A business plan is an integral part of the smooth and effective running of an enterprise. Towards this, business requires strategic planning. Globally, people are looking for self-employment and, in this endeavor,, starting a small business is a basic necessity and the success of these businesses is pegged on several business management factors. Effective management with excellent planning features at the top of these factors. In this regard, business plans, business strategies, marketing, and effective customer relation can never be discerned.
Small businesses have certainly started to play an important role in the growth and development of a lot of economies in the world today, and they are becoming increasingly popular. The reasons for this are not particularly hard to discern. More and more individuals are joining small businesses for a variety of reasons that include the search for extra income, independence, and convenience purposes. As an established serial entrepreneur, I have had my share of personal experiences on the critical success path towards success in small businesses. During this period, I have had the chance to discover a lot about the most critical things that you need to become successful in managing your small business. Use this guide as your checklist to determine whether your business plan is on the right path or whether you need more information as regards your strategy and the business market you are venturing into.
Essential steps to successful small business management
The first step is to make sure you offer what people want to buy, not what you feel comfortable selling. Many small businesses often make the biggest mistake in this stage. You are much better off selling products that fall under the proven category than venturing into an entirely new market. The risks associated with such a venture are very large in the measure that small businesses cannot sustain. The next step is to get your cash flowing immediately because cash flows remain the lifeline of any business. You can easily do this by requesting work up-front and arranging to pay the balance on delivery. Lawson (2001) illustrates that,
You can do the same in retail, especially on high-ticket or specialty items, and position it as an added value and a way to ensure delivery by a specific date and you can also add value to generic items by creating private labels, and develop continuity programs where customers pay an up-front monthly fee to insure delivery or availability of items they will buy on a repeat basis
You must be strategically positioned to have first-hand news in order to keep your costs at their minimum levels. In business, “All the cash flow in the world is worthless if it’s not positive cash flow, which means you have to bring in more cash than you pay out” (Lawson 2001). To achieve this; you must ensure that your costs and expense remain at a bare minimum.
In addition to the above, the major driving factor behind any business unit is a good return on investment. It is necessary to spend a good fraction of your time exploring ways to increase your profits. This involves analyzing the five business drivers that include leads, conversion rates, average dollar sales, the average number of transactions, and profit margins and how they relate to each other. If you can develop the capacity to master them while at the same time keep your costs low, then you are on your way to success. “In planning, it is far more important to overestimate your expenses and underestimate your revenues” (Lawson 2001).
Economists and accountants tell you that “Being conservative in your numbers doesn’t mean you are willing to accept those numbers, it just means you are arming yourself with information you can work with and workover” (Lawson 2001). The mistake here is to focus on raising your brand before you get your leads. Leads are far more essential than brands because they define your brands and not vice versa. You must accept that learning is a process and indeed a continuous one in this field and do not be tempted to think that once your last annual sales were exemplary, you are bound to ride on the same trend. A business plan is needed for the growth and development of an enterprise. According to Lawson (2001) “a business plan describes a business opportunity. It is like a road map because it tells you what to expect and what alternative routes you can take to arrive at your destination”
Importance of business plan
Writing a business plan is very important when putting up the business for the first time. It not only helps in the effective management of the business but also clearly points out the foundation and growth strategies available for the business. In this regard, the owner of the business or managers can easily analyze the position of the business based on the information documented in the business plan. In addition, business plans help entrepreneurs in acquiring financial assistance for the growth and development of the business from banks.
What bankers or Business plan funding organizations need to see?
In the writing a business plan, the below business plan outline vividly shows the information bankers look for before considering a business plan for funding.
Business plan outline
- The Business Idea
- An outline and description of the product or service and background on the industry.
- The Entrepreneurs
- A brief history of the founders of the business including their skills, abilities, and proposed ownership structure of the business. This information will enable financers or bankers in making financing decisions on whether to
- Business Objectives
- These involve what the business intends to achieve in both the short term and long term.
- The advantage of the product or service over existing
- The image and character of the business to be established and
Developed is clearly expressed in this section.
The Product or Service
Technical description of the business
- Description of process and machinery used in manufacturing
- Patents and design registrations needed
- Predictions on changes to the industry
- Costs of materials and machinery
- Plant location and a clear layout
- Labor availability and costs.
