Welcome once again!
Let me communicate something about business plans today. I know that there are many entrepreneurs out there who have started and developed businesses without any elaborate and documented business plans, and somehow think and feel that business plans are not necessary. We cannot rule out success in business circumstantially and not by serious planning. Sometimes the plans are in the mind of the entrepreneur only, and nothing is on paper. It occasionally happens. However, businesses that grow by default will always have their limitations. The majority of enterprises start, grow and succeed with careful planning and execution. Whatever the nature, size, location etc. of an enterprise, planning is not something to ignore unless you are not really focused on business. Don’t you agree with me?
A business plan is basically a document that specifies business goals and objectives and how to attain them. It provides a sense of direction to guide your activities from the start to growth and expansion of the enterprise. We will leave it at that for now and avoid complicating this whole thing. There is no single way or format to document a business plan, and you could find zillions of business plan formats. What is important however is the fact that the plan contains the critical elements that make it a business plan. Usually one would expect things such as a general description of the business, an analysis of the opportunities including industry and market, business model, organisation and management, operational plans, marketing plan, financial plans etc. Possibly we could consider these elements at a different time.
Today I simply want to focus on why an entrepreneur requires a business plan. I would like to write about the top 9 reasons why a business plan can guide your business into success. Business plans are critical to business success. Oftentimes there are entrepreneurs who fail in business and blame everybody else except themselves. When you request them to provide for you the business plan they executed and failed in, you start seeing someone looking blank and without anything concrete to show. They start explaining issues along the lines of you see, you know etc. Now, that is not what I want. Ok? I need something concrete and then it becomes easy also for a business consultant to analyse the plan and tell you where the problems are, either in the planning or in the execution. Do you understand me? Now, let’s look at the reasons why I insist that a business plan is required for business success.
- Generating a business plan ensures you have critical and reasonable facts about your business. By the way, if you have ever gone through the nitty-gritty of compiling a comprehensive business plan, then I think you have a very good idea of what I’m talking about here. You construct your business plan after exhaustive enquiries, thinking, collecting and tabulating information etc. Compiling a business plan ensures that you reasonably understand your business. This is why it is advisable that you the entrepreneur compile your business plan. Possibly a consultant could simply guide you, critique it and make modifications as may be required. If you leave your entire business planning to a consultant you might be in for a shock. You might not even understand critical assumptions, success factors and other important issues in that plan, yet you are required to execute and monitor this plan in real life. Do you now appreciate why some entrepreneurs fail? The things that go into comprehensive planning are the issues that create success in your enterprise. Sometime back I gave an example of an entrepreneur who goes into rearing chicken, and yet lacking knowledge that those chicks eat literally every hour. Those poor things could be starved to death due to inadequate supply of feeds and water. It’s not pleasant I guess!
- Objective, logical and realistic thinking and action is improved by a business plan. The fact that a business plan tests your comprehensive knowledge about the business (to incorporate into your planning), and also incorporates decisions you need to make regarding alternative choices, coupled with corresponding actions, makes the plan a useful tool for business success. For example, you decide on the machinery and equipment you intend to purchase, and why you prefer to buy those and not others. You decide on the number and nature of people you are going to hire in the business, and why you need such people including the roles they will play, their cost etc. You determine realistic levels of sales or revenue generation in the first, second, third year etc. based on several factors. While implementing or acting on these plans, you keep on referring to these logical thinking without wavering. It is not trial and error, but rather logical thinking and decision you are following. Don’t you really agree with me that a business plan, in this respect, propels you to succeed as you implement your wise decisions after considering alternative options?
- A business plan is a guide to your decision making regarding both strategic and tactical issues. Closely following the above is something more, regarding decision making over the years, not only at the start of the business. Strategic decisions are long-term in nature, covering say three years and more, while tactical decisions are short-term in nature. If your strategy is to be a low cost producer, this determines the kind of equipment you will use, the overhead costs you can afford, the selling price of your products etc. If your strategy is to expand your business rapidly through opening many branches or outlets during a short time for example, this will determine your decisions on staffing, procurement, logistics etc. The right and timely decisions made along these lines can easily propel your business to the success you need. Mr. Entrepreneur, never contradict your plans anyhow because several things could change in your business by just changing only one component of your plan. Critically consider changes to your plans before you derail that enterprise. Ok?
- Resource gaps can be identified and addressed early through planning. Another reason why a business plan helps you succeed in business is the fact that the plan helps you identify resource gaps in time. This enables you plan ahead and avoid appearing very disorganized. Resource challenges that are identified in time and addressed help propel the business to success. Do you get what I mean? As an example, your business plan should tell you the period in future when you will require additional cash to finance expansion, machinery purchases etc. The plan should also show you when you will need skilled manpower to run your new top-of-the-class technology. This helps you avoid procuring expensive technology which then remains idle for months or even a year simply because you do not have the right people to manage it. When you plan to introduce a higher capacity production line, your plan should tell you the increased raw material need together with increased working capital need at that planned time. When you start running while sweating to a bank manager for quick intervention in your cash flow crisis it simply means that you have poor planning. When you rush to your fellow manufacturer to lend to you raw materials it means your planning and procurement is inadequate. These may be hard facts to accept but they are realities. Don’t blame me for pointing them out. Ok?
