If you’re new to the world of business, you’re probably trying to get your footing and figure out how to excel. Perhaps you’ve seen some short-term success and you’re looking to grow. Maybe you’ve run a small operation for years, and you’re simply hoping to keep things strong well into the future. Regardless of your motivation, in order to survive long-term, you’ll need a solid plan. And maybe you’re wondering, why is business planning important? Especially if you’ve made it this far without a solid strategy.
Ultimately, the different benefits of business planning all lead into one central point – longevity. Organizations that want to establish themselves and stay strong well into the future need to know their goals. But more than that, they must understand a path forward that determines how to accomplish those objectives. So, if you’re here wondering why business planning is important, look no further. We’ll give you plenty of reasons.
Why Business Planning is Important for Every Organization
1. Determines Concrete Goals and Objectives
Initially, the most important aspect of business planning is that it helps decide concrete goals and objectives. After all, any organization lacking this sort of direction, at best, flounders around in the dark. They might as well throw darts at a board blindly and hope something sticks. Leaders must understand what it is they hope to accomplish, and why doing so matters. Otherwise, they have no metric for interpreting their actions and whether they’re appropriate.
Business objectives vary widely, and range from profit maximization to thought leadership. But in between, there are many examples of organization goals. For instance:
- Increasing SEO and organic rankings
- Heightening social media presence
- Improving customer service
- Launching a new product
In fact, the list could go on, with as many goals as there are businesses. That’s because each organization needs its own set of objectives that help establish its purpose. And creating a definitive business plan accomplishes exactly that.
2. Establishes a Metric for Success
Just as a comprehensive business plan sets the objectives a company strives for, it also establishes a metric for success. In fact, the very act of determining organizational goals does this. Because when you know what it is you’re working toward, you have a clear picture of whether or not you’re efforts are succeeding.
One of the most obvious reasons why business planning is important is that it provides the means by which organizations judge their efforts. Without a clear picture of goals, you can’t know whether your organization is functioning the way it should. However, drafting a business plan provides a rubric of sorts, diagnosing problems and alerting leaders when the ship has drifted off course.
In that sense, the business plan is a map. It tells where the organization wants to go, how it intends to get there, and then measures whether its actions point toward that destination.
3. Proves Business Viability
Another important affect of creating a business plan is that it proves organizational viability. It demonstrates you’ve taken time to think through the specifics and intricacies of operation, and it lists objective steps for success. In fact, this is what takes someone from merely dreaming of running a business to being able to actually do so.
Furthermore, drafting a plan proves commitment to the organization’s success. It shows the intention of the owner to do everything in their power to make things work. But most of all, it demonstrates competency. Many people want to own a business, but not all can do it successfully. That’s why around 90% of new startups fail. Creating a solid, long-term plan is one of the first steps in combatting that statistic.
4. Ties Directly to Investment Funding
Because creating a business plan proves the viability of the organization, the components of the plan are essential to securing funding. Investors don’t want to commit to startups that have no sense of direction, because they’re less likely to see a return. Rather, they want to put their money toward businesses that have a concrete strategy for success. In fact, approaching an investor without a business plan equates to sinking your own ship. Not only will you fail to acquire the funding you need – you’ll appear incompetent as well.
Before ever asking for money to help fund your startup, you need to assess the financials, risk, and other factors investors will ask about. That way, you have solid answers for their important questions. In this sense, failing to draft a business plan stifles your dreams before they ever get started.
5. Identifies Organizational Strengths and Weaknesses
One great benefit of business planning is noticing your organization’s strengths and weaknesses, such as with a SWOT analysis. After all, you don’t want to chart a path forward that relies on doing something you’re not good at. Doing so would only prove the ineptitude of leaders and show that the business isn’t viable.
However, staying realistic when drafting a plan helps ground organizations and offers a sense of what’s achievable. Operating around strengths and recognizing weaknesses is paramount to overall success. On the other hand, boasting in strengths and ignoring weaknesses paves a sure path to eventual disaster.
Every business, no matter the size, has things it excels at and things it doesn’t. Recognizing these and knowing how to plan around them demonstrates competence and good leadership.
6. Highlights Core Competencies and Unique Traits
Core competencies are closely related to organization strengths, taking them a step further. In essence, they account for the aspects of a business that strategically set them apart from competitors. For example, if a business exhibits exceptional customer service, and uses this strategically, it represents a core competency. Another reason why business planning is important is because it highlights these unique core competencies and uses them wisely.
Organizations need to understand where their distinct advantages lie and know how to appropriately employ them. In fact, that’s one of the easiest ways to rise above competition. Putting them on the backburner and attempting to chart a way forward the same way other businesses do is risky at best. Because it means entering an established market as a smaller provider with no stated advantages over larger organizations.
If you want to have a chance at longevity in any market, you have to know what sets you apart from the rest. Business planning helps discover exactly that and then uses it to create a distinct identity.
7. Promotes Efficient Asset Allocation
Business planning has several different levels, ranging from long-term, macro views to short-term, micro-level functions. One of the aspects that seems to bridge the gap between those two halves is appropriate and efficient asset management. That is, ensuring the businesses resources are being used wisely.
