Most Kenyan entrepreneurs go into business blindly without having given their business idea a critical thought. Last month i had a chance to tour around the Nairobi Central district which left me pondering about the businesses that exist within the town. It is quite exciting that most of them are small businesses, that reaffirms the role they are likely to play in the achievement of the Vision 2030. But some things did not really excite me, for instance, i was interested in visiting one of the shops where I used to purchase computer accessories, only to find a botique at the same location. I got a little confused and I had to get out and confirm that i was in the correct building. Those of you who might have visited the stalls along Tom Mboya street, you know what i mean. Going back to the same shop I was advised that the business was closed and the owner sold the stock at through away prices. I knew the shop for around a year and since three years ago the building used to be a resturant, that confrimed to me that the business had not existred for long. As a result of my experience, I could tell that there is a high likelihood that the entrepreneur may not have developed a business plan before venturing into the business. The case is the same with many other stalls within town where other businesses hardly last three or four months. What can we do to ensure that our businesses are built on strong foundation and they are sustainable?
Business planning is of great help in enabling the entrepreneur understand how feasible the business idea is, as well as guide the business towards meeting its objective.It keeps the business itself
and all its decision makers towards pre-determined direction/results. It also serves as a sales tool for funds
mobilization either from private investors or from lending institutions. A successful business plan is a document that conveys the exciting prospects and growth potential of your business. It might be best viewed as a selling document. It sells the business to potential financial institutions and lenders. By effectively selling the business as a whole, a
business plan makes a strong case for specific projects. For instance, a plan may be used to seek funding to cover the expenses associated with developing and marketing a new product. Or it may be intended to secure a bank loan for additional manufacturing equipment. Of late, it has become a vital tool for Small and Medium Enterprises (SMEs) seeking business opportunities from large organizations.
business plan makes a strong case for specific projects. For instance, a plan may be used to seek funding to cover the expenses associated with developing and marketing a new product. Or it may be intended to secure a bank loan for additional manufacturing equipment. Of late, it has become a vital tool for Small and Medium Enterprises (SMEs) seeking business opportunities from large organizations.
Similar to advertising and promotional material sell a company, so should a business plan — though in a more straightforward, organized, and detailed way. Thus, a business plan should not only emphasize the strengths of a company, but also be realistic about its problems, risks, and obstacles, while offering solutions to these issues. To accomplish its goals, a business plan must do the following:
- Discuss the company’s goals for the near-term and long-term future
- Show how the goals can be achieved
- Demonstrate that realization of the plan will satisfy the reader’s requirements.
External Uses of the Business Plan
The business plan is a company’s first-line tool for obtaining funding and other types of outside support. Investment Funds Private equity investors and venture capital firms will ordinarily not consider backing a company that does not have a written plan. Investors are seeking evidence of high growth. In addition, they want to know how they will realize their investment returns, whether through a public offering, sale of the company, or management buyback.
To assess the likelihood of high returns, investors look hard at the following:
To assess the likelihood of high returns, investors look hard at the following:
- The track records of the company, the market, and the key executives
- The feasibility of achieving the forecasts
- The uniqueness of the product and its technology
- The quality of the management.
Bank Financing Bankers have traditionally focused on when and how the principal and interest will be repaid and the availability of collaterial to cover any loan losses. As such, loan application packages tended to consist of little more than past and current financial statements. However, bankers are putting more emphasis on how a company would survive possible setbacks. As such many bankers are requiring business plans be included in a loan applicable package. Also, a high quality business plan can help a company stand out favorably in today’s intense competition for loan funds.
Strategic Alliances These arrangements covering joint research, product development, and marketing have become increasingly vital for young, growing companies. The arrangement often includes a combination of financial backing and access to well-established distribution channels. The joint efforts may last three years or more. Major corporations invariably want to examine a company’s business plan before committing themselves to such long-term arrangements.
Mergers and Acquisitions As companies increasingly look to acquisitions as a means of expansion, and to divestitures as a means of gaining liquidity, business plans become more necessary. Companies seeking acquisition candidates typically use the candidates' business plans as one of their first screening tools. Similarly, if the managers of an acquisition candidate want to stay on after an acquisition, they will probably be extremely interested in the long-term plans of the acquirer.
Customer and Distributor Relationships For many growth companies, obtaining a large customer or gaining a commitment from a major distributor can be an important milestone. Large, well-known organizations are often reluctant to enter into arrangements with companies that are an unknown entity. A convincing business plan can help to dispel doubts.
External Uses of the Business Plan
A business plan is an important management tool. It enables management to plan company growth and to anticipate changes in a structured way. Executives sometimes argue that it is useless to write a business plan because the marketplace is changing so rapidly that any plan is quickly outdated. While it is certainly true that change is a matter of course, the process of preparing a business plan is at least as important as the plan itself. It forces management to think through the business in detail and to set objectives. And it allows benchmarks to be set, against which the company’s future performance can be measured.
Perhaps most important, the business plan commits the entire management team to the same goals. The process of working out the plan’s objectives invariably forces executives to reconcile different visions of where the company stands and where it is headed.A written business plan can be an important internal document for companies with multiple locations and operations. Top management can monitor the business plans not only to be certain that formal planning is occurring, but also to determine whether the finished plans are consistent with long-term financial and market goals.
In case you are thinking of pursuing a particular business idea, ensure you develop a business plan to crystallize it. It doesn't have to be a fifty page document, but one can start with a fifteen to twenty page document which can be improved on as the business grows. To strengthen your skills in business planning, you may consider participating in a business plan competition like the JITIHADA Business Plan Competition. The Deadline for receiving entries is on 15th March 2012. The guidelines for participation are also provided, which details the format and content. Go ahead and start a business today?
