  

Standards bodies such as BIAN for the banking sector or the Business Architecture Guild provide generic or industry-specific templates. These business capability frameworks help accelerate business capability modeling. 

Review your findings with business leaders and adjust if necessary. Establish a process for regularly reviewing business capability mapping. 

3 - Link business capabilities to applications and impact analysis 

In this step, enterprise architects will link the business and IT by connecting applications to business capabilities and performing a business capability analysis. 

Since technology components are also tied to applications in the EA repository, you can quickly impact analysis from a technology component up to business objectives.  

Business capability maps view applications and business capabilities. By using indicators on applications and business capabilities, such as application lifecycle and business criticality, you can make better decisions about the evolution of the application portfolio. 

Impact analyses on projects, business capabilities, and applications

4 - integrate the customer perspective .

To plan initiatives that focus on customer needs, it is essential to connect business capabilities to the customer’s experience.  

Work with epic owners or business leaders to create value streams that depict the value delivered to customers.  

Work with marketing and product teams on customer journey maps to design optimal customer journeys. Identify the related business capabilities required to fulfill customer needs. 

5 - Prioritize and assess business capabilities to plan project  

Assess business capabilities based on priority, complexity, and efficiency to prioritize and plan business capabilities. Identify the related projects to create or transform business capabilities.  

The identified projects are then planned and put into a strategic roadmap. It's important to share the strategic roadmap with your organization to review the strategic roadmap. 

Assess business capabilities on various criteria.

With the help of business capabilities and Business capability maps, enterprise architects can act as strategic advisors to the business by explaining what can or cannot be done from an IT perspective.  

Business capability planning will also help CIOs communicate how IT value will be delivered to the business. 

In business, a capability is defined as a combination of skills, knowledge, experience, and resources that allow an organization to perform a particular task or set of tasks. A capability can be considered an organization's "secret sauce" - the unique combination of capabilities that gives it the ability to succeed at something others cannot. Capabilities are often described in terms of processes or functions; for example, a manufacturing organization might be capable of designing and producing products. However, it is important to remember that a capability is more than just a process or function - it is the combination of skills, knowledge, experience, and resources that allow an organization to perform that process or function in a way that is unique and successful.

Business capability planning is the process of identifying, documenting, and tracking the capabilities of an organization. This includes developing new products or services, entering new markets, responding to customer needs, or taking advantage of new technology. Business capability planning aims to ensure that the organization has the right mix of capabilities to achieve its strategic objectives.

A business capability heat map is a visual tool that helps organizations understand the relationships between their capabilities and other factors, such as business goals, processes, and organizational structures. The heat map allows organizations to identify high or low-performance areas and decide where to focus their resources.

The Togaf IT business capability map is a tool used to help organizations understand and manage their IT capabilities. It provides a common language for discussing and analyzing IT capabilities and can be used to identify gaps and areas for improvement. The Togaf map is based on the Open Group Architecture Framework (TOGAF), a framework for enterprise architecture.

To map business capabilities, you need first to identify the different areas or functions of the business. Once these are identified, you can start mapping out how they work together and what dependencies are between them. This can be done using various methods, such as process mapping or creating a value stream map.

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Teamwork at the Top

• Gregory LeStage,
• Sara Nilsson DeHanas,
• Pete Gerend

Teamwork is difficult at any level, but for top teams, the challenges expand exponentially. They are responsible for addressing their organization’s weightiest and most complex problems, so their struggles are almost existential.

Highly effective top teams share key five behaviors: direction, discipline, drive, dynamism, and collaboration. These traits are collective: They characterize the behaviors of the team as a whole, not those of its individual members.

In this article, the authors lay out a four-step process to help you promote those behaviors to boost the effectiveness of your own team.

It’s not just who’s in the room—it’s how they behave together.

What could our senior leadership team achieve if we worked at full potential? And what’s keeping us from achieving it? Those were the questions the leaders at Root Capital found themselves asking in 2022.

The NFL great explains how he motivated himself and fellow players.

• Gregory LeStage is a partner at Bain & Company based in Boston and an expert in leadership, team effectiveness, and transformation.
• Sara Nilsson DeHanas is a partner at Bain & Company based in London and an expert in leadership, team effectiveness, and transformation.
• Pete Gerend is a partner at Bain & Company based in Washington, DC and an expert in leadership, team effectiveness, and transformation.

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