The Rationale behind Business Planning
1. Time and money are often scarce resources
2. One will need to do research to generate accurate information on the economic viability of a business operation if one is to manage time and money successfully
3. Many small businesses fail
a). Wells Fargo study using data of the U.S. Census Bureau showed about half of businesses that employ people are still operating five years after they open. The study estimates that over the lifetime of a business, 39% are profitable, 30% break even, and 30% lose money, with 1% falling in the “unable to determine” category (Business Week, September 30, 1999).
b). Businesses with fewer than 20 employees have only a 37% chance of surviving four years and only a 9% chance of surviving 10 years. Of those failed business, only 10% of them close involuntarily due to bankruptcy. The remaining 90% close because the business was not successful, did not provide the level of income desired, or was too much work for their efforts.
4. Business planning might also change your mind about entering into a new business result in delaying the start of your business until additional resources are secured, or might radically alter your business concept toward options with greater likelihood of financial success.
The Business Planning Process and the Written Business Plan
1. The process of business planning is to think methodically about all aspects of building a new business, including: determining the compatibility of business professionally with personal values and goals; analysis of personal resources (e.g., skills, funding, and support network); market analysis and market planning; financial analysis; trading/production plan to match known market and marketing plan; and time management planning
2. To be successful in any business, business planning is essential
3. The form that business planning takes is less important than it contain all of the elements listed above and makes sense to you. It does not have to be formal.
4. In contrast to the larger process of business planning, a written “business plan” usually means a formal document designed to be presented to potential investors, lenders, or other stakeholders in the enterprise
5. Making a formal business plan for outside investors is probably not an early priority
6. If the off-the-shelf business planning software packages and “How to write a business plan” guides help guide you through the process, use them
7. Caution: Don’t let a slick format in an easy-to-use software package fool you into thinking you have done the proper research and analysis if you haven’t.