The importance of Business Planning

The business plan is just a plan like any other plan, the only way to see if it really works is to monitor its progress at regular intervals, so that you can respond to any potential problems which may arise and then change or modify your business strategy as

necessary. 

Why people take the trouble to product business plans?

• Producing a business plan is a very good method of focusing the ideas of potential entrepreneurs in terms of defining their objectives and assessing their own abilities to organize and run the business. 

• It also acts as a means of testing the viability of the business proposal before actually committing its proposers to any substantial expenditure or investment.

• The production of a business plan is really centered on a process of questions and answers; and the deeper you move into the plan, the more questions arise which must be answered.

• Helps to identify the primary objectives (Mission Statement), The purpose for which the business exists and the market in which it will operate, those questions will lead the budding entrepreneur into the examination and explanation of the financial, operational, marketing and control aspects of the proposition, which forms the core of the business plan.

• Viability of the proposition "How will it work ?" Unfortunately, hunches, gut feelings, cannot guarantee the viability of a business venture, so in answering the question we must offer some more tangible ideas. Viability may involve a range of considerations including market research and segmentation, feasibility studies, assessment of potential sales turnover and profit margins, break-even analysis, availability of regular supplies, availability of competent staff, adequate working capital etc. 

• The business idea itself may be perfectly viable for any experienced business person, but the other area which must be considered is whether or not our entrepreneur actually has the necessary skills and competencies to pull it off. Does the person have the necessary technical knowledge of the product or service? Do they have knowledge of the market? Have they had any sales experience? Can they manage people and delegate work? Do they have the necessary financial skills for book-keeping and credit control?

How often should I update my business plan?

Most business plans are updated on an annual basis. For most small firms it is unrealistic to prepare budgets and cash flow forecasts for more than a year ahead, but preparing them for less than a full year would be too short a time to generate useful information. Some firms revise their plans at the half-year stage if there look like being any major changes afoot.

Business planning is an ongoing process – it is not just something you prepare for

the bank manager at the start of the year, and then throw in the filing cabinet and forget it until next time around. Plans need to be monitored on a regular and frequent basis if they are to be of any productive use.

Budget outcomes (actual figures) should be compared with forecast figures at least once each month, and then within two weeks of the end of the month. This will enable prompt identification of any major discrepancies or problems which lie on the horizon. 

When discrepancies occur they must be questioned: why has this happened? Is it a one-off occurrence, or the start of a longer-term trend and potential problem? What has to be done to resolve the situation? Unfortunately, too many people faced with apparent problems are more concerned with asking ‘Who is to blame?’ rather than identifying the cause of the problems and working to find a solution

For how long should my plan be?

The big-company model of managing and career development does not apply to small businesses’. Larger organizations have the resources, stability and security to facilitate the luxury of long-term strategic planning, perhaps three to five years ahead or possibly more, and the immediate year ahead is seen as the short term. For the owner-managers of small firms, the immediate problem is often simply one of survival.

Small firms are essentially focused on short-term plans and goals with survival as the first priority. Consequently they look to the equally short-term policies that will enable them to meet the short-term goals. Only when they have achieved some measure of stability and security can they start to look at longer-term planning and investment, staff development and training etc.

How much detail should the business plan contain?

The answer to this question will very much depend on the type of business for which the plan is being prepared, Some self-employed people who have no need of external funding simply do not bother to prepare business plans. Others working on a part-time basis may have a very simple plan; their income may be regarded as a bonus to pay for holidays or luxuries because they may not depend on that particular activity for their main source of income or survival.

In reality no prescriptions can be made about the size and content of any particular business plan, as it will depend on the personal circumstances and resources of the owner-manager, the borrowing requirements needed for the business and the size, complexity and operating activity of the proposed business itself.

Reference

Business Planning - A guide to Business Start up, David Butler

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