Relevance of business plans for small enterprises and entrepreneurs

In current competitive and ever-changing market conditions, it is pivotal for businesses to define their objectives, create strategies, predict growth and also plan for contingencies. In other words, creating a 'business plan' is a must for every company.

 

Regardless of its size, every business initially kicks off with an idea. A well thought-out business plan helps turn that idea into reality.
It is believed that small and medium-sized enterprises (SMES) need to stress on three key elements - product research and development, effective communication tools and also global market.

 

It is very important to understand the concepts, techniques, frameworks and methodologies of creating a business plan.

 

 

 

Understanding the basic purpose of creating a business plan
 

There are two main objectives for chalking out a business plan. The main aim is to access easy funding which is vital for development and growth of business, while the second one is for enhancing strategic and corporate development. A business plan also proves beneficial by guiding an organisation in meeting its targets.

 

It has been found that well-designed business plans offer a functional framework that increases the profitability of any organisation.

 

A well-developed business plan serves the below mentioned purposes –

 

 

 

- Action plan
A business plan has potential of dividing a difficult task of commencing a business into many smaller and less intimidating tasks. It helps businesses to deal with issues in an organised and systematic way.

 

 

 

- Roadmap
A business plan emerges as an important tool to maintain a close watch on the operationality of any company. Business owners often lose sight of the objectives and goals. A business plan not just increases the focus level but also helps in understanding the vision.

 

 

 

- Performance tool
It can carry out evaluation and also to an extent decide the performance of any enterprise/company by fixing realistic targets.

 

 

 

- Business promotions tool
It has often been found that a business plan plays the role of a promotional tool. Although, external financing is needed to increase the functionality of any company, but a business plan can influence the investment sentiment.
 

In order to increase the effectiveness of any business plan, it should be revised periodically. When any sort of trouble comes up, a written business plan can act as a guide for taking calculative decisions. For instance, when deciding a particular action (acquisition or divestment), it is very crucial to have the vision and mission statements documented in the business plan.
 

Just in case, the outcome of the corporate decision does not conform to vision and mission statements, it is very important to understand the merits of proposition and look at the need for adjusting the business plan to meet the targets.

 

General principles to be followed while writing a business plan

 

 

- Increase the readability of a written business plan
A business plan should be well formatted and easy to understand. The introductory statement is considered as one of the most significant sections as it consists the complete summary of the business. Also, the language used to write the business plan needs to be simple so that no questions can be raised on it.

 

 

- Market analysis
A business plan should not be product-driven. One must realise that investors or customers are keen to know about the reaction of the market. It is significant to keep research work handy to demonstrate to the customers what benefits they can draw from the offered products or services.

 

 

- Distribution Plan

A business owner should know how to disburse its products or services. Sufficient knowledge is needed about important aspects such as logistics, warehousing and delivery arrangements.

 

 

- Throw light on uniqueness of business & develop competitive advantages
Speak about the aspects that will increase the competitiveness of any business in the market.

 

 

- Emphasis on management
It is always advantageous to show that the business is managed by well qualified professionals or people who have good work experience. Focus on policies is makes up as an important part of a business plan.

 

 

- Realistic projections
It is important to create a realistic picture and support it with the help of plausible assumptions. Well-validated predictions are impressive. Any business owner should ensure that the projections are achievable in the real world.

 

 

- Developing business plans for specific parties
As every reader varies from one another, it is important to develop different versions of business plan that suit the need. Business owners should understand that bankers or financiers are more interested in stability, security, cash flow coverage and sound returns, while a venture capitalist leverages from high interests. While mentioning about the exit options, it is also important to focus on how the funds will be used.

 

 

- Terms of payback
If the business plan is meant for the potential investors, it is important to show that the funds are secured.

 

 

Different kinds of business plans

 

A start-up business plan is considered as the most standard one as it comprises of topics such as company, product or service, market, forecasts, strategy, implementation achievements, management team and financial analysis. The financial analysis comprises of estimated sales, profit and loss, balance sheet and also cash flow. The plan usually commences with an executive summary and then concludes with appendices, which puts the monthly estimations for the first year.

 

 

- Internal business plans
It has been found that internal plans are not meant for the outside investors, banks or other third parties. It may not consist of detailed description of a company or the management team. It may or may not comprise of detailed financial projections. It may cover main points in slides (such as PowerPoint slides) instead of detailed texts.

 

 

- Operation Plan
An operation plan is known as an annual plan. It would be more detailed in its approach and consist of points such as implementation milestones, dates, deadlines and responsibilities of teams and managers.

 

 

- Strategic plan
It stresses more on high-level options and also fixing main priorities instead of the detailed dates and responsibilities. It won’t comprise descriptions of the company or the management team. The financial projections may not be part of it.

 

 

- New product plan
Also known as growth plan, it stresses on a specific area of business, or a subset of the business. It may not comprise detailed financial projections for the whole firm, but it should at least consist detailed forecasts of sales and expenses for the new venture.

 

 

- Feasibility Plan
A simple start-up plan that comprises of a summary, mission statement, keys to success, basic market analysis and also initial analysis of costs, pricing, and probable expenses.

 

 

Relevance of  business plan

 

Before venturing into any business, it is essential to have a 'business plan'.
A good and comprehensive business plan comprises of information on how to attain easy finance from a lender or financial institutions.
It assumes significance for start-ups and also existing businesses to identify growth opportunities for businesses.

 

 

Why Indian companies need business plans?

 

According to the Alphawise research report from foreign institutional investor Morgan Stanley, India Inc has decided to emphasis on using more of existing capacity rather than establishing greenfield projects.

 

 

The report claimed that one-third of the corporates will be reviewing the de-bottlenecking strategies to bring considerable improvement in productivity and 30% are eyeing to opt for brownfield expansion. One-fifth of the corporates are hopeful that greenfield expansion will take place within a time span of upcoming 12 months.

 

As currently the economic growth of India is facing heat due to the global meltdown, forecasting and planning will be a challenging task for India Inc. Moreover, the Indian businesses will be needing greater resource to resolve the ongoing crisis in today's time.

 

Recently, central government also stressed on the importance of business plan for successful functioning of any enterprise. Union Civil Aviation Minister Ajit Singh said that Indian carriers may not be allowed to acquire any aircraft unless they have a detailed business plan. The recommendation states that the carriers will be needing to offer business plans three years prior before opting for any acquisition.

 

 

Conclusion

 

Since financing acts as a major growth driver for any business, relevance of good and comprehensive business plan assumes greater relevance. Business plans help entities decide well-informed decision on their future.