Some have asked me why banks often reject their loan applications. There are many reasons banks may use to reject an application. The range from lack of adequate collateral, incorrect cash flows or an unconvincing business plan. I feel it is of utmost importance for me to explain more about a convincing business plan. The business journey is truly rewarding and also a voyage of discovery. We live in a world that is governed by laws. Failure to observe the law regarding a certain aspect means failure in the line. It should not be shaved either. There are laws of success that govern business.
In order for the business venture to grow and be sustainable, there is a need for proper planning. There is a popular adage “failing to plan is planning to fail” (Benjamin Franklin), this adage may sound like music to your ears but business planning is a key area that zeroes in on the importance of planning for any project. Sadly, this planning step is often overlooked and the result is always devastating.
There is a lot of money in Zimbabwe that can be tapped by businesses if they plan well. Some good business ideas die, simply because they lack proper business plans that can attract financing.
What is a business plan?
A business plan is a well-articulated road map that shows in detail how a company intends to achieve its objectives and goals. It seeks to lay out a written road map for the company from a marketing, financial and operational standpoint. Both startups and established companies use business plans. A business plan is a document that shows strategic action items. Planning involves setting the objectives of the business for a given period of time and formulating various courses of action to achieve these objectives by selecting the best possible options (or alternatives) from the various activities available. It is concerned with both ends and these are: what is to be done and how it is to be done. It bridges the gap between where we are and where we want to be. This is a rational approach in which all members of the organization need to work to achieve organizational goals. In fact, everyone in the business should plan, try to keep a to-do list for achieving the daily goals.
It is a summarized structure of the business. To run a smooth business there is no alternative but to make a business plan. Depending on the sector, a business plan can sometimes be referred to as a business proposal, investment prospectus, venture plan, loan proposal etc.
Uses of a business plan
It is used by financiers and investors. Banks, for example, want to see how the company can achieve its goals. This plan is used to attract investment before a company has established a proven track record. It thus helps to secure lending from financial institutions. For large organizations, a business plan can serve to keep a company’s executive team on the same page about strategic action items and on target for meeting established goals. They are so useful especially for startups because they show the way. Ideally, the plan is reviewed and updated periodically to reflect goals that have been met or have changed. Sometimes, a new business plan is created for an established business that has decided to move in a new direction. It provides direction for the business. A business plan reduces the risk of uncertainty. It reduces overlapping and wasteful activities. Planning promotes innovative ideas. Decision-making is made easier. Planning establishes standards for control.
1. A business plan is a very important and strategic tool for entrepreneurs.
It helps entrepreneurs focus on the specific steps necessary for them to make business ideas successful, and it also helps them achieve short-term and long-term objectives. Even though it is essential to have one, some entrepreneurs are reluctant to put it in writing. They believe that every day must be different from the others and others think that they are directed by the course of the economy, especially in a hyper inflationary environment like the Zimbabwean economy. However, excellent business ideas can be useless if you cannot formulate, execute and implement a strategic plan to make your business idea work. If you are looking to raise money from institutional investors and lenders, keep in mind that a good business plan is extremely valuable. The goal is to have a well-documented plan that speaks for itself. It must be clear and easy to read and understand.
2. Raising money for your business
Potential investors or lenders want a written business plan before they give you money. In Zimbabwe so many businesses have collapsed so far and to reduce risk investors, banks etc require a business plan to see if the management knows the unsoundness of their business. A mere description of the business concept is not enough. The plan must have a thorough business and financial plan that demonstrates the likelihood of success and how much the business needs to succeed in the long term.
3. To make sound decisions
Besides the banks a business plan acts as a guide to the entrepreneur. Deviation from the leader is minimized. Having a business plan helps you define and focus on your business ideas and strategies. Because a plan touches many facets, the entrepreneur will not only concentrate on financial matters, but also on management issues, human resource planning, technology and creating value for customers.
