Is Business Planning relevant for SMEs?

A 2015 report by Barclays Bank revealed that about 25% of UK SMEs admitted to not having any business plan or any strategy in place to support their business growth. On the other hand, less than half of the UK’s small businesses had a formal business plan in place that was written down or recorded, while the remaining 25% had an informal, verbal plan. Furthermore, only one in two UK small businesses had a succession plan in place.

These statistics are shocking, to say the least. As individuals, we are taught to plan ahead in most life situations – choosing a career, planning a holiday or event (think of a wedding and all the trouble a couple goes through), ensuring we maximise our study time before an important exam, or making sure our finances enable us to afford a new car or home mortgage. We plan our day and week, listing down things to do and priority tasks, and time needed. So one would expect individuals to transfer these skills to their workplace – but it seems this is not always the case.

Developing a business plan is a vital tool for any business, of any size. Large corporates plan to reorganize or streamline their enterprise, plan for growth, to be able to tap new opportunities (from internal expansion to foreign markets), raising finance for new projects, or identifying exit strategies such as IPOs.

And SMEs? Actually, one could argue that such a plan is of greater value in smaller businesses, because they are exposed to higher risks, which could significantly impact on the owner of the entity. SMEs often face limited resources, with few individuals covering more than one function or role. Hence, there is a need to prioritise on time, in order to sustain the business, but also the individual. In other words, time management is key, if the owner of an SME wants to achieve an acceptable work-life balance.

SMEs might fall in the trap of preparing a business plan just because it was requested externally (e.g. for government or EU grants; bank financing), but the actual truth is that benefits are primarily internal. The plan formalises the strategy of the owner to try to tap market opportunities with resources at hand, but also with resources that need to be acquired, a business plan is in this respect helpful because it helps to identify such gaps. Besides there is no such thing as an “internal” plan and an “external” plan to present to third parties – if there was such a thing, eventually only the external plan would end up being executed.

A business plan helps entities to stay on the right track during its growth and it assists the entity when approaching investors for funding. A business plan is what keeps companies focused on their goals and what moves them through hurdles. Hence it is fundamental for a small business. It defines what the company wants to achieve, how it plans to achieve it across a set time period and is a tool that monitors growth targets and execution of plans. Plans can make small businesses feel more confident about their future and ensure they have the necessary tools in place for growth.

Business plans can be developed internally, but there is always the option to ask for professional external expertise. In this regard the Government, through the Malta Enterprise or other funds administered by the local EU Managing Authority, offers grant incentives related to business plans/ feasibility studies. Independently of who prepares the business plan, it ultimately needs to be “owned” by the SME Management/ owners – as it outlines the entity’s strategy, so one would expect the owners to address any questions on the strategy, not an external consultant. This is especially the case, since business plans should be viewed as a dynamic document, hence they should be revisited and adjusted as the business develops.

The typical steps one undertakes when preparing an SME business plan include:

  1. Identifying the audience/ readers of the plan, which will include the owner/ management and possibly external parties (e.g. applications for finance from a business loan to alternative forms of finance and investment).
  2. Identifying the circumstances and the purpose for the development of the plan, which could include growth into new areas, or new markets.
  3. Tackling the key components of a business plan, which could include (but are not necessarily limited to):
    • The company or founders’ history
    • The vision and objectives
    • Explanation of the range of product/ services being offering/ the idea/ project
    • Identification of the target market and customer segments
    • Provision of the economic context and an overview of the competitive environment (e.g. competitor or competing products)
    • Outlining the company strategy and growth options
    • Drawing up marketing action points
    • Delineating the financial projections and related financial plan/ funding sources
    • Assessing the risks and issues related to the business/ idea/ project

Some of the components above will require additional research in order to be able to collect the necessary information to be able to populate the plan. It is also highly recommended to include a brief (2-3 page) executive summary highlighting the salient points of the business plan.

Many local businesses unfortunately do not spend the time to formalise their business plan. Given the evolving nature of business and the economy in which we operate, the absence of a business plan can itself represent a risk. Regardless of size or age, any venture should have a clearly delineated plan which helps guide the company’s strategic focus, sets out its mission and vision as well as providing the analytical context by which future performance and changes can be benchmarked and managed. While you can still be successful without a business plan, you are more likely to be successful if a plan is in place – in fact, business planning is the backbone of most successful business.

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