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Business Planning: Your company’s startling revelations of failure or the start of a success story

Business Planning: Your company’s startling revelations of failure or the start of a success story

“For I know the plans I have for you,” declares the LORD, “plans to prosper you and not to harm you, plans to give you hope and a future…” (Jeremiah 29:11)

If the Lord has plans for you, shouldn’t you also be planning in your business?

  • There are roughly 2 million small and medium businesses operating in South Africa. They provide employment to about 60% of the labour force.
  • Small and medium enterprises (SMEs) have been identified as productive drivers of inclusive economic growth and development in South Africa and around the world.
  • Some researchers have estimated that, in South Africa, small and medium-sized enterprises make up 91% of formalised businesses;
  • Total economic output of SME’s accounts for roughly 34% of GDP.
  • Yet, South African small businesses are faced with one of the highest failure rates in the world – as high as 70% fail in their first year, the Minister of Trade and Industry Rob Davies said in May 2013.
  • Over 440 000 businesses closed between 2007 and 2012;
  • Business liquidations in South Africa average between 150 and 200 businesses per month.

Three major reasons most often cited for Business Failure are:

  • Lack of planning
  • Lack of capital
  • Economic conditions

“Trade until I come” (Luke 19:13)

“…and He sent for these servants…, in order to know what each had gained by trading.” (Luke 19: 15)

Why Business Planning Is Important: –

  • A Business that does not plan is more likely to fail than one that does. Planning leads to success.
  • A Business that is dedicated to spiritual accountability must plan to focus and target the business effectively, so that they may be good stewards of that which has been entrusted to them.
  • A Business plan is like a road map that tells you exactly where you are headed. (If you are looking for a street most people don’t wander around aimlessly, instead they look at a road map that tells them exactly how to get from point A to point B).
  • A Business plan can be used internally to plan and control the business. It can also be used as a document to present to venture capitalists, bank managers or other financiers to attract funds for start-up or expansion.
  • It allows you to plan and control your organisation’s growth.
  • Business planning allows you to set performance goals for yourself, your managers and your organisation. Once goals are set, performance can be checked.
  • Reduces waste and duplication of effort.
  • Forces managers to write down exactly where they are in the marketplace and where they are headed, creating a better understanding of the market.
     Forces managers to analyse what is happening in the marketplace.
  • Forces managers to look more closely at what is happening in the business. Many a good business has fallen into trouble by not controlling its finances. Companies must plan for seasonal fluctuations, expected increases or decreases in demand, and various other external influences. They must standardize systems to price for profitability.
  • Managers must divorce themselves from fire-fighting and look objectively at the business. He/she must allocate a portion of time to matching the firm’s resources with opportunities in the marketplace.
  • A Business plan allows managers to clearly understand the business priorities.
  • Planning means fewer surprises.
  • Planning creates an awareness and acceptance of change.

Why Don’t All Businesses Plan?

By far the biggest barrier to producing a business plan is the time and effort in getting started. This is compounded by statements such as: –

  • “Planning prevents me from getting on with my job.”
  • “The boss grew up with this business and knows it like the back of his hand.”
  • “We’ve never planned before, why do we need to now?”
  • “Nobody reads them once they have been written.”

Some more reasons for ignoring planning are: –

  • Planning is a very difficult cognitive activity. It is hard mental work. Because of the cognitive strain involved in doing planning work, people avoid planning.
  • Planning makes evident the uncertainty of future events. By making explicit the various uncertainties, the future may appear more uncertain after planning than before. There is a human tendency to avoid uncertainty, and this may be reflected in planning avoidance.
  • Planning reduces perceived freedom of action. When plans are made, individuals are committed to a narrower range of actions than when no formal plans are made.
  • Planning is a very intensive effort, and it is difficult, given the nature of managerial work to take the time for planning. This is one reason that organizations have retreats where all other activities are shut out in order to concentrate on planning.
  • Planning is computationally tedious. Each change in planning assumptions affects other figures in the plans. Analysis of past data and current expectations requires significant computational work. The popularity of planning software reflects the need for computational assistance in planning.
  • Plans are often made and then ignored. One reason they may be ignored is that they don’t represent real agreement. However, if they are ignored, people become reluctant to be involved in planning.

What about a Marketing Plan?

Frequently businesses plan the technical/production side of their operation but overlook the customer/ marketing side of the business. A marketing plan is an essential part of the overall business plan, and must be addressed if the business is to succeed. Without marketing, in other words, getting the product to the customer and getting the customer to make the purchase there is no business.

Questions that should be addressed in a marketing plan are: –

 What is the Customer Profile? For each target customer group.
 Market segmentation?
 What is the Competitor Profile? For each competitor.
 What are the Customer service levels going to be?
 What is the proposed Marketing mix?
o Product
o Price
o Promotion
o Distribution

The marketing plan must set out objectives, how they will be achieved and how much investment will be needed as well as how the results will be measured.

About the Author: –

Max Oerder, Pr. Eng., F.S.A.I.E.E., M.I.B.A., has consulted to a variety of businesses in a diverse range of industries. He is experienced in the preparation of business and project plans for Corporate Divisions and Small Businesses.

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