A business plan is not just a document. It is a holistic analysis of your company, the environment it operates in, and a route map to achieving success based on the resources available. Unfortunately, the image most of us have is of a 30-page bound document. The focus is on ‘the output' when the real value in a business plan is the business-planning process itself. Business planning is an essential element of running any successful business, particularly given the growing uncertainty all businesses face coupled with ongoing changes in consumer behaviour.

Here are six reasons why business planning is so important:

1. To plan for an uncertain future

Business planning is vital to help you manage your business more effectively. By committing your thoughts to a plan, you can understand your business better and also chart specific courses of action that need to be taken to improve your business. A plan can also detail alternative future scenarios, set specific objectives and goals, and list the resources required to achieve these goals. In short, it can help ensure that you are prepared for all sorts of eventualities.

2. To help grow your business

In an ideal world, all businesses would be self-financing in exploiting business opportunities. In reality, few are afforded this luxury, and hence, will be required to secure external investment eventually. The production of a credible business plan is one of the primary requirements for any entrepreneur seeking investment to grow.

3. To commit to a particular course of action

A business plan can help a company assess future opportunities, choose one, and then commit to a particular course of action. By committing to one opportunity, all other options are effectively marginalised and the company is aligned to focus on key deliverables.

4. To manage cash flow

Careful management of cash flow is a fundamental requirement for all businesses. The reason is quite simple-many businesses fail, not because they are unprofitable, but because they ultimately become insolvent (i.e., are unable to pay their debts as they fall due).

5. To value a business

Given that valuing firms is notoriously difficult and subjective, a well-written plan will clearly highlight the opportunity for any prospective investors, explain the value of the business, and increase the likelihood of a successful exit by the current owner.

6. To ensure all bases are covered

When you start a new business, the temptation is to spend time on the idea and then react to events as they come up rather than focusing on what is important. The very creation of a business plan ensures that you cover all the various bases you need to when taking an idea from conception through to launch.

As you'll have garnered from the above, business planning is an essential activity, regardless of the stage of business you're at. The very process of producing a business plan enables management to give due consideration to the various factors that mesh together to create the opportunity they are seeking to explore, as well as the resources required and the key drivers needed for success.

Alan Gleeson,  Palo Alto