THE IMPORTANCE OF BUSINESS PLANS AND WHY THEY FAIL

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Many questions have been raised regarding the importance of business plans. Some people contend that they are not necessary because many of the successful businesses today didn’t start on the basis of a well-documented formally prepared business plan. While that may be the case, the value of a business plan that is well prepared and executed can’t be dismissed on such flimsy grounds.

There are many reasons why business plans fail and these have nothing to do with whether or not they were needed in the first place. The following are some of the reasons:

  1. Wrong assumptions – a business plan is just as good as the assumptions it is based on. Most entrepreneurs start a business on the basis of assumptions that are not grounded on any reality as established through research. The excitement of running one’s show often undermines the intensity of thought resulting in poor conceptualisation of ideas.

When I started consulting business, I planned to first get into training of entrepreneurs. My idea was that it was easy to come up with a training programme, hire a room and get the trainees. I didn’t think clearly about the costs which would be required per session and the number of trainees who would be required to break-even.

In reality, I could possibly get the numbers, but they would not be enough to cater for the expenses. This would have required raising enough capital to sustain the business till the numbers can rise to break-even levels. I hadn’t planned for such an eventuality, so the plan failed to work. There is therefore a need to base your plan on solid and well-reasoned assumptions, or else reality will render your plan unworkable.

  1. Lack of involvement of the entrepreneur in the planning process – there are entrepreneurs who engage consultants to draft a business plan for them and then they fail to get involved in the process. Apart from ensuring ownership of the plan, involvement is important  since the entrepreneur as a vision bearer understands most of the aspects of the business.

The consultant’s role is to match his experience with the idea presented; to interrogate the assumptions and refine them. If the entrepreneur fails to cooperate then the outcome will be a business plan that can only work on paper. Also, the consultant needs to understand how to involve the entrepreneur. It would be irresponsible for him or her to proceed if the entrepreneur is not fully engaged.

  1. Wrong reasons for doing the business plan – many entrepreneurs prepare a business plan as a formality or for third parties such as financiers. In the end, the heart of the entrepreneur is not in it and once the third party expectations are met, and their assistance secured, the business plan is shelved.

Entrepreneurs need to understand that a business plan is foremost an internal document to guide the business.  It is not an exhibition for outsiders. In as much as one may need to prepare a business plan to meet a financier’s requirements,   there are many benefits to be realised if the plan is as well implemented.

  1. Lack of a monitoring framework – a business plan requires proper follow-up to ensure that it is working as envisaged. In case assumptions are overtaken by reality, necessary adjustments should be made. A business plan should be a dynamic tool. Granted, certain aspects of the plan are more static – for instance the strategies.  Nevertheless, the action plans and financial projections need constant review.

Nowadays, in business planning, I prefer the projections to be done in an Excel spreadsheet to ensure that they can be dynamically monitored and if need be re-adjusted. The emphasis is on a strategic business plan to ensure that the objectives, strategies and action plans are well synchronised and that the implementation has a clear monitoring and evaluation framework. This ensures that there is reporting mechanisms which provides a way of evaluating implementation performance on a regular basis and invokes remedial actions such as strategy re-think where necessary.

  1. Implementation excitement – implementing a business idea is a very emotional and exciting thing. As your dreams unfold, planning may be seen as an inconvenience which is standing in the way of action. This is probably one of the reasons why many business plans are never implemented. Entrepreneurs are naturally highly excitable characters but planning is a dull undertaking that may not generate any excitement.

Most businesses (especially at the inception stage)  lack the manpower and the structures needed to fully implement a business plan. This is a stage whereby the entrepreneur does most of the things individually especially planning and directing execution of ideas. The entrepreneurs may not get the time needed to sit down and reflect. Planning requires time which may be an elusive luxury for a young business.

  1. Poor workmanship – business planning is a serious exercise that requires solid professional input. If the plan is done without such guidance, the subsequent poor quality might make it hard to implement. Even if that goal is accomplished, the expected gains may not be realised. The necessary professional input is a function of experience and training. The business planning professional requires not just academic training which is largely theoretical, but also experience in planning diverse enterprises. Most importantly, the planner must be willing to immerse himself in the client’s business. This requires many hours of research, especially if previously, the consultant hasn’t dealt with a business in the same field.
  1. Lack of willingness to implement – if the entrepreneur lacks commitment to the formal process of business planning, then the business plan will fail. The entrepreneur as the leader must be totally sold to the process and of necessity, ensure it is implemented with utmost precision. As a country, we are known to develop very brilliant plans which are rarely executed.

Magnificent plans and strategies waste away in shelves as the business which needs them most suffers. That is why business planning experts need to start charging premium rates for their work. Probably, the entrepreneur,  stung by the amount of money  spent in the process,  may be compelled to implement it.

Conclusion

It is important to note here that failure of the business plan does not necessarily mean failure of the business itself. Nonetheless without the benefit of the guidance that a business plan accords even though the business succeeds the process may be unnecessarily slow, chaotic and painful. The steep learning curve in an environment akin to shooting in the dark need not be there if planning is done properly.

Lastly, I would like to discuss what I would call secondary business planning. While initially a business may start without much planning, as it expands and grows, it needs to undertake formal planning to accelerate growth and overcome arising challenges. Business expansion should be taken seriously and shouldn’t be treated in an ad hoc manner by entrepreneurs.

There are many businesses which have fallen victim to their own success. The entrepreneur fails to realise that the business is now too large to be run at his whims. Unplanned and ill thought out expansion instead of delivering results, catapults the business into the corporate graveyard. People wonder why a business that was seemingly doing well and holding tonnes of promises has collapsed into a heap without notice. It is all about planning purposefully and professionally as well as implementing dutifully.

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