It has probably become a bit of a cliché by now that businesses that fail to plan, plan to fail. Cliché or not though it remains pretty much fact – that without an initial business plan and ongoing planning and budgeting, any business is likely to lose its way, and possibly spend a lot of time relying on luck more than anything else.
The features of an initial business plan
A plan is a bit like a blueprint for a business. It helps to define in writing:
- Why the business exists – its purpose, objectives, mission, values, and vision.
- The structure of the business and the business model that will be used.
- A description of products and services.
- Analysis of the industry – including the competition, opportunities and threats.
- Analysis of the desires, needs and behaviours of the target market.
- Description of marketing strategies.
- Projected sales and expenses analysis.
- Benchmarks for measuring actual performance against.
- Specific goals and the activities required to meet them, along with timelines for achieving them.
- Plans for overcoming potential problems and obstacles.
The importance of business planning
If you are embarking on a small business, you need to have a detailed plan from the start. If you rush in and overlook this vital step, it’s likely to be very hard for you to continually plan your business activities and very easy to lose focus.
You could liken it to setting out on a trip – you need an itinerary of where you are going, a map, insurance, a budget, cash, backup plans, and a good grasp of what you want to experience. Of course you could always set off on an adventure without a plan, and you might actually have some fun – but you’re also more likely to get lost or run out of money or lack an alternativeplan if things go awry.
What specific problems could occur?
Without initial and ongoing planning you might miss out on sales opportunities, make bad decisions, or focus on the wrong things. For instance without a clear understanding of your target market and its preferences and needs, it’s going to be very hard to direct your marketing activities to where they best need to go. You might even produce a product or service nobody wants to buy.
Of course a business plan should never just be a set-in-stone once-off effort. It should be regularly reviewed and adjusted for where it falls short and to adapt it to the wider market – which is never static, but always evolving and changing.
The importance of budgeting
A major factor of business planning is a financial plan or budget. A budget is essentially a future financial plan and forecast for a specific time-period. Budgets often use historical data to be formulated, which means that as a business grows and develops its budgets should become more accurate as it has more historical information to draw from.
A budget helps you to determine your activities for the time period specified. Of course no budget will ever be 100% accurate but it is still an essential tool for keeping track of sales and costs and knowing what to focus on – e.g. whether to increase marketing if sales are low, trim costs where they are too high, and so on. In essence, it works as a framework and control mechanism for your finances and cash flows.
Every business should have a clear plan and a budget – even a micro-business. It doesn’t have to be elaborate, but it does need to define the business so you can keep it in the direction you want it to go.