To be successful, every business will need to have a business plan. To communicate with other stakeholders, the entrepreneur will definitely need a business plan. This will enable him share his ideas with the people who will have an influence in his business. The entrepreneur has to be personally involved in this process. He has to own it and not delegate the process to some one else. He is the one who has a vision for the business, so it only makes sense that he be the
architect of the business plan. It doesn’t matter if he is using the business plan to seek financial resources or to evaluate future growth, define a mission, or provide guidance for running the business; he is the one who knows the most about the business. Consultants can be hired to assist in the process of formulating a business plan, but in reality, the entrepreneur must do a majority of the work. Only he can come up with the financial data, the purpose of his business, the key employees, and management styles to mention a few items. He may still choose to use a consultant, but realize that he will still need to do most of the work. If he needs further help in one area, then he may seek the assistance of the consultant.
It takes time to come up with a business plan and psychologically, it can either inspire the entrepreneur to go ahead with his plans or to bring it to a premature close. The importance of planning should never be overlooked. For a business to be successful and profitable, the entrepreneur must have a clear understanding of the business’ customers, strengths and competition. He must also have the foresight to plan for future expansion. Whether it is a new
business or an existing business in the process of expanding, money is often an issue. Taking time to create an extensive business plan provides him with insight into his business. This document can serve as a powerful financing proposal.
A business plan is very specific to each particular business. However, while each business needs a unique plan, the basic elements are the same in all business plans. To complete an effective business plan the entrepreneur must dedicate time to complete the plan. It requires that he be objective, critical and focused. The finished project is an operating tool to help manage his business and enable him to achieve greater success. A clearly written and attractively packaged
business plan will make it easier to interest possible supporters, investors etc. A well-prepared business plan will demonstrate that the entrepreneur knows the business and that he has thought through its development in terms of products, management, finances, and most importantly, markets and competition. The plan also serves as an effective communication tool for financing proposals.
The significance of having a business plan can be summarized as follows:
Better understanding of the business
A business plan helps the entrepreneur appreciate the business needs of his venture beforehand.
Through a well prepared business plan, the entrepreneur will be able to see clearly the problems he had not thought of earlier, so he becomes well prepared psychologically to deal with them. The business plan will help in strategy and policy formulation. Without a business plan, it becomes difficult for the entrepreneur to have a clear sense of direction. This is important because he will need to convince many people that the venture will in fact work. In addition to the well laid out strategies, the entrepreneur will also highlight the means he has prepared to achieve these objectives. The plan could be short term or long term. In summary, the process of putting a business plan together forces the entrepreneur to look at the business in an objective and critical
Financing from financial institutions
An entrepreneur will need to secure funds for his business. Most lenders will require that he comes up with a business plan before they can consider him for financing. This has become the main reasons why most business prepare business plan. It comes as later requirement when the business needs additional cash to continue its operations. Without a business plan, an entrepreneur will find it very hard to acquire business loans.
A tool for management
As we have seen, it is in the business plan that the entrepreneur sets out the objectives for the business. He lays out in writing what his vision for the business is. The strategies will be both short term and long term. They need to be achievable as unachievable targets may make the business plan lose credibility. Subsequently, from time to time, the entrepreneur will be referring to the business plan to check whether the growth of the business is in line with the plan he
had envisaged earlier on. If not, then he will have sufficient basis to manage the growth of the business to direct it towards the right direction
A tool for planning and guidance
A business plan in itself is a planning tool. The big plans are laid out and the small ones that make up the major plans are also followed up closely. The entrepreneur has set out what he needs to achieve within a give time frame so he will set out all these in the business plan. It may happen that the people he works with are unclear about the main objectives of the business. A business plan will act as a learning tool for them. They can thus contribute to the success of the business along with the entrepreneur. The business plan thus also acts as a source of guidance where the way forwards seems unclear. Planning is very important if a business is to survive. By taking an objective look at the business the entrepreneur can identify areas of weakness and strength.
He will realize needs that may have been overlooked, spot problems and nip them before they escalate, and establish plans to meet his business goals.
The business plan is only useful if used well. Ninety percent of new businesses fail in the first two years. Failure is often attributed to a lack of planning. To enhance success, the plan should we well utilized. A comprehensive, well constructed business plan can prevent a business from a downward spiral as failure to plan can mean plan to fail
Highlight risks involved
The risks involved in the business are perhaps something that the entrepreneur may not want to dwell upon too much. However, for the plan to gain more credibility, the entrepreneur will have to incorporate what risks his type of business is likely to encounter. These could be financial, operational or control risks. The entrepreneur should also highlight the measures he has in place to manage the risks that he fore sees. Once an informed reader looks at the plan with all these risks highlighted, he may find it a more realistic proposal and be willing to invest.
A business plan is a strong communication tool for the business. It defines the purpose, the competition, management and personnel. It clearly identifies the vision and mission of the business to all the stake holders. The roles and responsibilities of the operational and management staff will also be clearly defined. The process of constructing a business plan can be a strong reality check if the pertinent details are not well articulated.
A well prepared business plan offers a benchmark against which actual performance can be measured and reviewed. As has been mentioned, a business plan will tell the entrepreneur when the trend in performance tends to deviate from the laid out plan. The plan provides an ideal setup.
It may need to be changed, especially when changes in the economy or in the industry warrant it. At all times the entrepreneur should keep his business at par with his targets as well as with what the competitors are aiming at and even further.
Even after preparing a business plan, the entrepreneur may find that it is necessary to review it from time to time due to changing circumstances that come to light with time. This enhances the planning process and improves the business plan. Some aspects of the business plan may become obsolete with time and may thus require updating. This may be done even once the business is up and running.