The advantages and disadvantages of a business plan
Entering the world of business is not that easy. When starting a new venture, one should never come unprepared. If you started a new venture without planning anything first, chances are, you will end up going wherever the wind takes you. That is why a business plan is a necessity for someone who is interested in starting a new venture. In the world of business, a business plan is treated like a bible for it lets investors and lenders know about the business you are trying to put up. It also serves as a manual for suppliers and other stakeholders of the business.
A business plan may have its advantages but it also have its disadvantages. In this part of the paper, we shall look at the strong and weak points of developing a business plan for a new venture. However, a business plan is supposed to be an advantage to the business that is why the advantages, as expected, outnumber the disadvantages.
Advantages
One advantage of developing a business plan for a new venture is that it identifies what the consumer really wants. Of course, a business plan is all about making your target market patronize the product or service you are offering in your new business. Before you can make profits, you must first identify your target market and know what they really need or want. This is one important advantage of a business plan especially for those who are new in the business scenario.
Once you identify what your target market really wants, you are most probably headed to indentifying the demand for the service or product you intend to offer. Identifying the demand for the product is also very important in launching a new venture because from this, you will know whether the service or product you are to offer is needed by the people. Of course, you cannot just think about your supplies and your suppliers. Those things will come after you determine the demand for your product.
Aside from identifying the target market and the demand for the product or service, the advantages of a business plan also include assistance in designing your product that are appealing to the senses of the consumers. Since your purpose in developing a new venture is to make profit, the consumers’ senses are your main target. Designing your product is very important. It includes the packaging of the product and other advertising tools to make the people buy the product. This is also an important aspect of the business plan for it contributes a lot to the success of the business.
Of course, if you are developing a “for-profit” business, making profit and paying debts will have to be included in your business plan. Aside from paying debts, your plan should also include measures on how to generate daily income. In this aspect, a business plan is very helpful because you already have your plans on how to manage the financial aspects of the business (which is one of the most important aspects). If you know exactly the financial path of what you are venturing, you are most likely to succeed in terms of profit.
Another advantage of a business plan is that it makes the proprietor identify his competitors. When you have the knowledge about your competitors, you will be able to identify your competitive advantage over the competitor’s firm. Since you are developing a new business, it is important that you know exactly your edge in the business scenario over the others.
If you have planned beforehand about your competitive advantage over the competitors, chances are, there will be product differentiation in the market. That is actually a good thing because it lessens competition within simi8lar firms. By analyzing your competitors, you will be able to create strategies that are effective even if there are many competitors in the market.
A business plan is also advantageous because it enables us to indentify new product and service areas, and new or potential customers. In business, it is not only important to find the customers for some of them will not be loyal to your firm. It is hard to find new customers when you are just developing a new venture but it is much harder to retain them. The good thing about a business plan is that it helps the owner of the firm to identify potential customers. If it is hard for the owner to retain his customers, it would be very helpful to identify new or potential customers. In that way, at least, you will have your next resort.
Lastly, an advantage of a business plan is that it allows the business owner to evaluate his business strategies and if his strategies are giving the desired results. What is good about a business plan is that it enables the owner to assess whether his strategies are effective or not. If he found out that his strategies are not effective enough to make the business succeed, he can immediately formulate new strategies to make the business succeed.
As we all know, business strategies are very important, be it human resource, financial, etc. The business plan serves as a test for the formulated strategies and also serves as way to make room for improvement. If the owner finds out that there is something wrong with his first strategies, he will be able to change it right away and save his business from falling apart or incurring losses.
Disadvantages
Although we mentioned a lot of advantages in making business plans, it also has its drawbacks. If the owner is new in the world of business, he may not have all the business skills that a new venture requires. If he happens to be the one making his business plans, the business plan can be one way of identifying his weaknesses in dealing with business. If the owner is not used to making business plans, people who will look to it will find out the weaknesses of his business skills.
Suppliers, investors, and lenders will most likely not to participate in the business when they find out that the person they are dealing with is not that skilled in business. Also, if the other stakeholders of the business find out that the person they are making arrangements with is not as skilled as they thought, they might not trust him with the success of the business. They might even plan to use his weaknesses or his business plan against him since they know that he is not a skillful businessman.