4. Identification of any potential weaknesses
Having a business plan helps you identify potential pitfalls in your idea. You can also share the plan with others who can give you their opinions and advice. Identify experts and professionals who are in a position to give you invaluable advice and share your plan with them. Even banks they may tell you the risk associated with your business when you apply for a loan.
5. To communicate your ideas with stakeholders-viability
A business plan is a communication tool that you can use to secure investment capital from financial institutions or lenders like banks. You can also use it to convince people to work for your company, secure credit from suppliers and attract potential customers. For an international company that wants to invest locally ZIDA requires a well written plan for them to license the entity. For special licenses, for example, telecom license regulatory bodies also look at the business plan and the business proposal.
6. Creating a business plan involves a lot of thought.
You need to consider what you want to do and use that as a starting point. It doesn’t have to be complicated. At its core, your plan should identify where you are now, where you want your business to go and how you will get there. Writing a good business plan does not guarantee success, but it can go a long way to reducing the chances of failure. Besides, even if you are not looking for investment, your entrepreneurial plans fall apart quickly without a plan to guide them.
7. Planning reduces the risks of uncertainty
Planning helps the entrepreneur to look ahead and anticipate changes by deciding in advance the tasks to be carried out. The business plan shows the way to deal with the changes and uncertain (unexpected) events. Changes or events cannot be eliminated (removed), but they can be anticipated (predicted), and managerial responses to them can be developed beforehand. Thus mitigating the impact of the risk.
8. Planning reduces overlapping and wasteful activities
A good business plan must show a coordination of efforts in the different divisions, departments and people. It must also ensure clarity in thought and action and helps to work smoothly without interruptions. It must show stakeholders like the bank that confusion, misunderstanding, useless activities are minimized. It makes it easier to detect inefficiencies and minimize work stress.
9. A good plan establishes standards for controlling
Controlling involves a comparison of actual performance with pre-determined standards. In case of any deviation, the management can take remedies to improve results. This is all shown in a business plan. In the absence of business plan, a manager will have no standards for controlling the actual performance.
10. It must consist of industry analysis:
A good business plan consists of a background and overview of the industry and, together with the relevant trends, key success factors, as well as an outlook for the future. This gives an open overview to the financier. It shows the lucrativeness of the business.
Important elements of a business plan
1. Executive Summary- This part includes the management structure of the business plus it outlines the mission statement of the company.
2. Products and Services – This section seeks to detail the services or products that the business offers or intends to offer to the market.
3. Market Analysis- The business must show that it fully understands its market. Remember that the Bible says that there is nothing new under the sun – (Ecclesiastes 1: 9) therefore the business is not unique, the trends that affect the business have been experienced by others.
4. Marketing Strategy- The business must show how it intends to retain its clientele and to reach new clients.
5. Cash flows- It must include financial projections for startups or historical for existing businesses.
6. Budget- A budget is essential to show the investors or the bank how the business intends to use the money.
It takes a lot of quality time to create a good business plan that speaks your business. It is always good to hire experts to design a talking business plan. Failing to plan is planning to fail. To run a smooth business there is no alternative but to make a business plan. A business plan must be followed to make the business successful, it must not just be shelved. I encourage business leaders to approach professionals like this writer to do their business plans.
There are so many investors in Zimbabwe who are looking for where to put their money but they sometimes fail to get businesses to put their money. I have been approached by several prospective investors who are hungry to invest in this country and my encouragement to businesses is to have proper business plans, cash flows, keeping books of accounts and systems in place. Banks and investors also like to invest their money in a company that has an effective and efficient business plan that clearly shows its financial projections and its chances of getting success in the projected business.
Francis Chitambira is the founder of SmartFiscal Consultants – a business advisory firm. He is a business consultant, entrepreneur, business tutor, tax consultant and business developer. He has interests in agriculture as well as marketing. He can be reached on cell/whatsapp: +263775844941 or email: [email protected]; Website: www.smartfiscal.co.zw