Why develop a business plan

Opening a business without a business plan is like setting out into the middle of nowhere with no map or supplies and trying to find a specific location you’ve never been to, you have an idea where you want to go but you have no idea of which direction to take or what supplies you will need. How can you possibly hope to get there?

The matter of the fact is that most entrepreneurs do exactly that. They have brilliant ideas and the courage to go after those ideas. But that’s not enough. There are thousands upon thousands of small businesses that failed, despite that initial great idea and their owner’s courage to go after it.

Why do small businesses fail?

Small businesses fail for a variety of reasons including for lack of funding, ignoring the competition, ineffective marketing, poor location, not understanding customer needs, cash flow problems… there are a multiple reasons why small businesses fail. However, all these reasons have one crucial factor in common – they could have been avoided if the business owners had compiled a comprehensive business plan before they opened their doors for business.

The primary purpose of the business plan is to guide you in successfully setting up and operating your business. Preparing the plan forces you to consider all aspects of your business and to confront any problems the plan highlights. . . while your business is still on paper.

In fact, there are even more reasons for which business plans are necessary. What’s more, even where they are not necessary, they remain useful in a wide variety of reasons including:

To Communicate with investors

Work as internal planning document

To apply for loans at the banks

Before we move forward to discuss the many uses and applications of business plans, we first need to understand exactly what they are.

What is a business plan

A business plan is a written document that forms an outline to an enterprise success, as such it needs to reflect the aspirations of the business founders and top management team, In addition to clearly defining goals and objectives, an enterprise’s business plan must also lay out the financial, marketing and operational procedures that will be required to achieve them. It may also include brief sections detailing information on the enterprise’s organization, its top management team and main investors.

Developing a business plan!

There are three main reasons why enterprises develop a business plan as outlined above and in this section we will delve deeper into those reasons .

To communicate their current and long-term strategy

to lenders and potential investors, money Lender and investors will only risk their time and money if they are convinced that doing so will be profitable. The best way for an enterprise to convince potential investors that it is worth their attention is to publish a thorough and well-researched business plan that will:

Show that the enterprise’s management is serious and knowledgeable
Detail the enterprise’s predicted profits and income streams
Make lenders and investors understand the enterprise’s business idea

Work as an internal planning document for management

A business plan is one of the most valuable tools for an enterprise to plan for long-term goals. It gives an enterprise direction, helps its management define its objectives and lays out potential strategies to achieve them. As such, even once an enterprise has an initial business plan in place, it is often a good idea to periodically review and update it in order to ensure that it is still appropriately adapted to the enterprise’s activities.

As a communicative tool to align the enterprise’s goals with that of its employees

Particularly for micro, small and medium enterprises (MSMEs), developing a business plan is an excellent opportunity to seek feedback, or even possible ideas, from employees. Ensuring that employees understand and support the strategy of the enterprise in which they are working is not only integral to improved work satisfaction and motivation (and thus to ensuring that they perform at their peak), it can also help the enterprise’s management spot flaws or weaknesses that it hadn’t considered previously. What’s more, even if direct feedback is not sought, developing a business plan will allow an enterprise’s management to communicate its goals more clearly to its employees. This is also crucial to ensuring peak performance from workers, each of whom will be made aware of the end goal towards which they are working.

Common mistakes when preparing a business plan

Broadly speaking, there are four main mistakes commonly made when preparing a business plan. Making any of these mistakes will not only reflect badly on the company for which the business plan was written, it will also reduce the chances of being able to use the plan to obtain funding.

The four common mistakes when preparing a business plan are:

1. The plan is too long.

Often, entrepreneurs or inexperienced managers will write business plans that stretch on for dozens of pages, getting bogged down in technical details and losing their target audience along the way. Remember that technical details should be kept to a minimum! If they are really necessary, they can always be included somewhere else, such as in an appendix. A good “rule of thumb” is to break business plans into 3 parts: a 2-3 page executive summary, a 5-8 page business plan, and an appendix that can include anything important that couldn’t be fitted into the main plan. Generally, investors prefer business plans to be no longer than 10 pages.

2.The company and its activities are not clearly described at the beginning of the plan.

A business plan is not a novel! There is no need to try and “build suspense” by keeping the audience guessing about the identity of the company or its activities. After all, why would anybody read a business plan if they couldn’t quickly figure out just what it is talking about? A clear, concise description of the company and its activities (whether actual or envisaged), should be included in the initial sections of the plan, ideally during the executive summary.

3. Market and competitor analyses are shallow/inadequate

It is incredibly common for business owners to simply write in their business plans that they have “no competition.” This is obviously a misguided statement - every successful business has competitors, both direct and indirect! If the company is still just at the idea phase, then the business plan should try to imagine how the market and the company’s competitors would look like once it is up-and-running and successful.

4. Assumptions made in the business plan are unrealistic/unjustified

Business plans, by their nature, are full of assumptions - not least of which being the assumption that the company will succeed! However, all of the assumptions included in a business plan should be solidly based on facts, and not simply consist of wishful thinking. To ensure that this is the case, it is important to check assumptions against some benchmark, whether it is a standard, or past experience from the same, or a similar industry. In addition, it is critical to perform due diligence and adequate research to ensure that all of the facts included in a business plan are sound.

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