Purpose of planning

• A business plan allows an entrepreneur to minimise the level of risk when setting up a business. This is important because there is a high risk of business failure within the first year
• When creating a business plan, an entrepreneur has to consider all of the key elements of a business and address any issues. They must also conduct market research around their idea to gain a better understanding of the market, their potential customers and where to locate the business. Market research will also help them to create aims and objectives for the business. The two types of market research a business might undertake are primary and secondary research
• One of the key documents used to minimise risk in a business plan is a cash flow forecast. This is a prediction of the money a business might have coming in or going out over a period of time. By completing a cash flow forecast, an entrepreneur will see if there are any times of the year when they may lose money. They can then use this information to make changes to their budget and payments or increase receipts
• A business plan is essential when a new business is attempting to raise finance from a bank or potential business investors. An entrepreneur is able to take a business plan into a meeting with a bank or investors to provide evidence of why the entrepreneur believes the business will succeed
• When an entrepreneur applies for a loan or for a mortgage on a building, the bank reviews the business plan and decides whether it believes the business will be a success. If the bank thinks the business is too risky and may not succeed, it may decide not to let the business borrow money
• Investors want to see a business plan to ensure that they will not lose money. The primary purpose of an investor is to make more money, so they want to make sure the business has the potential to be a success