- Goods to be sold
- Location of the business
- The plan will succinctly describe the location where the business is situated.
- Stocking policy and procedures in the business
- Suppliers and potential suppliers in the market
- Sales Terms developed for the business
It is necessary to clearly outline sales terms in the operations in the business.
- Description of service being offered by the business
- Qualifications necessary to enter the industry
- Industry and/or legal controls
- Processes and services to be offered.
- Capital required starting and developing the business
- Fixed assets required for the effective operation of the business
- Working capital required effective operation of the business
- Starting capital required effective operation of the business
- Sources of Finance
- Types of finance required for the business
- Owners funds available to be used in the business
- Cost of Finance
- Set up costs involved in the business
- Current interest rates in the country
- Ability to meet borrowings requirements and set out rules and regulations
- Current returns on owners’ funds as well as projected returns
- Financial Viability
- Projected profit and loss accounts
- Break-even analysis
- Projected balance sheets of the business
- Cash flow forecasts of the business
- Working capital needs for the effective running of the business
- Budgets – Expenses/Sales/Income
- Market Research
- Market size
- Market description
- Market trends
- Customer profiles and target markets
- Preliminary sales forecasts and estimated market
- Share of the business in the region of operation.
- Competitive Position of business in the market
- Competitors in the market
- Unique selling position of the business
- Quality of existing products or services in the market
- Marketing practices of competitors and how to effectively penetrate in the market
- Marketing Program
- Distribution channels
- Sales outlets establishment
- Effective Storage and transport of goods
- Pricing policy followed
- Packaging style
- Sales promotions and sales strategy being adopted and practiced
- Advertising strategy and costs
- Public relations and customer management practices
Management and Operations of small business
Personnel need for the effective operation of the business
- Numbers of staff required in the business
- Skills necessary for the effective running of the business
- Training programs needed for effective management
Form of legal organization
This will spell out the legal form of the enterprise
- Sole Trader.
- Company or Trust
- Registration of business name
- Organization chart of the enterprise
Market and market knowledge for a given business is vital for business growth and development. In this case, an entrepreneur should carry out a SWOT analysis of both his business and the industry and market in which the business is run.
Importance of SWOT analysis to the Company
According to Young, (2007 p. 32)
Business success requires a continuous analysis of the strength, weaknesses, opportunities, and threats that affect the business. Companies and small business enterprises in the same way apply the concept and model of SWOT analysis in their business pattern analysis.
According to Kotler and Amstrong, (2007), “the marketing concept of building an organization around the satisfaction of consumer needs has helped firms to achieve success in the high growth, moderately competitive market”. The establishment of a small business requires a strategic market strategy that comprehensively addresses the following marketing; selection of target market, differentiation and positioning of the offering in the customers’ mind, marketing objectives, and a marketing mix.
Selection of target market
The market is the most important in the business of selling or buying any product (Lawson 2001). In this regard, its selection should depict thorough research to determine all the factors and market conditions that may affect the product both positively and negatively.
According to Kotler and Amstrong, (2007), “the purpose for segmenting a market is to allow marketing/sales program to focus on the subset of prospects that are like to buy the company’s offering.”
Market share knowledge is very important in planning for the development and growth of the small business. This enhances their effective competition in the market.
Market segmentation needs
- Reduction in expenses incurred by the companies
- Prospects could be businesses that are starting or launching a product.
- Improved cash flow in the company
- The product launch should be done in such a way that it commands a faster market penetration to ensure quick cash flow.
- These markets have been segmented into different age groups, professions; cultural backgrounds. This has been made possible through product differentiation in color and size. For instance, Starbucks Company offers different coffee brands with the taste and background of different countries. This strategy goes a long way in capturing the needs, requirements, demands, and aspirations of different clients and customers across the globe.
Marketing Mix for these two companies
“The marketing mix principles are controllable variables, which have to be carefully managed and must meet the needs of the defined target group” (Kotler and Amstrong, 2007). Marketing decisions for coffee products of the two reference companies fall under the following category of; product, price place, and promotion. These four P’s are the most important indicators that marketing managers use to control the decision made in both internal and external marketing environments (Lawson 2001).
The marketing mixes
According to Kotlar, (2003) the major marketing management decision is classified into the following four categories;
- Product-In this case, the company will put a lot of emphasis on the physical appearance, packaging, service warranty.
