Advantages Of A Good Business Plan

Planning is a vital ingredient in the success of any business. Developing a business plan is not just a requirement, but a basic necessity for building one’s business nowadays. It is an honest truth that every business needs a plan, starting from large corporations to entrepreneurs. Developing a business plan will help one build a framework that would push his business to his actual destination. The business plan helps one develop work guidelines, map out strategies, understand one’s target market, measure performance, monitor progress, make future plans and raise additional capital either for expansion or to boost operations.

Quite often, the thought on the mind of most business owners or investors is failure. The only way to overcome this failure is to address the common reasons why businesses fail up front. Presently, the world is facing though economic challenges, global economic meltdown, high cost of commodities, high rate of foreclosure and difficulties in obtaining credit from banks, stiff competition, complicated tax laws and high operational costs, etc.. All these challenges faced by businesses today, even make it more challenging for start-up businesses to survive. In today’s world, both small and large-scale businesses have come to realize the need to evaluate their business potentials and formulate strategies for the future.

However, inadequate planning has been the reason so many businesses fail, and the rate at which they fail is overwhelming. It is usually believed that most businesses fail in their first year of operation and among those that fail, 80% of them do not have a well researched plan. It has been observed that business failure is not only connected with small businesses alone which I chose not mention here, go down too. Though the rate of failure is highly significant in small businesses, and it is the main reason why a good business plan is needed. Probably for raising additional cash and to provide potential investors and lenders with the information required to make investment decisions. This makes developing a business plan extremely important. One’s business plan has to stand out and his projection has to be firm due to higher competition in attracting funding for his business. Investors no longer risk their money on businesses that do not prove to have great potentials for them.

A business plan is like a road map, it shows one the route to take, the pitfalls to avoid in order to reach his destination, For instance, if one decides to travel by road from one place to another, he would first need a road map that shows him the route to take. He will need to determine the distance and how much gas his car will need to take him to his destination. Moreover, he will need to calculate how much the journey will cost him, if he intends to raise money, if he’s borrowing, how he intends to refund the money. Putting all this into consideration, he now has a traveling plan that will take him to his destination. In the same vein, that’s what a business plan provides one with, the strategies, the route, and a road map to success.

Incidentally, the idea of working with a business plan is for one to keep focus on his set goals. Statistics has it that many businesses fail due to inadequate planning. If one doesn’t know where he’s heading to, any route seems to be the right one. Most people make great mistakes by jumping into business without adequate preparation and planning. A good business plan helps one maintain focus on his goals and execute the strategies that the plan assisted him in creating. Just like a road, one’s business plan has to be consulted to make maintain his focus and not running business in a layman’s way.

Working with a business plan, it will prevent one from entering unfamiliar territory. The plan becomes a working map for him and his organization. I t spells out the things to do and things not to do, the functions and how everyone and every department should operate. It helps one become more efficient, reduce waste and redundancy, channeling one’s resources to rightful place and being a guide to the successful running of his business.

As a performance tool, it measures the progression of goals in one’s business by tracking, monitoring, as well as evaluating, and can also be used as checkpoints in measuring performance. The world today, is so dynamic that what applied today might not apply tomorrow, and as a result of this dynamism, a good business plan needs to be setup in order to protect one against risks associated with business.

In addition to a performance tool, perfect business plan should contain other necessary tools in its system, which really make it a perfect plan. It must have a human resource tool, a marketing and strategy tool, financial tool, communication tool, and most importantly, an investor’s guide. A well-defined business plan attracts others to be part of the vision. It has to have a well-defined goal and objective that will set the stage to bring others into the business. It should inspire teamwork and creativity among its people and ensures everyone understands the goals and objectives.

However, a good business plan defines one’s target market, the class of people he intends to sell his products to, how to reach them, promote his products, in addition, defines one’s market mix- people, place, product and price. People- this defines the people involved in the promotion one’s goods and services. Product- this defines what one’s goods and services are. Place- defines the location which also includes the means of delivering the goods and services. Price- defines how much one’s products and services are worth in the market which will enable him analyze and evaluate his return on investment (ROI). A marketing and strategy tool defines one’s business strength, his weakness, his opportunities and threats. It plots a graph that helps one reduce cost while maximizing profit.

