As a business owner, you're responsible for the well-being of your organization. This means that you must set short- and long-term objectives, determine how you'll achieve them and provide your staff with the resources needed to bring your vision to life. In addition to a general business plan, it's important to have a functional strategy for each department. This will ensure optimal organizational performance and effective resource allocation.

The Importance of Business Planning

Having a business plan doesn't guarantee success or faster growth, but it can give you a better understanding of the steps needed to reach your goals. It's an effective way to map out and organize your business, identify its strengths and weaknesses and determine what resources are required to reach your objectives. Furthermore, it can make it easier to attract investors and business partners.

At the most basic level, a business plan is a written document that illustrates your mission statement, goals, resources and potential risks. Think of it as a roadmap that guides your business. You may also need a plan if you want to secure financing. Most banks and investors will ask you to show them your business plan so they can evaluate it and determine whether or not your ideas are feasible.

This document may also come in handy for entrepreneurs who plan to launch a new product or service. With a business plan, you can test out your product idea before investing time and money into it. There's no point in starting a company or changing your strategy if there's little or no chance that your idea will be profitable. Effective business planning can help you avoid unnecessary expenses by outlining all the costs and potential risks of each decision you make.

What Is Functional Planning?

As mentioned earlier, business planning isn't enough to help your organization succeed. You also need a functional strategy to ensure the smooth functioning of each department and achieve maximum performance. This step is integral to the strategic planning process at the corporate level, which focuses on a company's vision, mission and objectives in the long run.

Functional plans are typically built around specific functions or activities within the organization. These may include the research and development of new ideas, capital budgeting, marketing, estate planning and more. Basically, they illustrate how, when and where a company's objectives will be met for each department or function.

A risk management plan, for example, can be used to identify potential risks and challenges that may interfere with an upcoming project – and suggest potential solutions. If you're trying to reduce production costs, you can write a functional plan that outlines the steps needed to cut your expenses, such as investing in new equipment or automating certain processes.

Corporate vs. Business Strategy

Another important aspect to be aware of is the difference between corporate strategy and business strategy. A functional plan or a business plan isn't worth too much if you don't have a strategy in place to execute it.

A corporate-level strategy describes the niche markets you'll compete in as well as your company's objective and scope, business type, organizational performance and more. It focuses on how to create a competitive advantage and diversify your operations in each market you're targeting. Think of it as a long-term plan to maximize profitability and business growth.

A business-level strategy, by comparison, focuses on specific departments or units of an organization, describing how they will reach their goals in alignment with the corporate strategy. Its purpose is to help the company compete successfully in the marketplace and strengthen its overall performance. Unlike corporate strategies, which are developed by top-level management, business strategies are formulated by middle-level managers and have a short-term focus.