Asset allocation might seem like a small part of the overall equation, but mismanagement can have massive negative ramifications. In fact, some instances even equate to business fraud. So, what initially appears to be miniscule has the power to blacklist or even shut down an organization. Accounting for this in the business plan helps appropriately manage resources, giving employees clear instruction on how to use them.
8. Provides Guidelines for Future Decisions
One primary reason business planning is important is because it helps create a set structure for future decisions. Of course, it’s more complicated than this, but it helps outline what falls in-line with corporate goals. Things that benefit the overall vision could receive the go-ahead while things that don’t fall to the wayside.
Now, that doesn’t account for the nuances of different situations. So, actually determining whether something helps accomplish goals can easily become more difficult. However, once leaders have a consensus on whether a decision will help or hinder their progress toward objectives, it should be clear what the right choice is.
While this doesn’t completely negate arguments or strife between leaders, it at least provides some sort of comprehensive basis for orienting an organization. That way, decisions happen more efficiently and stick in-line with overall objectives.
9. Preemptively Prepares for Problems
Any organization which fails to prepare prepares to fail. And that goes double when preparing for trouble along the way. Assuming smooth seas and sunny skies is great until a storm blows up and the boat capsizes.
The advantage of drafting a comprehensive plan is that you can get ready for things before they happen. That doesn’t always mean knowing exactly what sort of negative thing might come down the pipeline. However, it entails having a plan in place to deal with a crisis when it does occur – because if a business survives long enough, crisis will happen.
So, from mere timeline setbacks and delays to major, catastrophic failures, businesses should have a protocol built into their plan to help prepare and deal. That way, problems keep from becoming lethal to the organization.
10. Helps Course Correct After Failure
Failure is inevitable, whether on a large or small scale. And to that extent, businesses will always experience some sort of setback. Those lacking an overall plan might flounder in that failure, never quite knowing how to make a comeback. But those with a comprehensive outline will know how to course correct afterward. In that way, the business plan makes the difference between comeback and closure.
A business plan should stay adaptable to different situations, knowing how to mold to new developments and developments. Because while it’s great to have strict goals, refusing to budge on the way to get there could spell disaster as well. So, when things do change and plans fail, businesses should know how to adapt and reorient. Building this sort of malleability into the overall plan is a great way to both prep for failure and recover from it.
11. Helps Analyze Past Decisions
Similar to recovering from failure, the business plan helps organizations analyze past decisions to determine whether they were helpful or harmful. Again, it sets a sort of scale or rubric to grade by, letting them know if something helped bring them closer to their goals or pushed them further away. This sort of knowledge is invaluable when moving forward and striving to make improvements in operations.
After all, if you can’t determine whether a decision was beneficial, there’s no way to know whether to keep doing the same things. And if you repeatedly act in a way that takes the business further from its goals, it will eventually run into the ground. So, the scope of the business plan is multifaceted, looking both toward future and past decisions to determine their validity.
12. Helps Establish Organizational Identity
Apart from the operational aspects of the business plan, one major benefit is that it helps establish the corporate identity. That is, how both employees and customers view the organization. In large part, this includes building a good corporate culture – creating a positive work atmosphere. But it also goes past that, to encompass the ideals and drives a company wants to be known for.
Take Apple, for example. It’s entire brand identity revolves around revolutionary, premium technology. LEGO comes across as fun and imaginative while Nike highlights ambition and athleticism. Each of these major, successful organizations has its brand identity baked into the very core of its being. And in large part, this has to do with the overall business plan. These behemoths understand the image they want to present and craft their decisions to reflect that.
So, if you want to stand out among competitors, take your core competencies and strengths into account, Showcase them as the basis for your brand identity, and ensure the rest of your business plan helps highlight those aspects. That way, everything you do reinforces the positive vision both employees and the public have toward you.
13. Creates a Sense of Organizational Unity
Business plans often contribute to an overarching sense of organizational unity, because they help outline different corporate goals with fixed points employees work toward. In essence, all employees come together in order to accomplish the same ends. Of course, that doesn’t mean conflict will cease to exist. Disagreements happen in every business employing more than one person. However, these shared goals can contribute to a larger sense of unity that helps overcome differences.
For example, two workers might disagree on the best way to approach expansion into a foreign market. However, they at least have common ground in the goal of the expansion itself. So, even in disagreeing, they retain a sense of unity.
14. Offers a Sense of Overall Purpose
Think for a moment and reflect on this question. Which seems more sustainable?
- Working hard every day without any idea what your efforts are helping to accomplish.
- Approaching each shift as an opportunity to bring your company closer to its clearly stated goals, because you know exactly what your effort contributes.
Clearly, the second option is more sustainable. The first is indicative of so many “lower-level” employees who have no clear ties to the company other than a need to pay bills. The second represents someone who clearly understands the purpose of the organization and wants to do everything in their power to realize goals.