A financial tool in a good business plan enables one understand his business financial position, develops his budget and determine how his finances will be allocated. It also calculates one’s return on return on investment, analyzes his income statement, cash-flow, balance sheet, break-even point i.e. the analysis that tells one how much sales needed in order to cover expenses, which gives the basis for pricing his products and services, and at the same time calculates how much that is needed to finance one’s business which helps in making his financial needs clear.

A good business plan communicates one’s ideas to people, communicates his mission, objectives, management approach, responsibilities and demonstrates how one’s strategy will increase profitability and performance, identifying his audience without overreacting his aims and objectives of his business plan. A business communicates in two ways- Internal communication and External communication. Internal communication includes communication of corporate vision, shared value, strategies, guiding principles and employee motivation. External communication includes branding, customer relation, marketing, advertising, media and public relations etc..

A good business plan is used to attract funding from investors. Most investors will look at a business plan as a decision-making tool. There are certain things investors look out for in a business. These include one’s management team, every investor will want to know a business owner’s managerial skills, passion, and his dedication to his business. A comprehensive description of how one’s products or services should be discharged, his customer base, his market and financial analysis. A business plan should have a realistic financial forecast. Every investor will always like to see his business associate’s return of investment, cash-flow and break-even analysis. Hence, a well prepared business plan is the key to attracting investors.

Picking The Best Time To You Sell Your Business

When marketing a business for sale you will want to get the best result possible. So when is the best time to sell so as to achieve the best realisation of the value of a business?

When Should You Sell?

You are likely to get the best price for your business at the point when its growth prospects appear highest. The growth prospects of your business will appear best when:

- your company’s business is growing (has been growing strongly and has prospects of strong future growth);

- your industry is growing; and

- the outside economy is growing.

Ideally therefore, you want to be selling at a time when your performance is good and your prospects are better.

It is a fact of life that many entrepreneurs are attracted to high growth industry as an expanding market offers easier opportunities to create a new business. What you must bear in mind however is that every high growth industry eventually settles down to a much lower rate of growth which cannot support new entrants into the market and often cannot support all of the existing players. Therefore many sectors, from skateboard shops through to nursing homes, golf clubs, and mobile phone shops, will show periods of high growth with large numbers of players entering the field only to have a ‘shakeout’ as the rate of growth declines and the less successful players go to the wall.

In buying your business, purchasers will be putting a value on the prospects of the business.

When picking your moment to sell therefore, it pays to ‘leave something in it for the next man’. Remember that selling a business is a process that will take some time. Many entrepreneurs are tempted to hang on into a growth industry, attempting to squeeze every drop of growth out of the business and aiming to sell right at the top of the curve.

The danger with this approach is that you just might be very lucky and sell out at exactly the right time. However, bear in the mind that the sales process will take several months to complete, from start to finish. The chances are that you will not be successful and will miss selling right at the peak.

The point to note here is that the value of the business sold when it is on the up in a high growth phase is likely to be much greater, or as great as the value of the business sold at the peak as growth starts to tail off, because the business during the growth phase will be being valued on the basis of continuing growth as perceived in the marketplace; whereas the value of the business as the market flattens out may be valued on greater absolute earnings, but potentially at a much lower multiple due to lower growth prospects.

Moreover, if you wait too long in the business’ lifecycle and the market starts to decline, the value of the business will be based on a deteriorating growth prospects which will be reflected in the multiples achievable.

You should review your business every six months or so and consider whether now is a good time to sell. In fact, asking yourself the question: ‘Would people want to buy my company?’ is a good test of whether you are generating value or not. Because if the answer is ‘No’, what does this tell you about your business?

Keep an eye, therefore, on the value of your business and the rate of growth of it, its industry and economy in general.

So What If You Need To Sell But Your Business Is In Difficulty?

