Many small business owners operate their businesses without a business plan. They operate on a day-to-day basis without any planning for the long term. They only see the need to prepare one when they have to approach the bank for a loan or to tender for a big business contract.
Is a business plan really necessary? Or is it just a showpiece to impress the bankers and business associates? Well, a well-prepared business plan, usually drawn up by a management consultant, does help to impress the bankers. But it is useless if the management does not understand the concepts behind the preparation of a business plan and take measures to manage any contingency.
A business plan is just a static snapshot of what the business is like if all the assumptions about the environments and competitions remain static. But this is not the case in the real world. Consumers' expectations, market's supply and demand, competitions and other environmental factors change all the times. We have to modify and adapt our business strategies and operations continuously to meet the changing market conditions.
The true value of business planning lies not in the plan, but in the conceptual and planning process. The thinking process can be used continuously to develop appropriate strategies to take advantage of the changes in the market place. Preparing a typical business plan would take you mentally through the following thinking process.
STEP 1: MISSION AND OBJECTIVES
What do you hope to achieve in the long run?
Is this something you enjoy doing for the rest of your life?
Identify your mission with a purpose and not a product. For example: to impart knowledge and promote continuous learning among the people is better than being a top bookseller.
It keeps you focused on the consumer benefits and gives you the flexibility to expand your business beyond book selling to include publishing and educational seminars, etc.
Define the targets or intermediate objectives needed to reach your ultimate goal.
STEP 2: CONSUMER PROFILES
Define the product's features and capabilities. What is its competitive edge?
Assess the cost of development and long-term development plan.
What tangible and intangible benefits can you offer to your target consumers?
Who are your target consumers? What are their needs?
Are there any unfulfilled needs or untapped markets that you can capitalize on?
Do you understand the consumer buying process? What are the factors that affect a consumer's buying behavior?
STEP 3: COMPETITIVE ANALYSIS
Define your market in terms of size, market demand, growth rate, competitions, market segments and others.
What are the emerging opportunities and threats in your market?
Where and how to access your target consumers effectively? Is there any peculiar buying behavior? What are the factors that influence their buying decisions?
What are your strengths and weaknesses versus your competitors?
Who are your major competitors? What are their strengths? How can you capitalize on their weaknesses?
Can you identify a niche market for your products?
What is the barrier to entry? Assess the legal and regulatory environment and issues.
Can you identify potential strategic partners upstream and downstream? Do you have privy access to key suppliers and consumer groups?
STEP 4: THE MARKETING PLAN
Develop your product positioning strategy. Your product must occupy a clear and unambiguous position in the minds of your target consumers.
Go for a niche market unless you have the financial resources to take on the market leader head-on for a share of the mass market.
Product packaging and service mix. What additional values (both tangible and intangible benefits) can you offer to your customers?
Pricing strategy - price is directly proportional to the product and market's exclusiveness.
Order fulfillment - a sale is not considered complete unless the good is delivered promptly and properly to the consumers.
Distribution system - can you exercise reasonable influence over your channel of distribution? Explore possible collaborative efforts with your suppliers or resellers.
Allocate the budget and resources for marketing and sales promotions.
What are the channels and media to reach your target consumers cost-effectively?
Develop a marketing plan that encompasses advertising, sales promotion, publicity, sponsorships and personal selling.
STEP 5: BUSINESS DEVELOPMENT PLANS
Define the administrative, human resource and operational policies. What is your corporate culture? What values do you want to cultivate in your employees?
Organization structure and development - describe key vacancies and timeline for putting the right people in place to ensure proper and timely execution of your plan.
Set up a system to manage and control the implementation of your business plan and prepare for any contingency.
Evaluate the business performance regularly and use the information to plan for the next phase of growth. Plan ahead and look out for opportunities to embark on the following growth strategies.
Market penetration - increase your sales in existing market by converting non-buyers and encouraging existing customers to make more purchases.
Market development - offer your products to other geographical markets or market segments.
Product development - develop new products that meet the needs of existing customers.
Diversification. Make use of your existing resources to develop a new business.
STEP 6: SALES PROJECTIONS & BUDGETING
Prepare a pro-forma balance sheet and profit & loss statement for your proposed business.
The figures must be drawn from educated guesses based on an in-depth study of the competitors or industry's financial performances.
This exercise will help us manage our cash flow better as well as determine the amount of capital required to implement the plan.
STEP 7: CONTINGENCY PLANNING
Define the intermediate targets and all the events that need to be executed to achieve your ultimate goal.
Estimate the amount of resources and financing required for executing each event.
Identify the business risks involved and develop contingency plans to manage the risks.
Measure the performance against the intermediate targets and implement contingency plans when these targets are not fulfilled.
The above guidelines are meant to illustrate the thinking process behind the preparation of a business plan. You can write up the business plan yourself simply by providing the answers to all the above questions and issues.
While it may not guarantee success, business planning helps to enforce discipline by making you think twice before taking the plunge. The planning process encourages you to look inwards and outwards for answers and to evaluate your business ideas against various environmental and competitive constraints. It also forces you to set intermediate goals and plan for alternative actions if these milestones are not fulfilled successfully. In the process, it helps to eliminate unnecessary mistakes and shortcomings. Try it. You may find yourself a few steps closer and a lot more confident to pursue your dream of becoming your own boss.
