There are many a business owner that embark on their entrepreneurial journey without a formal written plan. A business plan is sometimes viewed as an unnecessary expense to entrepreneurs who are starting their business on a shoestring budget. But is it really?
Let us take a closer look at some of the disadvantages entrepreneurs experience when they start their business without a plan.
Attempts to "wing" your way into a new business always lead to increased costs and inefficiencies. Effective planning allows the entrepreneur to identify all the key costs necessary for their business. It helps the entrepreneur to ensure that their capacity is aligned with their projected earnings. This is to say that the entrepreneur has all that is necessary to produce at the level needed to earn the level of income desired. A good plan will connect the dots between what is needed when it will be needed and how much it will cost for the entrepreneur.
A failure to plan also leads to slow or stagnated growth of the business. A good plan will clearly identify the market needs for the business industry and potential opportunities that the business can pursue with the resources available. Working without this critical long-range foresight leaves the entrepreneur at a blind spot in the market, forcing them to be responsive to market changes rather than being pro-active. Being responsive very often means that the business finds itself not being fully prepared to meet the needs of the market in the first instance resulting in the business growing slowly.
A lack of planning leads to businesses losing their competitive ability. A good plan will closely examine the business' competitors and their tactics. This information will provide the basis on which the business can develop a comprehensive marketing strategy that will allow the business to meet the needs of the target market whilst clearly differentiating itself from its competitors. Effective marketing is essential to promoting and maintaining business growth. Many business opportunities are also lost when the entrepreneur fails to anticipate and prepare for the opportunity.
Poor Cash Flow Management and Financial Planning
There is an old maxim that states you must be able to measure it to manage it. This is very true in business. A good business plan will guide the entrepreneur to effectively planning financially for the current and future operations of the business. A business has to continually seek new and improved ways to increase its revenue. To do so, the business often needs to invest to generate new income. A failure to plan often results in the business not being financially capable of meeting its commitments when necessary or having resources available to grow the business.
Characteristics of successful businesses
A quick look at the common characteristics of successful businesses will reveal that they are led by great leaders who dedicate and invest themselves into continuous planning for the business. Business success is no accident. It is the product of comprehensive planning and timely execution. Successful businesses also show a high level of appreciation for both their internal and external customers. That is, they show care and concern for the well-being of both their staff and customers. Another important characteristic is their ability to anticipate the needs of the market and provide products and services to match the demands of their target market. It is by adequately meeting the needs of the target market that businesses earn their income.
Based on these considerations, having a comprehensive business plan is an important asset to every business and entrepreneur. Business plans are well worth the investment to have them prepared as they will position the entrepreneur for success. The business has many risks of varying degrees. A plan will allow the entrepreneur to identify, mitigate or eliminate the business risks to find the success of which the entrepreneur desires.