Importance of a Good Business Plan to an Organization

1991 Words Jul 18th, 2010 8 Pages
Importance of a Good Business Plan to an Organization
Executive Summary
For a business to succeed in its operations, there are underlying factors that play a major role in its success. Among the factors is a good business plan that determines the objective of a company, demand and supply factors as well as good business ethics all these work closely to define a good business environment both in the short run and in the long run.
A business plan is a vital requirement for many organizations. A company without a business plan is equivalent to a ship without radar (bnet, 2010). A business plan gives the objectives of an organization. Demand and supply are the forces that determine the
…show more content…
Therefore, demand and supply are factors of price and quantities of good either demanded or supplied. A demand curve is a line representing the amount that consumers are able and willing to pay for a given quantity of a good. On the other hand a supply curve represents the amount that the producers are willing to avail in the market at a given price. Supply and demand patterns of a market should be integrated in the system of a company to realize good firm performance industry (week, 2010).

Impact of Demand to a Firm in the Short Run
The production of the firm is based on the forces of demand and supply which in turn are based on the prices. Due to demand shocks (e.g. the oil demand shock of the 1970s), prices of commodities fluctuate a lot in the short run. Increased demand can lead to the rise in the prices of goods. This will lead to higher profits that a company realizes. In the short run, the company can’t increase its operational capacity due to fixed factor of production like land and some heavy machinery. Therefore, in the short run, the firm will just have to realize excess profits and plan for long term increase in its capacity so that it can raise its operational capacity to meet the rise in demand (Questia, 2010).
On the other hand, low demand in the short run will mean that the company is operating with excess capacity. It will be supplying more in than the consumers demand. This will translate into losses for the firm. However, the firm can only reduce