Business planning can improve the performance of businesses by:

Providing employees and managers with structure and direction. Managers who are familiar with the objectives of their business will be more clearly focused on the goals to be achieved. This makes it more likely that the goals will be achieved.

• Forcing management to look to the future and consider the effects of possible changes such as competitive markets, technology or government policy. Planning, therefore, reduces uncertainty for businesses by encouraging managers to be prepared for change. For example, if a manager anticipates a downturn in the economy, it could shift promotional activities to overseas markets.

• Helping the business to achieve and maintain a competitive advantage, by continually monitoring and responding to changes in the business environment.

• Providing a framework for the coordination of all activities. It clarifies the fole of employees in achieving the firms objectives and facilitates co-ordination amongst workers. Co-ordination has the added advantage of reducing waste and redundancy by ensuring that each employee has a specific task and these roles do not overlap.

• Providing a framework in which the other decision marking functions of leading, organisation and control can occur.

• Facilitating control and performance appraisal. Control compares actual performance with the objectives of the business. If necessary, corrective action to improve performance is taken. If no planning occurs, the goals of the business may be unclear, making the control function very difficult.

• Forcing managers to evaluate realistically. In establishing a new business, the owner-manager may have unrealistically high expectations. Planning gives the manager an indication of whether these hopes are achievable given the expected business environment.

Despite the advantages of planning your business, many businesses do not capitalize on these advantages. According to recent research, only 21% of small businesses write a plan. Given the high failure rate of small businesses, businesses have a lot to gain from being committed to developing and using a business plan.

Suggested Reading:
+ Types of Business Ownership, Their Advantages and Disadvantages
+ Goals of a Business

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