Why is a Business Plan Critical for Long Term Survival?

Businesses often prepare business plans when they encounter one of the following circumstances: borrowing money, raising capital, forming partnerships, and launching special projects. Although a well written business plan can help a business achieve those specific goals, it does not mean that the business plan would not be necessary otherwise.

In fact, according to the Turn Around Management Association (TMA), not having a business plan is a sign of trouble for a company because plans are carried according to individual interpretation. A good analogy could be driving a car without a map; businesses that don’t understand their strategic position in the marketplace risk losing market share to the competition at the least excepted moment.

Also, management should compare business performance to competitors as GE did during the 20 years of success when Jack Welch headed the conglomerate. In this example, GE compared performance metrics such as sales growth, gross margin, ROI, and ROE to leading competitor and industry benchmarks. This allowed GE to monitor its performance against competitors enabling it to stay ahead of its competition. However, most businesses only perform a variance analysis comparing year over year metrics. Even though this approach allows the business to compare itself to past performance, it does not capture business performance against the competition. A well written business plan supported by comprehensive market and industry research provides businesses with a map of the marketplace allowing them to navigate the complex and changing competitive landscape.