12 Deadly Principles Of Business Planning You Must Know These
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12 Deadly Principles Of Business Planning. You Must Know These
Whether you are running, or planning to run, an offline or online business the traditional basics of achieving business success apply. For instance, it is well-known that a business that has no plan is almost certain to fail. No matter how small a business is, it needs a plan. A business plan compels you to think before you act. It compels you to find out about your business area before you start; i.e. to research your business area or to establish its groundwork.
A business plan forces you to think hard about your competition and how you are going to beat them in the market. It forces you to establish whether your business idea is worth pursuing. Why start a business that is going to fail? Isn't that stupid?
A business plan forces you to establish the expected costs and revenues of your business, and hence to determine profitability. Why run a business when, at any time, you cannot tell whether or not the business is succeeding? If you don't know your costs or your revenues you cannot compare them together to tell whether your business is succeeding or failing.
An online business is no different from an offline business, when it comes to business planning. It needs a business plan! Yet, how many newcomers do we see trying to make it online without even understanding the concept of business planning? Is it then a surprise that too many fail?
This article discusses 12 fundamental principles that you must understand and use in your business planning if you are going to run a successful business. The principles are as follows...
1. The Requirements Principle
A business plan must comply with the requirements of funding bodies. This is particularly key when you are applying for funding, but is also necessary when you are not applying because the compliance act itself makes the business plan rigorous. Funding bodies always have requirements that a plan must meet, and some of these are: technological innovation, presence of technical risk, and presence of commercial potential.
2. The Objectives Principle
A business plan must have clearly defined objectives and it must accomplish those objectives. A business plan is a strategic business document, and fundamental to any strategic planning process is the need to have objectives which the formulated strategies must aim to accomplish.
3. The Motivation Principle
A business plan must have clear motivations which highlight its importance. The motivations of a business plan are the reasons for completing the plan. These reasons tell us why the plan is important.
4. The Background Principle
A business plan must be the work of someone with a relevant background the founder, for a start-up business, and the plan must comply with its authors background. A business plan should be prepared by the person or team who is going to run the business. For a start-up business, this is critical because the planning process prepares the owner for running the business. If the planning is delegated to someone else then it is unlikely that the owner will understand the plan sufficiently to be able to implement it. In these circumstances, the owner abandons the plan and does his or her own thing with deleterious consequences for the business.
5. The Detail Principle
A business plan must be sufficiently detailed to inspire confident action when executing the business; yet it must be flexible. A detailed plan is easier to implement than a superficial plan. A detailed plan suggests that the plan has been thoroughly researched and thought over. Detail inspires confidence in the owner of the business assuming that he or she prepared the plan. A detailed plan should be flexible to accommodate changing times.
6. The Conservatism Principle
A business plan must be conservative. This means that it must always underestimate revenues while overestimating expenses. The reasons for this are underpinned by risk. A business is always executed under uncertainty... we never have all the knowledge we would like to make business success certain. An immediate consequence of this is the tendency to underestimate cost, only to find that we run out of money at critical times of a business's execution. We also have a natural propensity to overestimate revenues... to dream!
7. The Cash Balance Principle
A business plan must always have a positive cash balance. A negative cash balance means that you plan to run out of money... to be insolvent! If you cannot realistically get the cash balance positive, without padding figures, then this is a sign that the business idea is not worth pursuing.
8. The Insolvency Principle
A business plan must guarantee against insolvency... against running out of cash. There are four ways to do this: conservative estimates so that the business always outperforms its plans, detailed cost identification to minimise omitted costs, contingency planning to accommodate forgotten items, and a positi
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