- “Place-Place or distribution includes market coverage, market coverage, channel member selection, logistics and level of service” (Lawson 2001).
- “Promotion –The decision promotion decision is those related to communicating and selling to potential consumers” (Lawson 2001). Lawson (2001) illustrates that “Since these costs can be large in the promotion to the product price, a break-even analysis should be performed when making promotion decisions.”
Marketing mix decision for the two companies
In the determination of the price of the new product the company will use the following strategies;
A Skimming Strategy
According to Kotler, and Amstrong, (2007) skimming strategy is a “product pricing strategy by which a firm charges the highest initial price that customers will pay. As the demand of the first customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment” This strategy is applied when the product differentiation is so much that needs a price increase.
Market Penetration Strategy
According to Kotler, and Amstrong, (2007), “Market penetration strategy is applied when a company needs market penetration”. Since there is a need for quick market penetration of coffee brands of these two companies to different parts of the world the quality of service is the basic core competence the companies should enhance.
A Comparable Pricing Strategy
This strategy is applied when the market leader is not from the company and in this case, it has set price expectations in the mind of the customer. In setting the price, the companies have taken into account the pricing strategy of skim and penetration prices. These prices are set in consideration of several factors in the market. These factors include place, targeted customers, and the quality of coffee brands.
The key to succeeding in business is an organized distribution channel (Kotler, and Amstrong, 2007) and (Lawson, 2001). The company has benefitted from an already existing distribution channel worldwide to build on the new product. This is because Motorola already has other mobile phone brands in the market.
Promotion plays a great role in product awareness and market penetration for both the European market and international market (Keller, 1993). Kotler and Amstrong (2007) further highlight that the success of product market penetration is to have effective promotion decisions. It is the desire of any enterprise not only to get profits but also to grow and establish several branches in the other parts of the world. In this regard, strategic marketing and promotion are necessary.
Multi-channel Marketing strategies in small business development
Multi-channel retailing has been defined as the opportunity presented to the same customer to obtain the same product from the same retailer by multiple purchase channels According to Nicholson, Clarke and Blakemore (2002), this multi-channel marketing strategy attempts to foster the customer’s behavior to be multi-channel. Those companies that obtain part of their sales from two different channels can be classified as having adopted the multi-channel approach as contrasted with the ones whose entire sales volume is generated from the pursuit of a single channel (Nicholson, Clarke and Blakemore, 2002)
Many customers use multiple channels during the purchase process such as research, during the purchase process, and while obtaining services (Stone, Hobbs and Khaleeli, 2002). In this regard, it has been advanced that where organizations decide to adopt a multi-channel strategy, then attention needs to focus on whether all the channels will be offering similar services or products ranges and whether they will have all the functional areas. Of paramount importance here is the need to define the role that the various channels are intended to function and the associated interactions, as this helps in the identification and facilitation of both the use and preferences emphasis for the targeted segments.
Several advantages of multi-channel strategies have been presented in the literature. According to Lawson, (2001), channels have different advantages depending on the type of interaction with the various customers. This point has been buttressed by Souza and Serrentino (2002) who have stated that customers look for different channels depending on the kinds of products, the moment of purchase, and the prevailing motivation. The researchers have broadly categorized these behaviors within three domains of retail emotion where the experience of purchasing performs a fundamental role, retail reason in which case price is the overriding factor of the purchase, and finally, retail convenience. According to Stone et.al (2002), “the critical factors for the accomplishment of a multi-channel strategy encompasses the complete integration of the brand, product position, inventory forecast, price, logistics and the expectations of the customers”. As Lawson (2001) points out, the adoption of multi-channel retailing brings positive results such as increases in sales volumes, costs reductions, and increased levels of operations. Integrated channels in the opinions of Stone et.al (2002) also affects positively brand loyalty and customers’ lifetime values.
While several advantages of multi-channel integration have been advanced in the literature, several disadvantages have also been presented. According to Stone et.al (2002), a lot of companies experience heavy investments in unconvincing multi-channel strategies and technologies that result in poor returns on investments. Difficulties in reducing and abolishing organizational boundaries or problems in bringing together and standardizing data about customers or resulting interactions also abides. Indeed, the complexities of multi-channel retailing strategies have been presented as derailing a lot of companies’ performance and development. The major issues that have been noted seem to aggregate towards decisions on what prices to sell at, which products to sell, and on how to deliver the sold products. This will be more complicated in the case where an organization has to rely on professional retailers engaged in the sale and distribution of competing products.
