The survival and success of the human race over the last thousands of years is significantly attributable to our thinking capacity. Similarly, the survival, growth and eventual sustainable success of any business, is largely attributable to the quality of thinking and actions of the operators that guide and run it.
Business planning is the clear mental outlining of the premise and purpose of a business as well as the detailed strategies of achieving desired objectives. The final product of a business planning process is called a business plan. A business plan is, therefore, a usually written roadmap that brings out the philosophy behind a business, as well as outlining actionable strategies expected to achieve the objectives of the business through the use of resources.
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Business plans are imperative for the success of an enterprise for several reasons.
Internal benefits of business plans: Within an organisation, the business planning process forces the entrepreneur and his team to think through the details of the business and its environment. This brings about a required understanding that is necessarily required if the business is to stand a reasonable chance of achieving success. Business plans also help in shaping policies that will remove ambiguity whenever actions are required to be taken. Eliminating ambiguity, even in the best thinking organisations, reduces waste and enhances more efficient utilisation of resources.
External benefits of a business plan: In the first instance, the quality of a business plan suggests to third parties the level of the diligence and commitment of the entrepreneur and their team. Even more importantly, business plans are usually required by financiers and investors to assess any level of exposure they can take on the organisation. Business plans might also be required by government and non-governmental organisations that can provide grants and other support to a business.
Types of business plans: There are different types of business plans. First, there are start-up business plans that should be developed by start-ups to outline what the business will be about and how its objectives will be achieved. A growth plan, on the other hand, is a plan that is developed by a business that has achieved a certain level of success but wishes to achieve some specific growth objectives. A functional plan could also be drawn for a specific aspect of the business such as marketing or finance. A functional plan must, however, be ready to integrate and reconcile with other sub-components, as well as the overall corporate plan. In fact, even if a business is to be wound down, a plan should be developed to do that deliberately, intelligently and at minimum costs.
Features of a business plan: A business plan should definitely be documented. But it doesn’t have to be 1,000-page long. Depending on the size and scope of the business, a few pages can suffice. Regardless of its size though, a business plan must be comprehensive. It should cover all appropriate aspects of the business and its environment. A business plan should be simple to read and understand and it should be devoid of hyperboles and rigmaroles.
A business plan should be a stable, well-thought out and action-biased document. And while circumstances could force a review at any time, the appropriate thing to do is to put in place a periodic reassessment system.
Elements of a business plan: A business plan covers every important aspect of a business conceptualisation and operation. The elements of a business plan are basically two; environmental and internal. The environmental elements will include economic and industry conditions, external opportunities and threats, etc. On the other hand, internal elements will include resources such as human capital, available finances, functional strategies etc. At the end, the plan will outline a general company description and how identified opportunities will be seized. The schematic below depicts the dynamic interactions between resources and results built on a foundation of business premise and philosophy and achieved through strategies within an operating environment.
Who should draw a business plan? For many mature businesses, growth and even start-ups with sufficient resources, there is, often, the temptation to abdicate the responsibility of drawing business plans to external consultants. While there can be great value in involving consultants, it is necessary that the entrepreneur and their team participate fully in the process. Involvement in the process is key to bringing out and understanding the deep issues of the business as well as internalising them. Understanding and internalising the issues will help in building the mental preparedness of the entrepreneur as well as their capacity to take actions as may be required.
This week we brought out the definition, features and elements of a business plan. Next, we will discuss the contents of a business plan.
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