Business Plan: An Important Tool For New Business

It is well a known fact that a very high percentage of every new business fail. In fact, statistics have it that about 85 percent of new businesses fails within the first three years in operation. This fact has made many people dread starting a business. However, the advantages of owning a business are so many to individuals, communities and governments that in spite of the risks involved, efforts still are being made daily to start businesses: “Business Plan: An Important Tool For New Business.”

In order to avoid business failure and the dire consequences associated with failure, a lot of precaution ought to be taken before dabbling into enterprise setting. One of such precautionary measures is to prepare a BUSINESS PLAN. In setting up a business, preparing a business plan helps to serve the purpose of one looking before leaping.

Definition

A business plan is a detailed document of intent by an entrepreneur showing the existence of business opportunities and the ideas developed to exploit them with due considerations given to all the relevant environmental elements involve, the merits, risks and the potential rewards inherent in exploiting the opportunities.

In the short term, it may cover three years of operations or less. The plan could be referred to as the game plan or road map. It addresses such questions as; Where are we? Where are we going? How will we get there? It depicts the network of movement or travel plan.

Business Plan: An Important Tool For New Business

Importance of Business Plan

The business plan is important in many ways. These include:

1. It provides guidance to the entrepreneur in organizing their planning activities.
2. It helps determine the viability/feasibility of a given venture in a designated market(s).
3. It serves as a major instrument for identification of sources of finance and soliciting for financial aids from financiers.
4. It helps in the establishment of accurate controls in the operations of the business.
5. It brings to the fore the weaknesses and the strengths of the venture within the industry through a realistic self-assessment.
6. It provides the entrepreneur with a tool for assessing the window(s) of opportunity and their economic feasibility and viability.
7. It provides the entrepreneur with the vehicle for analysis/assessment of the venture’s opportunities in view of its capacity.

Feature of Business Plan [1]

• It should be Concise, Simple and Clear: Given that you will not be there all the time to explain the details to the readers, some of whom may be far away from you, you need to make the plan understandable to any person reading it for the first time. It must sound convincing. Any plan that does not convey the necessary information to the desired (target) cannot be said to have communicated and consequently does not worth its salt.
• It should be Accurate and Supported with the Necessary and Convincing Data and figures: The investors and financiers think in terms of money. They want to know what you will spend, what you will earn and what profit you will be making. Your underestimation or miscalculation of your potential sales or degree of competition is likely to make your predictions fallible. Always underestimate your likely earnings for sales rarely work out in the real market economy as optimistically as they initially appear on paper. However, always assume the worst when it come to your expenses – for the unexpected drain on your finances is capable of pushing you out of the business. Conservation is the rule in prediction of profits.
• The Plan should be Realistic and Truthful: Financiers at some time in their careers would have been presented with business plans that are simple, profitable but not feasible. An experience entrepreneur in Nigeria in the financial market who predicts that his business will compete with First Bank Nigeria Plc or Union Bank Nigeria Plc within months will be regarded as time wasting crank that has no good business plan or one that contains a blatant lie.

Writing of a Business Plan

The length of time taken to develop a business plan is usually about three weeks depending on the experience and expertise of the entrepreneur. However, the nature of this investment or proposed business to a very great extent influences the time required to do a good business plan. A good business plan needs to be comprehensive enough as to give a potential investor a complete picture and understanding of the proposed business. It of course, will enable the entrepreneur to put in writing his thinking and views about the business. After all, planning is more an art of writing than just thinking.

A good business plan follows this format:

• Introductory Page: This refers to the title page or cover page. It provides a brief summary of the plan. It sets out the basic concept that the planner intends to develop. It brings to the fore the amount of investment contemplated by the budding entrepreneur.
• Executive summary: The executive summary presents a summary of the essential point in the business plan. It is usually about three to four pages. It serves as a stimulant to the potential investor. It highlights in a precise, concise and persuasive manner the key points of the business plan. It includes the nature of the business, capital requirements, market potentialities, and other necessary logistics. It is the degree of conviction exhibited by the executive summary that will determine if the entire plan is worth reading at all.
• Industry analysis: The entrepreneur while evaluating his envisaged establishment on a number of performance index also needs an analysis of the industry. This will give him an overview of the industry he is going to do business in, including the historical analysis of the industry and a forecast of the likely future trend. He should know the customers, his competitors, the various segments of the market and the specific segment he intends to target.

