Most individuals, at some point in their lives, have had the desire to start and run their own businesses. The decision on whether such a business is to develop into a large one or not lies on the owner. Managing a small business entails a lot of things and, as such, the owner needs to have managerial expertise that enables the business to run and achieve its goals and objectives.
The growth of a business depends on the ability of the owner to manage it through the different external environmental conditions some of which are not predictable and, as such, may result in adverse situations. External environment include such factors as political, social, legal, and economic.
Economic environment entails an organization’s access to financial resources. Financial resources are always scarce and, at any given time, a business is in need of more finances to effectively carry out its operations or even to expand its revenue base through investments (Hodgett, 1995).
While large organizations have different options available to them for sourcing for financial resources such as debt, ordinary shares offer, and issue of debentures and so on, a small business in need of extra finances only has debt as its only source of income (Vander, 1994).
Obtaining debts from such lending institutions as banks and venture capitalists is, however, not an easy task for small businesses. This is because of the risk exposure associated with the small businesses’ poor credit worthiness. A viable tool that a small business can use to source for finances to cater for its growth is by the use of a business plan. This essay discusses the essence and viability of a business plan to a small business that seeks to expand its operations so as to contain its rapid growth.
Elements of a business plan
A business plan is a document that presents the actions that the business plans take in order to achieve its short-term and long term objectives. The document incorporates both the managerial, operational and financial action plans and the timelines that have been set in order to achieve specified goals within a specified time frame (Longnecker, 1991).
A good business plan comprises of seven important components. These include an executive summary, market analysis, description of the company, the business organization’s structure, marketing management, the company’s product, and the financials.
An executive summary is a snapshot description of the entire business plan. Looking at the executive summary, a person should be able to have a concise overview of the whole business plan. If the goal of the company is expansion, the executive summary presents the decisions that have been taken, are being taken and those that will be taken to ensure that the company achieves its goals and objectives. This section tells the reader of the business plan why the management thinks that the business will ultimately be successful.
Market analysis is usually a brief description of the market that the business operates in. The analysis may include the external remote environments that present either opportunities or threats to the organization. For a business plan to appeal to the reader, the market analysis should focus on the external factors that present the growth opportunities to the business and how the business plans exploit the opportunities so presented (Zimmer & Norman, 1994).
The product description presents the product that the business offers to the market. This part should include the importance of that particular product with relation to the market needs. A study of the market and consumer needs should reveal the need of that particular product that the business offers to the market.
The other element of a business plan is the marketing and sales strategy. This is simply a description of the strategy that the firm has formulated to enable it present the products as appealing to the consumers. A successful marketing strategy is determined by the amount of sales that the company is able to attain as well as the associated revenues.
The other element of a business plan is the organization and management. This presents the structure of the business and explains how the managerial decisions are made. It also presents the chain and flow of command in the organization. The importance of this is that it is able to indicate the internal controls that are set by the company in safeguarding the assets as well as the internal procedures that dictate the operations of the organization.
The last important element of a business plan is the financials. The financials part of the business plan presents the financial statements of the business. These include the financial data history of the business, prospective as well the forecasted financial statements.
The Need for a Business Plan
There are several boons of a business plan. First, it is a business document that can be useful when sourcing for financiers. Most financial institutions demand a business plan before reviewing any funding application by a small business. It is, therefore, an important document that helps the money lender evaluate the viability of the idea presented by the business and the ability of the idea to generate the returns necessary to pay back the cash borrowed.
Start-up businesses require the business plan so as to source for the finances that are needed to fund the business from scratch. The importance of this is that a business idea is presented in such a way that some money lenders such as venture capitalists are able to finance the idea from the beginning into a full grown business.
Expansion plans present the businesses expansion strategy and the need for financing (Toncre, 1983). The importance of this is that a business is able to acquire finances that can help it finance its expansion plan through the business plan.
Relocation element indicates a business’ need to move to another geographical location that is more relevant and convenient to the business activity. Franchising element presents the need of a business to start franchisee operations and the viability of that particular business. All these elements are focused at ensuring that the business is a viable undertaking that deserves the sought for financing.
Financial aspects of going full-time
A small business owner who operates part-time business and intends to go full-time must be aware of the various financial implications that are associated with a full-time business undertaking. Such an individual will of course be looking to expand the business.
This includes increasing the span of operations, hiring more workforces, acquiring a bigger business premises and expanding the marketing activity (Hodgett, 1995). All these aspects require increased financial needs and, as such, a business plan can come in handy to help the business source for funds to expand its operations.
While evaluating the viability of a business plan, money lenders, banks, and investors look at several factors. First, they consider the viability of the business idea with respect to the market that it operates in. The business plan should, therefore, ensure that the business idea presented in the plan is both executable and viable. A viable business idea will always attract funding from the money lenders.
Another thing that the money lender looks for in a business plan is the operational plan. This is a set of short term targets that are set in order to ultimately achieve the long term objectives (Longnecker, 1991). This is an important aspect of a business strategy since it shows the short-term practical steps that will ultimately result in the achievement of the long term goals.
The other important thing that money lender look for is the structure of the organization. An organization’s structure helps in such areas as decision making, flow of command and the implementing the set policies and procedures such as the cash management policies etc.
How the business Plan is presented to the money lenders
After drawing up a business plan, the next and most important step is to present it to the target lenders. The document should be precise and addressed to the particular money lender concerned. It should be presented as a formal document to the lender and it ought to be accompanied by other formal funding application documents.
Depending on the type of lender, the plan should include the specific requirements that accompany the lender’s demands in terms of the relevant information. Banks take it as an accompaniment to the formal loan application form while other lenders have their own specific requirements regarding the presentation of the business plan.
Business plans are important documents that seek to source for funds by any organization that seeks to grow or expand. As such, the business plan should have all the basic elements that constitute a complete document. A small business owner should, therefore, be keen to ensure that the business plan has been drawn in such a way that it includes all the necessary elements and presents a viable and fundable business idea.
Hodgett, R. (1995). Effective Small Business Management. New York: The Drydren Publishers.
Longnecker, G. (1991). Small Business management- An Entrepreneural Approach. Cincinnati: South Western Publishing Company.
Toncre, E. (1983). Nine Ways to Kill off Your Small Business. Nations’s Business , 65-66.
Vander, W. M. (1994). When the Wheels come off. Management today , 30-34.
Zimmer, T., & Norman, M. (1994). Essentials of Small Business. New York: MacMillan College Publishing Company.