Summary
If you want to work efficiently, planning is a good way to do it. It does not guarantee success, but it does limit failure. Without conceiving planning as a straitjacket or something immovable, its use is practically essential when it comes to the use of resources. Having a guide through which to orient ourselves or even evaluate what is happening is always beneficial. In this way, planning is associated with the other management activities: organization, direction and control.
Introduction
The development and growth capacity of an economy will depend on the dynamics of the creation of new businesses or the development of existing ones; However, there are many factors that affect the level of risk that is present when considering allocating resources to invest in a business. The possibility of success may even be much less than that of failure. Statistics are generally unflattering, because on average more businesses close in the first year of existence than survive. This, which is undoubtedly a reality, can limit investment dynamics, especially when financial resources are scarce and consumer confidence is low. Anyway there will always be those who are willing to take risks,and in these cases the really important thing is to take all possible measures to at least try to know what can happen.
It doesn't matter how much resources you are going to invest in a business; no matter how big or small it may be; the source of the resources does not matter; because what is really important is to be aware that the greater the amount of information available, the more opportunities there will be to know what to do and what to expect.
What is a business plan?
As its name indicates it is a plan in which the aspects related to a business or business project are collected. The fundamental objective will be to consider all the factors that affect it, and may cover a relatively long period of time, that is, from when the idea arises until it has materialized. Its level of complexity will depend on the size of the business, in addition to having to take into account external aspects that will influence it, such as: the characteristics of the sector or branch in which it is framed; the existing provisions, regulations or regulations that benefit or hinder entry; environmental requirements, labor regulations, etc.
What is its importance?
It should be borne in mind that the Business Plan is feasible to apply for any type of business, however, obviously the greater the volume of it, the more important its implementation will be.
The Business Plan is closely linked to an investment, because however small the business is, it will always demand some amount of money for its implementation. This already establishes the existence of a certain level of risk, because if it does not bear fruit, losses will be generated, not only in resources, but also in time. The possibility offered by the Business Plan is that the level of risk can be reduced as much as possible or at least predicted, so that alternative decisions can be made or the project can simply be discarded.
What aspects does it cover?
The Business Plan, as mentioned before, will depend on its scope and depth of the type of business in question, basically referring to its magnitude and complexity. In any case, it must cover a set of aspects, such as:
1) Type of business, that is, what it is you want to start, in which sector of activity.
2) Define the Company Name. It should be borne in mind that over time the business can evolve, so foreseeing this from the beginning can save not only paperwork, but also time and even resources.
3) The general data of the business: commercial name, physical location, fiscal domicile, type of company.
4) Identify the administrative procedures to be carried out: permits, licenses, registration, opening of a bank account, etc.
5) Type of commercial strategy to adopt, that is, in terms of prices, advertising, promotion, after-sales service. This is important because it will serve to position the business with respect to the competition. Publicizing the business is vital, because success will depend on it. The faster a business is known, the less time it will take to recover the investment and the level of risk will be reduced.
6) Study the competitors, especially in the area in which they are located, if their sphere of action is local, as is the case with those businesses in which the customers are basically those in the area. Such is the case of a bakery-sweet shop, butcher, supermarket, etc. If the business is not governed in terms of customers by location or not only by location, then the study of competitors becomes a little more complicated, but always necessary, at least in terms of identification and knowing what they offer and how they offer it. This can serve as experience, but at the same time to establish differences of a competitive nature.
7) Study of suppliers: the good progress of the business will depend on the supplies available. Identifying suppliers and obtaining information about their products, commercial policy (commercial credit or payment facilities), delivery times, minimum purchases, claims for defects or quality problems, discounts for prompt payment, etc., is essential. It cannot be ignored that suppliers sometimes build loyalty with their customers, becoming a barrier to entry. This does not necessarily always happen, but when the stability of the sector (or business) can be affected by the entry of new competitors, suppliers can associate with producers; however, it should be normal for suppliers to feel encouraged by the entry of new competitors,they can increase their sales. This, which seems normal, must be confirmed.
8) Knowing what customers want is vital to establish a commercial and production or service strategy. As long as there is an unmet demand, a business opportunity can be generated, and the demand is not always related to quantity, but also to quality.
