Business planning brings together the physical, financial and human resources needed to operate the business and examines the costs, risks and potential rewards from the enterprise.
The formal outcome of business planning is a written business plan, which provides clarity and focus for a business. Clearly articulating a business plan enables a producer and others, such as bank managers, to consider the business objectively.
A business plan can indicate the probability of a business succeeding and provides a yardstick that success can be measured. When attempting to attain a loan, financial support or a government grant, a well written business plan illustrates to the financier commitment and motivation.
The risk associated with not having a clear business plan is considerable. Many businesses fail within the first five years because they lack a clear objective or vision. Planning helps businesses establish this and contributes to their successful operation.
Benefits of business planning
Sound strategic direction and business analysis provided through a business plan:
- Presents clear goals and objectives with the direction on how they will be achieved.
- Concentrates effort and investment on important business decisions.
- Reveals whether it is possible to meet future needs and goals.
- Assists in negotiating finance at competitive rates.
- Provides goals and direction for the manager to help achieve improvement of profitability.
- Provides a clear physical and financial position of the business to enable efficient decision making by understanding options across variable seasons and market opportunities.
- Builds the confidence to consider new options and predict and plan for more difficult periods.
- Helps to clearly communicate the nature and direction of the business when more than one person is involved in its ownership and/or management.
Creating a business plan
Business plans vary depending on circumstances, however, there are certain key steps that need to be addressed:
- Analyse the current situation
Analysis of the current business situation is integral in specific enterprise and property planning and requires a producer to understand:
- How the business is currently performing in terms of profitability and efficiency.
- The enterprise cost of production.
- Set enterprise objectives
Build from the current business position and decide the direction of the business going forward and associated objectives. This process will help determine the factors that are critical for achieving the goals of the enterprise.
The necessary and realistic steps or activities that are required in order to achieve the business objectives should be identified. Areas to consider include:
- Identifying the steps, tasks and priorities that will move the enterprise towards the goals and objectives.
- Specific targets for each goal to be achieved.
- The procedures, labour requirements, target market specifications and financial involvement as well as the time-frames for implementation.
- A detailed budget that includes the likely variables in costs and returns.
- A back-up plan as well as possible exit strategies.
- An appropriate recording system to enable on-going monitoring and financial analysis to ensure targets are being met.
- Monitor the progress
A key to ensuring the success of any plan is to regularly monitor progress against the stated objectives. It is important to review and update the business plan periodically, particularly as technical, financial, environmental or operational changes occur.
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