Importance of Business Planning For Small Businesses
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Importance of Business Planning For Small Businesses
Abstract:

As one wise man has said; “One may not be able to alter the wind, but surely one can set the sails”. These are extraordinary times, as there is unprecedented uncertainty about the future of the economic situation worldwide. To deal with these and to grow beyond survival, a detailed view of the business and the road ahead to be treaded is desirable. Setting the sail, could definitely help in better dealing with the altering winds.
Quite similar to the warfront, in reality all plans could go wrong, but planning is inevitable – so also in business, planning is critical for the better focus and agility towards the goal achievement. This article will deliberate on the importance of planning especially for smaller businesses, as they constantly churn in a very dynamic context – growing from survival level to growth.
A business plan is a primal document for every business. Planning is a key to any business throughout its existence. Every successful business regularly reviews its business plan to ensure it continues to meet its needs. It's sensible to review current performance on a regular basis and identify the most likely strategies for growth.
Importance of planning for small business
The most important reason to write a business plan is to organize the thoughts. It is very essential to communicate the business idea to employees and explain its viability. Devising ideas is required in both endurance as well as growth stage. In survival stage, the business plan should be a vital document which should be able to account for a soft economy or an industry slump and should have the built-in flexibility that will be needed in order to react quickly and nimbly in the face of change. Therefore, the business plan needs to include reasonable estimates of sales and an operating budget that identifies all sources and uses of cash. Cash estimates are important because cash is king and it is the only thing that will help in paying off the suppliers and the bank.
Also, a business requires adequate capital and cash flow. Here, an important thing to note is that profitability and cash is not the same thing. Profits are numbers which the accountant computes but cash in the bank is what is needed to pay the bills when they come due. While profitability is important, unless the business has positive cash flow, it will consume capital until new capital can be raised or until the company goes bankrupt. Factors that consume capital in new/existing business should be covered in business plan. These factors can be Startup organizational expenses, equipment and improvements to the office and other facilities, etc. If the business plans include a source of contingency capital in case the business requires additional capital in its first few years of operation that will greatly improve its chances of survival. When businesses are faced with a difficult decision, the written business plan will serve as a guide to form decisions.
Another important reason for crafting a business plan is its purposes in obtaining funding. A start up will probably require external financing to fund the business, and a business plan is one of the tools you use to persuade investors or lenders to finance business. But an ongoing business will require funding for growth in terms of acquisition, improving its marketing plans etc. An up-to-date business plan with details of expansion and implementation will help in obtaining funds through proper means.
Potential investors who read the business plan will want to know how one has planned to grow the business once it is off the ground. This entails more than just demonstrating how the revenue will grow. The growth strategy section of the business plan is about proving to others that the business has a plan for bringing the product to new customers and new markets, and perhaps even introducing new products. The obvious objective in outlining the growth strategy is to show how these moves will increase sales. This increase in sales might happen through multiple locations, new client bases, new products, etc. But any of these strategies require adequate planning and step by step approach which only a suitable business plan can provide for. The reason why every business should have a fully up to date business plan is to allow the business to track its actual progress against its projected targets. A well-written business plan is a roadmap, projecting what the company hopes to achieve and how it plans on meeting those objectives.
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