A business plan is a document that is prepared by an entrepreneur for the purpose of defining and explaining the business activity, its requirements in terms of money, labor and equipment as well as the goals the business intends to achieve and how to achieve it.
A business plan can also be defined as a detailed account of how the owners of a business plan to convert ideas and vision into a real, functioning profit center. It is a document that outlines’ all the steps that the business intends to follow to achieve the objectives or goals that have been set.
A business plan is a written document that describes your business. It covers objectives, strategies, sales, marketing and financial forecasts.
A business plan helps you to:
• clarify your business idea
• spot potential problems
• set out your goals
• measure your progress
Importance of business plan
To set better and communicate objectives and benchmarks: through the business plan the entrepreneur will also highlight the means he has prepared to achieve these objectives. The plan could be short term or long term. In summary, the process of putting a business plan together forces the entrepreneur to look at the business in an objective and critical manner
To secure financing: An entrepreneur will need to secure funds for his business. Most lenders will require that he comes up with a business plan before they can consider him for financing. This has become the main reasons why most business prepare business plan. It comes as later requirement when the business needs additional cash to continue its operations. Without a business plan, an entrepreneur will find it very hard to acquire business loans.
To better understand the business: A business plan helps the entrepreneur appreciate the business needs on a large scope. Through a well-prepared business plan, the entrepreneur will be able to see clearly the problems he had not thought of earlier, so he becomes well prepared psychologically to deal with them.
To reduce risk: the risks involved in the business are perhaps something that the entrepreneur may not want to dwell upon too much. However, for the plan to gain more credibility, the entrepreneur will have to incorporate what risks his type of business is likely to encounter. These could be financial, operational or control risks. The entrepreneur should also highlight the measures he has in place to manage the risks that he fore sees. Once an informed reader looks at the plan with all these risks highlighted, he may find it a more realistic proposal and be willing to invest.
Exposes an entrepreneur to management functions: the business plan sets out the objectives for the business. The entrepreneur puts in writing what his vision for the business is. The strategy can be long term or short term thus the entrepreneur will be referring to the business plan to check whether the growth of the business is in line with the plan he had envisaged earlier on. If not, then he will have sufficient basis to manage the growth of the business to direct it towards the right direction
A tool for planning a: A business plan in itself is a planning tool. The big plans are laid out and the small ones that make up the major plans are also followed up closely. The entrepreneur has set out what he needs to achieve within a given time frame so he will set out all these in the business plan. It may happen that the people he works with are unclear about the main objectives of the business. A business plan will act as a learning tool for them. They can thus contribute to the success of the business along with the entrepreneur.
A tool for guidance: The business plan thus also acts as a source of guidance where the way forwards seems unclear. Planning is very important if a business is to survive. By taking an objective look at the business the entrepreneur can identify areas of weakness and strength. He will realize needs that may have been overlooked, spot problems and nip them before they escalate, and establish plans to meet his business goals. The business plan is only useful if used well. Ninety percent of new businesses fail in the first two years. Failure is often attributed to a lack of planning. To enhance success, the plan should we well utilized. A comprehensive, well-constructed business plan can prevent a business from a downward spiral as failure to plan can mean plan to fail
Qualities of a Good Business Plan
1. A business plan should be detailed.
2. It also needs to be written in formal format and style.
3. A business plan should be error – free
4. It should include a market research that identifies your competitors, their share of the market and the range of the products they produce.
5. It needs to have a list of everything you need.eg Technology, raw materials, finances and other resources