4.3 - Advantages and Disadvantages of Business Plans and Planning

Every business needs to have a consistent and sustainable business plan if it's to survive in the long term.

Potential investors are usually impressed by a business start-up that has a strong and clear focus. It gives them a high level of confidence because they know that there are potentially tremendous rewards available to them in return for investing in a particular business.

When a business looses its way, having a business plan review enables the business to refocus and move forward. An appraisal of the business plan should be conducted regularly.

Planning is essential to the day to day running of a business. It also means that targets and goals must be established which would help the business function effectively daily. As the days turn to weeks and weeks to months, the business can see that it is indeed exceeding its working targets and meeting it's goals as set out in the business plan.


Activity 14 - Why do you think a business plan should be reviewed regularly?


Performance indicators are commonly used tools which measure the impact the business activities are having on its market. These indicators include:

• New product development - the more product lines a business has that attract more customers, the stronger will be its performance
• Market share - this is the percentage of the total market which is controlled by the business
• Profit generated over the given time period
• Individual and collective business productivity levels

There are many benefits to having a business plan, but there are also disadvantages. It can be easy to get carried away with a business plan and ignore the reality of the company and the environment.

It's great to be optimistic about the future, but it's important to be realistic. Business plans must appreciate that there are serious risky activities that any business which intends to survive must avoid. Hence, it needs to make appropriate provision for the avoidance of such risks.

Any investor or lender needs to know that the business is well organised and has realistic and achievable goals. Also that it's prepared for obstacles and setbacks which will inevitably occur and can react to them without excessing cost impacts.

Business plans are the first impressions which portray the business in positive or negative light. No enterprise wants the first impression to be negative. Therefore, vagueness of ideas and lack of clarity needs to be avoided. Numerous business proposals have been rejected because they lacked enough information. 

A good business plan must show that the owners are knowledgeable about the market they are getting into. The more research information is shown in the plan, the better the plan will be understood by anyone who reads it. Market research, when properly conducted, shows how viable a business is and whether it can withstand market conditions to emerge successful over a period of time.

Business plans are frequently weak regarding information on competitors. This is a significant mistake; these should be identified and analysed with suitable depth if the business plan is to be robust and meaningful. 

The business plan should be properly presented (and look professional), grammatical accuracy, proof reading and spell checking of documents are an absolute necessity. Investors will not be impressed by a poorly written document.

Information and evidence in the business plan should be clear, accurate and honest. Do not attempt to mislead or lie.

Self Assessment Questions

1. What is the purpose and content of a business plan?

The purpose of a business plan is to provide an overview of what your business is about and to portray the businesses aims and objectives and how you plan on implementing them. It should include:

• An executive summary
• Business Summary
• Production Plan
• Marketing Plan
• Human Resource Plan
• Operations Plan
• Financial Plan

2. Highlight the advantages and disadvantages of plans and planning.

There are many advantages to having a business plan. The most prominent is that the content and structure of your business plan portrays the first impression of your business for potential investors. It also acts as a guideline for running the business and as a contingency if things don't go to plan. A major disadvantage of a business plan is that many people get carried away with the plan and loose focus on reality and their environment.


3. Give examples of the sources of information and guidance for business start-ups.

There are many organisations and institutions out there designed specifically to help business start-ups with advice and services. Some include:

• Government Organisations
• Trade Associations
• Business Link
• The Institution of Directors
• Chamber of Commerce