Critical issues to consider in the analysis include the underlisted:

1. The total industry sales over the past five years
2. The anticipated growth in the industry
3. Number of new firms that have joined the industry within the last three years
4. New products that have recently been introduced in the industry
5. The leading and recent competitors
6. How will the proposed business operation be better than the leading or recent competitors?
7. What is the status of the sales value of the major competitor, steady, growing or declining?
8. The weaknesses and strengths of the competitors
9. The profile of the customers
10. How does the customer(s) profile differ from that of the competitor(s)

• The venture description: This provides a comprehensive overview of the goods, services and operations of the venture. The size and the scope could be ascertained from this holistic picture including the location. To a great extent, the success of a business could be dependent on its location.

Basic issues to be addressed by the venture description are as contained below:

1. What products and/or services does the business offer to the market?
2. Description of the product/services
3. State the location and site of the business
4. State whether the building is old or new
5. Is the building owned or leased
6. Why is this building, site and location right for the business?
7. What skills or personnel including additions will be needed to run the business effectively?

• Production or Merchandising Plan: If the intended outfit is a manufacturing business, this section will be entitled production Plan and describe the entire manufacturing process. Where an aspect of the process is to be contracted, this should be stated including the names and locations of such contractors, why such contractors were selected, the contract fees and the contracts that have been completed if any. The production plan should prescribe the physical plant layout, the machinery, the equipment, the raw materials, suppliers’ names and location terms and future capital equipment requirements.

To intending investors this picture enables them to come to terms with the financial needs of the budding venture. However, for retail or service business, this is titled Merchandising Plan. The merchandising plan describes the process of procurement of the merchandise, the stock or inventory, control system, and the storage needs of the business.

• Marketing plan: Marketing plan is an important part of a business plan. It brings to the fore, the marketing condition and strategies for distribution, pricing and promotion of products. Marketing has to do with process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange that satisfy individuals and organizations objectives. Marketing plan is considered vital to potential investors because in clear terms the goals of an organization and strategies they intend to use to achieve it.

Marketing plan attempts to answer this question:

1. Who are the firm’s customers, their location, they are buying abilities, whom they personalize and their rationale?
2. The promotional and advertising strategies of the firm and its effectiveness?
3. Price changes in the markets, the initiators and their reasons?
4. Attitudes of the market towards competitive products
5. The distribution channels and their functionality?
6. Who are the firm’s competitors, their location and address, what are their strengths and weaknesses?
7. What marketing techniques are used by the lists and the most successful competitors in the market?
8. What is the mission core objective of the firm? what are their philosophical dispositions vision statement?
9. What are the company’s strengths and weaknesses?
10. What are the firm’s production capabilities by products?

• Organization Plan: Planning helps to critically assess the goal to see if it’s realistic. It facilitates decision making and allows setting a time frame by predicting when the company can achieve its goal. Organization plan is an integral part of business plan, that describes ownership structure of the business. It also shows the ratio of a proportion of ownership of the business among the co-entrepreneurs. It gives the investors understanding of who controls the business and his position in the organization.

Key questions in organizational plan:

1)What is the form of business ownership so partnership or corporation?

2) If partnership, who are the partners and the content of partnership did?

3) If incorporated –

• Who are the major shareholders and how much shares do they have?
• What type and how many stock of voting and non-voting have been issued?
• Who are the directors?

4) Who has the Cheque signing authority and control?

5) What is the background of each of the members in the management team, and what are the roles and responsibilities of each of them?

6) What are the salaries, bonus and other forms of payment if any for each member of the management team?

• The Financial Plan: The financial plan is the monetary (Naira) expression of entrepreneur’s operational plans. Financial plan paints a comprehensive picture of your current finances, your financial goals and any strategies you’ve set to achieve those goals. It’s a financial projection that enables the entrepreneur to determine the economic viability and feasibility of the envisioned establishment.

A typical business plan is made up of four statements;

1) Cash budget

2) Income statement

3) The balance sheets

4) Profitability (break-even charts).

Causes of Failure of Some Business Plans

• Some entrepreneur rush into business without establishing a need gap they intend to close.
• Goals set by some planned actions are not specific or measurable and sometimes unreasonable
• Lack of insight into the threats available in the business segment.
• Lack of experience in the business the entrepreneur wants to venture into.

Conclusion

Companies of all sizes can benefit from having a business plan. But when a business develops and its environment changes, so should its business plan. Therefore, business plan should be viewed as a dynamic document that will change as your company does, rather than as something that is static.