More often than not, the difference isn’t in the worth of the employee or how hard they’re willing to work. It’s in leadership’s explanation of corporate goals and inclusion of all its employees in accomplishing that vision. If you want to succeed and thrive in business, you have to enlist others who actively want to see the company succeed. And to do that, you have to understand the business plan and clearly show the right path.
15. Reveals the Importance of Every Employee
A well-written business plan recognizes the worth and importance every employee brings to the table. In that sense, it doesn’t see anyone as expendable, but a necessary part of the organization, bringing vital skills and knowledge. So, in that way, it perfectly compliments the business plans ability to create a sense of purpose. That sort of positive outlook naturally flows from understanding the important role every individual plays, from the highest to lowest rung of the corporate ladder.
The business plan recognizes that in order to function at peak performance, an organization needs every employee. And furthermore, when it attempts to move forward without one of those parts, it suffers. This aspect of the business plan further shapes corporate culture. Because if leaders fail to recognize the importance of employees, it will clearly show. Alternatively, if the plan highlights these roles and responsibilities, it will help the whole body function together as a larger organization.
16. Appropriately Distributes Responsibilities
Another reason why business planning is important is that it helps appropriately distribute responsibilities among employees and leaders. That way, every member of the organization knows what’s expected and how their job contributes to overall success. A comprehensive plan recognizes responsibility shouldn’t hole up in a single department. It needs to spread out across the different teams, so things operate efficiently and effectively.
Naturally, the business plan won’t be so granular as to say, “Person X will perform function Y at exactly 10:00 on Thursday.” However, it provides a general sense of goals and functions that need to occur in order to make those objectives achievable. So, some part of the distribution of responsibilities is simply intuitive. That is, it follows naturally from understanding the goals themselves as outlined. But whether or not the plan lays out a cut-and-dry map for tasks, it at least lays the groundwork for understanding roles correctly.
17. Encourages Individual and Team Accountability
Of course, since the business plan helps establish a sense of responsibility, it also encourages accountability among team members. After all, when people fail to pull their weight, it’s usually fairly obvious. Especially whenever their roles are clearly articulated. Establishing accountability is, itself, a tenuous process. Because you don’t want to make employees feel as if they’re being watched or that you’re waiting for them to slip up. There needs to be a balance, where employees themselves feel both responsible to the team without anxiety about their work.
That’s where the plan helps. It provides guidelines for how things need to be done in order to accomplish shared goals. So, employees can take on a sense of ownership that compels them forward and holds them accountable without constant oversight. Unfortunately, this setup doesn’t work for every worker. Some do need guidance consistently in order to stay on task and get things together. But in large part, creating a comprehensive path forward allows self-starters to take on a sense of ownership and accountability.
18. Offers Peace of Mind
It might not initially seem true, especially after discussing accountability, but having a business plan offers peace of mind. That’s because it charts a direct path forward toward objectives. So, rather than fumbling around blindly, hoping for the best, you have concrete methods of achieving ends. This helps relieve pressure from the unknown and instead offers a strange sense of eustress. That is, positive stress that’s beneficial for the working atmosphere. Because you know exactly what you need to do to move forward, all you have to do is put in the work and make it happen.
Of course, that’s often easier said than done. Planning without execution is just a good idea. So, you have to be willing to take those next steps and actually enact the outline. Otherwise, nothing will come to fruition. However, it’s much easier to run a successful organization when you have a calm mind than when you’re frazzled at every turn. Drafting a plan that accommodates challenges and unexpected changes is paramount to achieving this.
19. Enahances External Communications
No matter whether your talking to customers, potential investors, or simply interested parties, clear communication is vital. And that’s simply another way creating a business plan helps. When you’ve taken the time to draft a detailed outline of where you want to go and how you want to get there, you become more intimately familiar with your overall organization. That makes it immensely easier to explain ideas, products, and even organizational culture to those outside the company.
Sometimes, knowing how to explain the concept behind a business is difficult. Particularly whenever the products or services aren’t extremely well known or specified to a certain niche. But recognizing the corporate identity and understanding goals paves the way forward and helps you find solid ways of presenting your organization.
20. Places an Organization in a Societal Context
Finally, a good business plan has the added benefit of placing the business in a larger, societal context. Every organization exists as part of this world, not as some wholly separate entity. And because of that, you cannot remove companies from the role they play in society. After all, the purpose of a business is to offer products or services that help ease the pain points of the society around them.
Creating a plan for the business and recognizing its goals helps align it with those pain points and better understand how its solutions fit them. For example, a neighborhood grocery store in medium-sized town helps those who don’t have reliable transportation to a larger grocery chain on the other side of the city. A recycling company understands the importance of renewable resources and helps contribute to long-term sustainability.
Every organization should recognize the part it plays in society and know what role it has in helping shape a better world. Any business plan that doesn’t make this clear needs more work. Because those who recognize the benefits they offer also discover a sense of intrinsic motivation that takes them further toward those goals.
Learn More About Planning and Strategy
We’ve listed out twenty ways business planning is important to any organization. But we could keep going. In fact, there are plenty of other benefits that come with drafting such a plan. If you want to know more, be sure to check into our Management and Strategy courses today.
Article written by Braden Norwood
Last updated December 5, 2023