Reasons Why Business Plan is Necessary

Every action that is taken whether as an individual or group, there is always a plan. A plan is systematic and scientific. Before the launching of the business you logically organize the process you want to adopt to achieve the set business objectives. The organized procedure is the business planning. Therefore, in this article you will understand the reasons why business plan is necessary procedure to take to organize your start up.

The term “business plan” has different meanings to different people. Banks that release their own planning guidelines consider formal business loan applications to be synonymous with business plans. Venture capitalists see them as investment proposals, purely fund raising documents.  Business plan according to some business men refer the budgets and financial forecasts.

As business report is defined as a factual and objective of  a written business plan, the business plan describes to investors and financial sources all of the events that are likely to affect the proposed venture. Details are required for various projected actions of the venture, with associated revenues and costs outlined. A Business Plan describes a business opportunity. It is like a road map because it tells you what to expect and what alternative routes you can take to arrive at your destination.

Why business plan is necessary is that it helps you to work smarter rather than harder. It keeps your business future oriented and motivates you to achieve the results you want. Perhaps most importantly, the process of completing a Business Plan enables you to determine what commitment you need to make to achieve your success. To prepare a  business plan some certain questions must be answered:

  • Description of the business: What type of business are you planning (retail, wholesale, manufacturing, tourism, hospitality, service)? What products or services will you sell? What type of business is it (new, part-time, expansion, seasonal)? Why does it promise to be successful?
  • Marketing: Who are your potential customers?
    • How will you attract and hold your share of the market?
    • Who are your competitors?
    • How are their businesses prospering?
    • How will you promote sales?
    • Who will be your best suppliers and why?
    • Where will the business be located?
    • What factors will influence your choice of location?
    • What features will your location have?
    • How will your building contribute to your marketing strategy?
    • What will your building layout feature? 3. Organization:
    • Who will manage the business?
    • What qualifications will you look for in a manager?
    • How many employees will you need and what are their job descriptions?
    • What are your plans for employees’ hiring, salaries and wages, benefits, training and supervision?
    • How will you manage finances?
    • How will you manage record-keeping?
    • What consultants or specialists will you need?
    • What legal form of ownership will you choose?
    • What licences and permits will you need?
    • What regulations will affect your business?

How to Write a Business Plan

To write a good Business Plan, the plan must contain the following tips:

  1. The Business Idea: An outline and description of the product or service and background on the industry.
  2. The Entrepreneurs: A history of the founders of the business including their skills, abilities and proposed ownership structure.
  3. Business Objectives:  What the business intends to achieve including long range goals · The advantage of the product or  service  over existing competitors · The image and character of the business to be developed.
  4. Manufacturing: Description of  process and  machinery used Patents and design registrations· Predictions on changes to the industry·  Costs of materials, machinery, etc· Plant location and layout· Labour availability and costs.
  5. Retailing: Goods to be sold; Location; Stocking policy and procedures; and Suppliers and potential suppliers and the sales
  6. Service:   Description of service· Qualifications necessary to enter  the industry· Industry and/or legal controls· Processes and services to be offered.
  7. Capital Needs: Fixed assets needed; Working capital needed; and Starting capital needed.
  8. Sources of Finance: Types of finance needed; and Owners funds to be used.
  9. Cost of Finance: Set up costs; Current interest rates; Ability to meet borrowings and Current returns on owners funds.
  10. Financial Viability: Projected profit and loss accounts; Break even analysis; Projected balance sheets; Cash flow forecasts; Working capital needs; Budgets; Expenses/Sales/Income and Taxation.
  11. Market Research: Market size; Market description; Market trends; Customer profiles; and target markets then Preliminary sales forecasts and estimated market share.
  12. Competitive Position: Competitors; Unique selling position; Quality of existing products or services and Marketing practices of competitors.
  13. Marketing Program: Distribution channels; Sales outlets; Storage and transport of goods; Pricing policy; Packaging; Sales promotions and sales strategy; Advertising strategy and costs; Public relations.

Reasons Why Business Plan is Necessary

When you think about what a business plan is your mind probably goes right to the bank and the process of applying for business financing, as that is the most common use for business plans. But if you are creating this valuable tool only as a part of a required financing package, you are overlooking the most important function and why business plan is necessary. Whether you are new to the world of entrepreneurship, a properly crafted business plan can help solidify your vision. And when you are remaking an ongoing business venture, a written strategy (business plan) can help ensure its success. Taking cognizance of that, there are certain reasons why it is necessary to write a business plan; they include the following:

  • Business Plan Describe the Business

Developing the business plan is one of the best ways to define the blueprint, strategy, resource, and individual requirements for a new business venture. A good business plan must be developed with a view to exploiting the defined opportunity, developing the opportunity and determining the resources required, obtaining those resources and successfully managing the resulting business venture. The reasons why business plan is necessary to describing the business include the following:

  • It control future risks
  • It prepare for future uncertainty
  • It control business environment
  • It control business growth
  • It avoid sales crises
  • It avoid liquidity crises
  • It avoid succession crises
  • It ensure people development
  • It ensure work space available
  • It avoid stock buying crises

The above highlighted are the importance of a business plan in business start up. Although writing a business plan can be laborious and financially demanding, but it is really worth the trouble. A well writing business plan will enables an entrepreneur to control future risk, prepare for future uncertainty, control business growth, take charge of organizational growth and development. It allows for consistencies in decision making.

  • Reduces Firefighting

Many small business owners spend so much time ‘putting out the fires’ that they never have a chance to do anything else. By preparing a Business Plan you can anticipate problems that are likely to occur and decide how they should be handled in due process.

  • Justifies your Plans and Actions

Often, one decides to do something because it ‘sounds’ or ‘feels’ right. You may do something because that is the way that you have always done it. Preparing a Business Plan forces you to prove the validity, or at least consider the reasoning of your plans.

Business Plans and Feasibility studies are required as controlled process for identifying business problems and opportunities, determining objectives, describing situations, defining successful outcomes, and assessing the range of costs and benefits associated with several alternatives for solving a problem.

  • Tests your Ideas on Paper

It is much better to produce a Business Plan and find that the business is likely to be unprofitable than to start the business and find out the same

  • Indicates your Ability and Commitment

A well-prepared Business Plan is an impressive document. It shows outsiders such as lenders and suppliers that you understand the business. The business plan through your commitment must indicate the business organization as follows:

  1. Form of legal organization: Sole Trader; Partnership; Company or Trust; Registration of business name; Organization
  2. Legal Considerations: Licenses; Federal and State taxes; Consumer Law; Business Law; Insurance.
  3. Premises: Space required: Buy or rent contracts; Commercial lease requirements and problems; Availability of suitable premises.

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