The Purpose of a Business Plan
Updated: Aug 31
Investors need to see a business plan before investing because it provides them with essential information about the company, its products or services, the target market, the industry, financial projections, investment requirements, risks, and potential return on investment (ROI).
To define the essential components of a business plan, we first have to understand the purposes and the audience of the business plan. A well-written business plan typically has the following effects on the investor's decision-making process:
Evaluate the viability of the business: A business plan provides investors with an overview of the company's products or services, target market, and competition, allowing them to evaluate whether the business is viable and has the potential to succeed in the market.
Understand the investment opportunity: Investors need to see a business plan to understand the investment opportunity and the potential return on investment. The business plan should include detailed financial projections, investment requirements, and expected ROI, allowing investors to evaluate the potential risks and rewards of investing in the business.
Identify potential risks: A business plan should include a detailed discussion of potential risks and challenges faced by the business, along with strategies to mitigate them. Investors need to see this information to evaluate the potential risks and determine whether they are comfortable investing in the business.
Determine the management team's competence: A business plan should include information about the management team, their experience, and their track record. Investors need to see this information to evaluate the competence of the management team and their ability to execute the business plan.
Facilitate decision-making: A business plan provides investors with a clear and comprehensive understanding of the business and the investment opportunity, allowing them to make informed decisions about whether to invest in the company.
In summary, investors need to see a business plan before investing to evaluate the viability of the business, understand the investment opportunity, identify potential risks, determine the management team's competence, and facilitate decision-making.
Next time, we will talk about the key components of a valid business plan.