Another disadvantage of a business plan is when it is not properly thought of. If the data in a business plan is not properly analyze, it may result to improper marketing decisions which will eventually have a bad effect on the business itself. Although a business plan helps a lot in making the business successful, it may also make the business fail if not done correctly. What makes it hard for a business to succeed is the impulsiveness of the business owners when it comes to decision making. Sometimes, the data in business plans are not analyzed properly that is why decisions are also made incorrectly.
If the one who made the business plan is not a professional business consultant or is not really familiar with making a business plan, information can be interpreted incorrectly. The faulty interpretation of information can result to unrealistic financial projections. In a business, financial matters are very important that is why if financial statements are understated or overstated, it could greatly affect the business. If the information in the business plan is interpreted incorrectly, wrong decisions can be made.
The owner can also make unrealistic projections about the financial aspects of the business which can cause further problems. This would greatly affect the future of the business. Since the business plan somewhat includes the mission and vision of the business, it would be a great problem if the business plan fails to make correct projections for the firm.
If the business owner is not familiar with making business plans, he may opt to hire a business plan consultant. It is very advantageous actually since they offer quality service and they have been making business plans for many successful businesses. The disadvantage is that the service of these consultants is very expensive. Although they offer good service, it would cost you a lot. The money that can be added to your investment in the business will just go to the payment for the business consultant.
If the business owner happens to be saving up for his new venture, he can resort to hiring an inexpensive business consultant which is not always good for the business. Sometimes, inexpensive consultants are not as good as the expensive ones. There are also some which uses software that makes business plans. They will just ask the owner of the business certain questions and then enter the information in the software they use. This will eventually lead to improper analysis of data and information in the business plan which will not do the business any good.
Assessment of the Biz Air Plan
Just by taking a look at the business plan’s executive summary, we can already have an idea that the financial projections are overstated. With only 6 aircrafts, their projected revenues were £17.4 million. What I am trying to point out here is that what they are trying to build is an airline company and not just a convenient store or a clothing company. There were statements in the executive summary that seem to understate the losses in the first year. They even projected that there would be a 12% improvement in profits in the company’s second year and a long term 16% of sales in the third, fourth, and fifth year.
Aside from wrong financial projections, I find the business plan full of assumptions. For example, in the part where in they conducted customer analysis, they chose to conduct the study during lunchtime and interviewed people who dress like a business person. In other words, they just assumed that if a person is in corporate attire, he or she could be a potential customer since they assumed that he or she is a businessperson. There is also a part in the paper in which it is stated that “as long as the flights are not delayed, the post experience evaluation should be favourable.” I find this very assuming because it is not only the delay of the flight that affects on whether the customer will or will not like the new airline company.
The satisfaction of the customer does not rest solely on the factor that their flight is on time. Factors such as cleanliness, safety, or the friendliness of the staff also affect the satisfaction of the customer. It is also mentioned in the business plan that through satisfying customers (that is in terms of not delaying their flights), they will serve as salesmen for the airline company who will try to suggest the company’s service to other people. I find this a little idealistic for business does not just go that way.
Business does not only succeed through word of mouth. When they said that the customers will serve as the salesmen for the airline company, it gave me the impression that they were already assuming that the delay of the flight solely determines customer satisfaction which would later on result to advertising the company. It is very idealistic since they were sort of assuming that all the satisfied customers will endorse their company.
Another thing that I found very disturbing about the paper is its being overconfident about the services it offers. Of course it is very important that you have confidence in the business that you are putting up but not to the point that you will sound boasting about your business that has not even tried by the people. You can see this in the part where in they discuss the advertising of the service.
They mentioned that they are just going to advertise through newspapers and billboards near airports. I have nothing against that idea, actually. But you don’t have to say that you do not have to advertise in televisions because you are sure that once the news broke, there would be much television publicity that will come out. I think it will seem very unprofessional for those who will take a look at the business plan. Potential investors will have the impression that they are dealing with unprofessional people.
Lastly, there are several faulty analysis and incorrect financial projections which can be the main cause of the failure of the business.
Reference
- 2004. Creating Your Business Plan. [Online]. Available: http://www.nvbdi.org/howto/biz_plan.php. [29 July 2007]
- BELLIS, M. 2007. Creating A Marketing Plan for the Independent Inventor. [Online]. Available: http://inventors.about.com/od/licensingmarketing/a/tutor_marketing.htm. [29 July 2007]
- 2001. Approaches to Writing A Business Plan. [Online]. Available: http://www.caycon.com/plan_options.php. [28