The complexities of decisions in multi-channel retailing are well-discussed issues in literature. These complexities have been categorized into a 3-format structure of decision-making criteria, that is, which price to sell at, which products to sell and how to deliver the sold product. With regard to prices, the major decision to be made is in regards to whether the company should apply different prices to the same products sold in the stores and on other distribution channels (Kotler and Amstrong, 2007).
The decisions on product policy are on the other hand related to the assortment and the type of product (Zeithaml, 2002). As Stone et.al (2002) have warned, clients are at times frustrated with the different assortment of the products offered in the channels. However, it should be borne in mind that companies may opt for these strategies for commercial reasons such as the costs of delivery, and the high risks of return. In other instances, the issue of professionals dealing in similar products may present a bottleneck to these companies. Stone et.al (2002) has advised that companies should start with products of high turnover and first focus on the depth of the main category of products before enlarging them with complementary products, before finally, after attaining the critical mass, introduce differentiated products.
Another option is on product positioning in the market that should ideally be wholly strategic. As Stone et.al (2002) have advised, companies that offer a variety of products may define different strategies for each category depending on the potential segment under consideration. This is especially true when it is considered that some professional retailers may make customers’ access to some products more difficult and indeed expensive than others. The information flow and the logistics in multi-channel strategies is another perspective that is seen to curtail multi-channel branding initiatives.
It has been pointed out that companies need to be aware of the aspects related to the delivery of their products as this does have a lot of influence on their perceptions about the product or service. The utilization of stores for example has been noted by Kotler and Amstrong, (2007), as increasing, given the convenience accorded and the quality characteristics attached a point that has been buttressed by Stone et.al (2002) who intones that physical stores may improve conveniences to the local customers.
The topic of multi-channel strategies is indeed wide and expansive (Keller, 1993). In this study, the analysis will be restricted into how a company should focus attention on the development of its products (Small business) where the sale and distribution of such a product are reliant on professional retailers who may be engaged in the sale and distribution of similar products or products serving the same purposes. As has been noted by Mario (2004), the channel strategy decisions facing the company will encompass the selection of the most effective.
Advice to entrepreneurs before taking the business plan to Bankers
Before taking a business plan to bankers for funding, entrepreneurs should ensure that the business plan document is well written and accurate. The plan should entail the entire bank funding requirement. In this case, the entrepreneurs have to carry out research on the bank funding requirement details. This will help in drafting a business plan which full fill the information needs of the selected financial institution for funding. Towards this, the entrepreneur business plan will be successful.
A business plan is an integral part of the establishment of a small business enterprise. It is prudent to note that most businesses collapse after a while due to a lack of an effective business plan coupled with effective management. In this regard, an entrepreneur should take a lot of emphasis on the development of an effective and realistic business plan which not only attracts funding from banks but also help in the growth and development of the business.
Keller, K.L, 1993, Conceptualizing, Measuring, and Managing Customer-Based Brand Equity. Journal of Marketing, 57, 1-22.
Kotlar, P, 2003, Marketing insights from A to Z: 80 concepts every manager needs to know. New York: John Wiley and Sons.
Kotler, P. and Amstrong, P, 2007, Principles of Marketing. New York: John Wiley and Sons.
Lawson, K 2001, Commercials That Name Competing Brands. Journal of Advertising.34, 2-67.
Mario, O, 2004, The Chain of Effects from Brand Trust and Brand Affect to Brand. New York: John Wiley and Sons.
Nicholson, J. Clarke, G. and Blakemore, Y 2002, Going to market: DistributionPerformance: The Role of Brand Loyalty. Journal of Marketing, 65: 81-89.
Stone, M., Hobbs, M and Khaleeli, M 2002. Multi-channel customer management: the Systems for Industrial Products. Boston: Harvard Business School Press.
Young, P, 2007, Business plan. New York: Global Media.
Zeithaml, K, 2002, Brand Loyalty Programs: Are They Shams? Marketing Science, 24(2): 185-19.