- A business plan directs resource prioritization with corresponding accountability and responsibility. Now we are talking about accountability and responsibility. There are some entrepreneurs who think they are accountable to no one. Even if you are your own boss, you are accountable to yourself first, your employees, society, the government and other stakeholders. Are we still together? Candidly, if you don’t want to interface with many other people then don’t even start a business. Ok? Business plans guide you in determining priorities in decision making, action, spending, etc. and all these are vital in ensuring success in your enterprise. If your plan indicates that you must heavily stock raw materials in month X due to certain issues in the plan, during that month X raw materials should be your priority and not something else such as payment of dividends. If time comes for payment of taxes it should be taxes before those tax folks take action. I guess you know what I mean. It is very embarrassingly to have those tax folks take action on your business, whatever it is. If time comes for opening a new branch to take advantage of some business opportunity, you should devote your time and resources to that at the appropriate time.
- Keeping track of business goals and objectives is enhanced by a business plan. To the disciplined entrepreneurs who track their goals and objectives, a business plan is very useful in this. The idea is that in your business plan you have budgets, yardsticks or benchmarks etc. that might relate to procurement, production, sales, human resource etc. These targets are cornerstones for measuring your progress. Don’t you think so Mr. Entrepreneur? Come on. I said earlier that anything that is not measured cannot be controlled. Do you agree with me? If your realities are far behind your goals and objectives then you know you have to take corrective actions. These certainly drive you towards your enterprise success. The reverse is true when you simply sleep and let thinks take their own course. This is why it is advisable to set audacious business goals and objectives because they drive you to work hard towards achieving them, and before you know, you have great success in your business. I know you remember SMART (Specific, Measurable, Achievable, Realistic, Time-bound) principles of setting goals, but sometimes the unrealistic and audacious goals are required to make great strides also.
- Business plans help guide performance management. Tracking goals and objectives is a subset of business performance management. Performance management involves measuring, reporting and managing progress for the entire organization, and also the individuals who work in the company, towards improved performance. Performance management is wider in scope and is more comprehensive. Successful enterprises place emphasis on business performance management. Without performance management you have executives and staffs that simply stroll around the office without efficiency and effectiveness. Without performance management you have underutilized business resources.
- Internal controls are improved through business plans. Now, this aspect of internal control is oftentimes very much ignored in small businesses. Even some medium scale businesses ignore this, yet by the time they wake up, they will even wonder why they never blocked some loopholes in time. Just yesterday I heard a story about a successful entrepreneur whose brother timed and almost took out everything from the business in one sweep. Do you understand what I mean? Enterprises ignore internal controls at their own peril. Successful and sustainable enterprises place emphasis on internal controls. Internal controls help safeguard your business resources, ensure efficiency and effectiveness in business operations, and also compliance with policies and guidelines you put to regulate and control the business. My dear entrepreneur, the hard fact is that people (including yourself) in an enterprise have to be controlled and regulated. Don’t and never deceive yourself that you have only angels around you. Ok? So, internal controls are normally incorporated in business plans with the above objectives.
- You can avoid pitfalls by following a business plan. My last but not least reason as to why a business plan can guide your business to success, is the fact that business plans help you avoid pitfalls. Candidly, if you make decisions and act haphazardly in your business because you lack a business plan, you are very open to many business pitfalls, and some of them make you appear like you don’t actually make use of your brain. Business pitfalls could be numerous and we can’t go listing them here. The point I’m making here is that planning helps you avoid problems, and even if you enter into problems, you are to some extent not worse of and can actually steer clear of the challenges in reasonable time. Beyond normal planning, contingency planning helps you prepare for unplanned things that might just surface and could disorganize your business. An enterprise without a plan is like a ship without a sail. It can run into any rock, reach any port or beach the forces of nature drive it to etc. I believe this is not what you want. You want to determine the future of your business, and your own future. Don’t you?
So, in conclusion, I request you to take business planning seriously in your enterprise. By the way, it’s easy to know businesses that don’t have any plans at all. There are usually tell-tale signs. Additionally, I don’t need to hear the unpleasant news that you have closed your business due to factors arising from lack of planning. Do I? The above are my top 9 reasons why a business plan can guide your business to success. Planning will guide you towards success while avoiding and overcoming common pitfalls along the entrepreneurial path. Don’t be a lazy entrepreneur with the I-don’t-care attitude about planning. Ok?
Till then, and with every good wish,
The Wise Entrepreneur