Why business plans matter

Why business plans matter

Entrepreneurs are always generating business ideas. However before putting the idea into practice it’s very important that one draws up a business plan to test if this idea will be viable.

It’s not foolproof though that coming up with a business plan will ensure success of the idea but the process of preparing a business plan will be able to highlight those issues that you need to attend to before you start your venture.
You will be able to deal with the risks and challenges that you could have easily missed out had you not gone into the business planning process.

Coming up with a business idea is very crucial in business. It is commonly said that if you don’t know where you are going you will end up somewhere else. Research that has been carried out on some entrepreneurs in the US indicates that writing a business plan is absolutely worthwhile.

People have a lot of stuff, a lot of ideas in their heads that need to be put on paper and then it becomes compulsive for someone to want to ensure that these ideas become reality. You feel compelled to want to do what you have planned.
Preparing a business plan requires a lot of thinking. The importance of a comprehensive, thoughtful business plan can therefore not be over-emphasized.

Before you write a business plan you need to do a lot of research, such as researching on products and markets and then preparing financial projections. Such research helps you to refine your ideas about what you intend embarking upon.

From the research you get to know whether customers really appreciate the solution you are providing for a problem they have. You also are forced to critically look at your opportunity, and to decide on a possible team that will execute that plan.
All this thought process will then convince you if it will be possible to get into business.

There seems to be no disagreement on the importance of business plans when it comes to securing funding.
Those who are in support of having business plans before embarking on a business and the skeptics do agree on the importance of business plans when it comes to securing funding. If you have to get money from venture capitalists, commercial banks, government-backed lenders or other investors, you will need a business plan.

Investors will be prepared to release funds on a bankable project. An idea that is supported by a written down plan on how you will carry out the project and what you expect to get in terms of profits.

Investors are not really impressed by wads of spreadsheets but the action behind the spreadsheets. Investors want to see that an entrepreneur has actually examined the market for a product or service, whether he has identified potential customers, or assembled a capable team, what business model has he devised.

A business plan helps you to evaluate the feasibility of your proposal. Once you have drawn up a business plan you can carry out “what if analysis” by creating three sets of financial forecasts: a rosy picture, a more reasonable one and a disaster or worst case scenario.
You need to establish what will happen to your business in the event of certain unforeseen events happening. You should do this sensitivity analysis before you pump cash into the business. You need to at least plan for the worst case scenario.

Having a business plan does not necessarily mean that you will succeed in your business. It needs action on your part. Tim Fargo underscored the importance of action when he said that “Good intentions might sound nice but it’s positive actions that matter.”
The process of preparing a business plan is very effective as it helps the planner to identify and quantify the risks and opportunities the company is likely to face. The tendency in business plans is to overstate profits.

But if you assess the possible risks, then you will be able to adjust your projections accordingly and remove any overestimations.
Planning is bringing the future into the present.

Richard Cushing captures this well when he said “Always plan ahead. It wasn’t raining when Noah built the ark.”
The plan itself is not so important but what’s important is the process of planning because you are bound to interrogate a lot of issues in the process.

Businesses draw up plans for a variety of reasons. Some business plans are prepared to source funding, and other to attract partners into a business, or to recruit certain critical skills or for the government to approve a project.

The format of your business plan will depend on your industry, who is reading your plan and what the plan is intended for. Since a business plan serves many purposes, it’s advisable to have several versions of the plan that are tailored for specific audiences: you need to understand who you are writing the plan for and tailor it to meet the needs of your audience.

A business plan should reflect your ideas about your business and its future, and the projections. Your projections should be realistic and be supported by statistics and facts, if possible, from a knowledgeable source to give your plan some credibility.
How you present your plan is very critical. A normal business plan should be about 20 pages or so. Of course the length depends on a variety of factors: the purpose of the plan, the type of industry, whether your business is introducing a new product.

In preparing the plan, you need to start with an executive summary which explains the fundamentals of your business. An executive summary provides the description of your business model, the legal form of the business, when the company was formed, its principals and key personnel and its financial requirements.

The second section will provide the detailed plan. In the detailed plan, you start with the business description which typically gives a brief description of the industry and its outlook, the product/service you are providing, the business operation’s structure (whether it is a wholesale, retail or service-oriented), who your customers are, how you will distribute your products/services to these customers, what will give you the competitive edge against your competition.

The second area you cover is marketing. The marketing strategy is one of your plan’s most critical elements. In this section, you need to define your target market and how you plan to reach it.

You will comment on the results of market analysis you would have done in your market research. You should analyze your market in terms of size, structure, growth prospects, trends and sales/growth potential.

Also include how you will distribute the product, indicate what your promotion strategy and tactics will be.
In the third section you cover your competitive analysis. The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.

You need to show why your business will be a success over others.
The fourth section will cover your operations and management. This section describes how the business will function on a daily basis, its location, equipment, people, processes and surrounding environment.

It will also look at how you will manufacture your product, the production facility, the personnel you will engage, requirements for any permits or special regulations or licenses, who the key suppliers are.

You also need to highlight how you will manage the organization, what will be the various responsibilities of the management team.
Lastly you need to show your financial projections. Financial data is always at the back of a business plan. The financial data usually includes startup expenses and capital, your projected cash flow statement, projected income statement and balance sheet.

You might also need to show when your business will break even, i.e. start making profits. The above format can be tailored to the purpose of the business plan.

 Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship. He is the Managing Consultant of Shekina Consulting (Pty) Ltd and provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents and on how to build and sustain high-performing

organisations.
For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062 .

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