18/10/2016

The importance of a Business Plan

By

Senior Adviser

“It’s not the plan that is important, it’s the planning” - Dr. Graeme Edwards
 
 
The preparation of Business Plans has gained prominence in recent years, coupled with a growing wave of entrepreneurs who, seeking financing, are faced with the requirement of a document showing the feasibility of their business idea. However, reducing a Business Plan to a mere instrument for funding is to remove the importance it has for an organization.
 
By definition, a Business Plan is a document that describes how an organization will achieve its objectives, on various points of view (marketing, financial and operational), assisting entrepreneurs in making the decisions necessary to achieve success.
 
There are some key elements that should be considered in setting up a Business Plan, such as:
 

  •  Mission, vision and values: It should be clear in the plan what the company intends to accomplish and where, in a long-term perspective, you plan to arrive. It is also important to define the principles governing its operation, to guide decisions, behaviours and attitudes of various stakeholders in the plan.

 

  •  SWOT: Analysis of the strengths, weaknesses, opportunities and threats helps defining the strategies to achieve the goals.

 

  •  Objectives: The plan should be drawn to achieve several goals with different time horizons (it is essential to include several partial goals, marking the way to achieve the ultimate goal). These goals should not only be financial, such as sales targets or margins, but should also be operational, such as setting a particular product should be launched by a certain date.

 

  • Performance Indicators (KPIs): It is important to clearly define the metrics that allow the understanding of the business and its evolution. For example, relate the value of sales to the number of customers to determine whether a breakdown of these sales is associated with a smaller number of customers, a lower average purchase or both. Depending of the cause, the initiatives can be prioritized so more customers come to the establishment or to encourage the purchase of more products in each visit.

 

  • Market competition and customers: It is important to analyse the market where the company will act in order to identify opportunities for growth, as well as how its competitors are acting in that market. This analysis is essential to identify the wants and needs of potential customers, as well as the competitive advantages that the company has and ways to develop additional advantages. It is necessary that the company provides a value proposition that: Reaches all customer segments; Allows easy perception, for all the business positioning; Highlight the differentiating aspects of the business.

 

  • Operational plan / investment: It is essential to describe what initiatives will be taken, including marketing, under the plan and how these initiatives contribute to achieve company goals. This section allows you to identify the resources required to operationalize the project (human, financial and material).

 

  • Financial Projections: The transformation of the various elements of the plan on financial data will allow assessing the plan's viability. These statements should contain different scenarios (optimistic and pessimistic) to assess the impact of an evolution, different from expected, in the main business variables. It should be clear what resources to allocate to the project and the expected return on investment.

 

It is true that the actual path will never be equal to the plan because there are many imponderables. These are imponderables that involve making permanent decisions, with consequences on the future of their companies.
 
When preparing its business plan, the entrepreneur is “oblied” to analyze and evaluate the various variables of your business, allowing it to better understand the market and preparing it to respond to any deviations.
 
With properly defined plan, you can:
 

  • Identify, in the short term, the existence of deviations and the reasons for these deviations;
 
  • Assess the impact of deviations in the operation of the company (if relevant or not);
 
  • Define if necessary initiatives to correct these deviations;
 
  • Analyse the potential impact of each initiative, to decide which should be implemented;
 
  • Assess the impact of decisions taken.

 

Following this process of construction of the Business Plan and ongoing analysis of the situation of the company and the decisions to be taken, the entrepreneur minimizes the probability of errors and waste of resources. This process can still take on more relevance in an SME where, by tradition, there are few resources and the margin of error is smaller.
 

These decisions can have a very broad scope:
 

  • Investment / Financing: Investment decisions of a company, are rarely financed with cash flow generated by the company, which means that there is a need for external financing. Based on the business plan the company can simulate the impact of various forms of financing, to choose the most appropriate. The Business Plan, will also be relevant to those who finance the company, since it shows that the company will be able to meet future payments of interest and capital or, in the case of investors, will provide an adequate return to funding placed in the company.
 
  • Treasury: The Business Plan helps treasury forecast the short / medium term, providing information on potential difficulties. It becomes easier to act preventively controlling costs and the available financial resources for the company does not enter in a default.
 
  • Human Resources: Identifying the human resources that will be needed, and the date set for their entry, you can identify the best resources to take up the functions available and the cost the company may incur (here considering any support for hiring). 
 
  • Selling: The Business Plan may even be a support when you want to sell equity, allowing you to compare the offers received vs. the expected profitability of the project. As hypothesized sale, including measures may be taken to increase the value of the company.

 
It is essential, however, to ensure that the analysis and decision-making is carried out by a team with the skills required for managing a business. Therefore, the entrepreneur must assess what skills and competencies exist in the company and which areas where there are weaknesses. The plan should have measures to eliminate these weaknesses, such as the recruitment of qualified human resources, consulting or even to incorporate smart capital (financial resources plus knowledge in various areas).

Entrepreneurship Business Plan Managment #STEAMSBS

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info@steam.pt

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