You are already definite about your business idea and want to make it real. You feel you have the “it” to be an entrepreneur. You know what you are getting into; you have the skills, some experience, and believe you can persuade people to buy your product or use your service. What else is stopping you from starting that business?
The ordinary person will rush headlong into the water. The entrepreneur will first dip a toe, so to speak, to determine if the water is hot, lukewarm, or cold before taking the plunge. An even wiser entrepreneur would bring out a thermometer to check the water temperature.
The entrepreneur takes calculated risks. He is expected to get more details about a business idea to determine if the business he has in mind will stay afloat, grow, or collapse. He notes down these details in what is called a business plan.
Why Plan a Business?
A business plan is a document that aims to establish whether or not a business idea will bring in money that is greater than what it cost to start and operate it. Your business idea may look attractive to you at first. But beware! Not all business ideas are “doable.” Some look brilliant while others are just too absurd. Therefore, no matter how good your business idea will seem, you still need to make a business plan for the following reasons:
– Reduce, if not remove, the risk of losing money invested in a poorly researched or unstudied business idea.
Shouldn’t you first find out where your money is going before you let go of it? This way you reduce, if not remove, the possibility of losing your money on some activity that you should not have gotten into in the first place. Preparing a business plan will enable you to measure the prospects of a business idea before parting with your money.
– Avoid costly mistakes.
Every spur-of-the-moment or careless decision you make for the business entails cost that you might not be able to recover. It is never advisable to engage in a trial and error or on a hit-or-miss activity. You can actually save on costly mistakes by looking carefully at the details of the business in advance and determining your actual requirements. For instance, you may have thought that you will need two units of a high speed industrial sewing machine to complement your two regular motorized sewing machines and make full use of your estimated production capacity. After making a business plan, you realize that one unit of the industrial sewing machine and three sewers were all you needed to run in full capacity.
– Anticipate your financial requirements.
Money is the blood of any business. Without it no business can start or even survive. It is always wise to foresee sudden increases or decreases in the demand for your product or service so you can prepare for them. Through the business plan you can plan for the lean months and ensure that the business will have enough resources to meet business obligations during the periods when sales are low. In the same manner, the business plan will help you get ready for the peak production months so that you avoid losing any business opportunity.
– Organize your activities beforehand.
A business plan will serve as your road map to an unfamiliar territory and as such, minimize or avoid unpleasant surprises. The business plan will allow you to estimate how your business will perform in the future and to prepare for contingencies in case things will not turn out as planned.
– Assess actual performance against set goals.
A business plan will enable you to set targets in terms of sales volume and revenues, as well as expenses, among others. Once you have put up the business, you can always go back to your business plan to measure actual performance against your set goals.
– Apply for financing from lending institutions.
You could be lucky to have a nanay or tatay, kumpadre or kumadre to lend you money to start your business right away. But under normal circumstances, no one will lend you a sum if they are unsure about the prospects of your business idea. You should be able to convince possible sources of capital, especially banks, that something good will come out of your business idea. A well-prepared business plan can be your back-up support.
Source: Your Guide to Starting a Small Enterprise -dti.gov.ph