9) Investment volume: with this you will know how much money is required to start the business. Here it will also be necessary to consider the Working Capital, that is, the money that will be necessary to have as a reserve to meet the expenses that will originate during the start-up. Keep in mind that there is usually a time after the start-up or opening when the income does not cover the expenses, however, we know that there are expenses that must be covered, such as salaries, social security, electricity, water, telephone, interest payments, among others. This is provided for through an additional fund known as Working Capital.
10) Necessary assets: a business requires certain assets (Fixed and Current) in order to meet its objective in terms of production or service. Determining the necessary assets not only contributes to estimating the Investment Cost or the amount of financial resources for its acquisition, but also contributes to the quality of the product / service. Once the required assets have been defined, as many offers as necessary may be requested. From the analysis of the same, it will be possible to decide which is the best option, not only in economic terms, but also in terms of quality, guarantees, etc.
11) Management of financial resources: in general, businesses or investments are not fully financed with their own resources, that is, the use of external resources is necessary. Processing loans, credits or any other form of financing is a task that must be anticipated with enough time, as it is not always easy to obtain. Defining the volume of external resources is something that must be done with sufficient precision.
12) Volume of operating expenses: starting the business will generate fixed expenses, which are generally easily measurable, but there are also variable expenses that will depend on the level of production or activity. Estimating them is essential to prepare an Income and Expense Budget.
13) Recovery of the investment, that is, the time it will take to recover the invested capital. It is always convenient to determine approximately the months or years that will be necessary to amortize the investment. This largely defines the suitability of the project for the investor or investors.
14) Use of indicators to measure investment efficiency. The Net Present Value and the Internal Rate of Return are generally used. Other indicators can also be used. In the case of businesses that demand a relatively low investment, the use of other indicators of less technical complexity is recommended.
15) Market Study:
It should be borne in mind that positioning a business basically depends on existing demand, hence knowing the market is essential. Logically, when the business is of a personal, family or SME type, the possibilities of carrying out a study of this type are limited, because among others it requires time and specialized personnel. It is also true that for a local business or that its impact on the market is not significant, a Market Study may be expendable. In any case, the idea of trying to know as much as possible about it cannot be discarded.
The Market Study must include:
- Market Segmentation Definition of the Target Market, that is, the market to be reached. The strategy to follow, prices and other factors, will largely depend on the Target Market. Demand studies Analysis of competition Prices and costs: you can choose a pricing strategy, that is, try to stimulate customers with lower prices, but this requires knowing the prices of the competitors. It is known that the pricing strategy is not always feasible, among others because it depends on the costs with which it works, in addition to other factors that may make it unfeasible, such as brand positioning, the prestige of competitors, the loyalty of customers, quality, etc. Characteristics of the products or services offered:if the business is to be successful, the offer must be at least similar to that of the competition. Product or service life curve: enter a market in which the product or service is in the last stage of the Life Cycle or next to it, it can be a total failure, hence the importance of knowing this.
16) Logistics: it is related to what is stated in point 6, but it must also include that related to storage and transportation. These are added costs to the operation of the business and the convenience of outsourcing or assuming them as part of the investment must be defined. Although the tendency has been for specialization to prevail, this will depend on the volume of business and the convenience or not of assuming it. In the event that it is considered convenient to contract them, it will require the study of the providers of this type of service, as well as the rates and guarantees they offer. When you decide to assume them, you must quantify how many resources you will demand. In the specific case of warehouses, defining their size, as well as the optimal use of space, are elements to consider,and they will be based on the levels of stocks that must be maintained depending on the level of activity and to avoid breaks in the production or service cycle.
When the business requires international suppliers, the customs services and forwarding companies must be taken into account.
17) Budget: having an (estimated) Income and Expense Budget is a valuable tool that is not always taken into account or given the necessary importance. It is true that estimating income, especially for a business that is starting or even before it is launched, is complex, but it should never be dismissed. It is preferable to err on the side of miscalculation rather than omission.
Calculating the Balance Point can help a lot, because it is a way of knowing how much will have to be sold to cover costs and avoid losses.
The IG Budget can be accompanied in addition to Cash Flow, which allows predicting the behavior of cash inflows and outflows.
The Business Plan does not guarantee its success, but its contribution is undoubtedly significant, because as limited as it is in scope, it helps to clarify the idea.