If your business is in difficulty, if you attempt to sell it you will have to accept that you are unlikely to get as much for it as you would if it was in good health; since as a distressed seller or someone selling a distressed business, the value you are likely to achieve for your business will be low.

Therefore, if your business is in difficulties, in order to improve the price you are likely to achieve, it is usually best to attempt to turn it around first so as to be able to market a business with a better current trading performance and future prospects (a process sometimes referred to within the turnaround profession as ‘polishing the pig’).

If your business has become quite severely distressed, and in practice would fail one of the tests for insolvency set out in the Insolvency Act 1986, in that it is unable to pay its debts as they fall due or that its liabilities exceed its assets, then there are further problems in attempting to achieve a sale.

These are, that in the event of a liquidation, the insolvency practitioner who has been appointed will have a duty to look at transactions during the period leading up to the insolvency, particularly those undertaken when the company was technically insolvent, to see whether any of these should be reversed.

In particular he will be looking for transactions at undervalue where he is able to argue that an asset has been sold off cheaply (such as you have sold the Rolls Royce to Joe, your brother, for £5 the day before the liquidation), or preferences, where he is able to argue that you have acted to put one creditor in a better position than others (such as you have paid Joe, or have transferred assets to him in settlement of his account prior to the liquidation, when you have not paid other creditors).

Thus, any sale or transfer of a business’s assets in the period leading up to a liquidation may be subject to a challenge in the courts by a liquidator. They may also feature in the liquidator’s report on the directors’ conduct prepared for the Government’s directors disqualification unit on which they may decide to bring proceedings.

Common Reasons for Small Business Failure

Why Many New Businesses Fail – Four Common Reasons of Small Business Failure

You may have already heard many stories of how people started a business with much enthusiasm but fail to run it successfully for a long-term. The failure of a business has, in my opinion, nothing to do with your luck or any other spiritual powers. There are a few common reasons of small business failure and I have written some of them in the following headings;

1: Poor Market Research

It sometimes happens that you wake up from your bed at 3 a.m and say to yourself ”wow, this is a multi-million dollar business idea”. Lame! Multi-million dollar business ideas do not simply pop-up into your mind while you are sleeping; instead they require a hell lot of market research to assess whether your business idea is worth a million dollars or not. Making a million dollars is not as easy as you think.

Poor market research plays an integral role in small business failure. People forget to gather useful data from the market which, in real terms, ensures success. They overestimate the potential of their product/service to sell in their target market. So, before you spend a single penny on your business, conduct a detailed market research.

2: Poor Business Planning

I have seen people who grab a page or two from their pocket and say, ”this is my business plan”. You are pretty much sure about the reaction that occurs on your face when someone says so. You’re right! Another reason why people fail to make their business successful is that they do not draft a proper and well-researched business plan. Warning: do not waste months on preparing a business plan rather than actually doing anything.

A business plan will help you draft a map of how your business will meet its objectives. You will address all operational areas of your business before actually starting anything; this will ensure that you are well prepared for any surprises that come your way. I have covered a diverse range of topics related to business planning in my blog and hope you will find them helpful. While preparing your business plan, all you need is to be honest and realistic about the projections and assumptions you make.

3: Limited Start-up Capital

Another common reason for most business failures is either they start with little start-up capital or they spend the available capital on unnecessary luxuries such as buying expensive furniture, expensive graphic designs for your websites, hiring more people than required, expensive marketing campaigns etc. It is always important that you prepare for running the business at breakeven (or even loss) for at least the first year of operation. The available capital shall be used in necessary and value adding items.

A business plan will help you develop a forecast of how much capital do you need to start your business and what is actually necessary at the start. Spending wisely in the start will help you sustain for a longer period as well as prepare you for hard times.

4: Synergy between Team Members

This is another common reason causing many new businesses to fail. Unless you are a single proprietor or a professional offering your services, you need to team up with people. You may also have co-founders who are with your from the scratch of your business. The team members and their synergy among each other play an important role in the overall success of your company.

Be careful when you select your partners and other team members because they will be playing a key role in your business. There is a need of people who have technical knowledge about your industry as well as those who are good in other business operations.