Entrepreneurship Development: Planning your business (III)
Over the last two weeks in “Planning your business (I) and (II)” we discussed what business planning is, the benefits of business planning, types of business plans, the elements of business plans and the typical content of a business plan from the perspective of the internal elements of a business. Today, we will continue with the content of a business plan from the perspective of the environmental elements of a business.
As we mentioned earlier, the environmental elements of your business plan will include economic and industry conditions, external opportunities and threats. Accordingly, some of the environmental elements of a business that should feature in a business plan will include the following:
Economic situation: The global meltdown of 2008, Nigerian recession of 2016 and the COVID-19 pandemic of 2020 are very real pointers on how economic, health and even political situations could impact negatively on businesses locally and internationally. Your industry and firm will operate within the overall context of the local and international communities. Your operations and success will be significantly impacted upon, and to some extent, at least, determined by these two composite variables and your actions and responses to them.
A thorough economic analysis is to the business what a medical check-up is to the individual. It is aimed at bringing alive the awareness of the entrepreneur to the operating context of a business in its environment. Conditions such as technology, globalisation, labour supply, as well as interest rates, commodity pricing and inflation will impact on your operations. How will you preclude some and respond to others? How will costs of inputs determine your business profitability and sustainability over time?
Industry analysis: An industry description is a comprehensive review and intelligent analysis of the industry within which your firm will operative. What are commercial attractions or disincentives to the industry? What are the barriers to entry and exit? Is it a growing or dying industry? What are the long-term and short-term commitments that a successful firm in the industry has to make? What are your personal opinions and philosophies about trends in the industry and how do they reconcile, or not, with professional projections?
Your company profile and its strategic positioning in the industry, over both space and time, should be discussed here and the specific actions you will take or are already taking to position your business in a good stead in the industry.
Market analysis: At the end of everything, the aspiration of every business is a commercial success in the marketplace. Your market analysis should start with a very clear definition of the market you will be operating in; the full demographics and growth rate of the market; the spending power of your customers; how, specifically, will you attract and retain customers? What will be your pricing structure, distribution channels, etc? What is the lifetime value of your customers? Which companies are market leaders and with what market shares? How will you gain, hold and grow market share? Etc.
All the relevant statistics of the market, as well as the firm-specific actions you will be taking should be brought out here to highlight your understanding of the market operations, its imperatives and your success strategies.
Competition: Customarily, your business will operate alongside competitors. To stand good chances of success, you must have a keen understanding of your competition, its mindset, beliefs, strengths, and weaknesses. What is the cost structure of your competitors? How can you do things better than the competition? Which of your actions will distinguish you and put you ahead in the minds and pockets of the customers?
In this part of your business plan, you are to demonstrate your knowledge and understanding of your competitors and how you can establish an edge and stay ahead of them.
Opportunities and threats: There can be internal opportunities as well as threats to a business arising, for instance, due to ownership of intellectual property rights and staff incompetence. Similarly, there can be external threats and opportunities to a business. What are the current external opportunities your business is already enjoying? How can you position your business to seize emerging external opportunities? What are also the likely threats, arising from, say, new entrants and competitors, regulators or plain old environmental risks? The traditional SWOT analysis is important in bringing out, at least, limited realities of the operating environment. At the end, understanding opportunities, risks and threats is about the preparedness of the entrepreneur and the optimum positioning of a business to those realities.
Regulations: In any law-abiding society, regulations by government agencies and even voluntary associations are a reality that affects what business may or may not be able to do. Certain industries and businesses are, by nature and quite understandably, more prone to government regulations. In whatever industry you may operate, you have to understand what regulations may apply to you and your business, as well as their likely positive or negative impacts to your operations.
Your business plan should bring out applicable regulations and the likely impact they may have on your operations, as well as your compliance levels and how you may legitimately seize them to your commercial advantages.
We have presented above some of the typical contents of a business plan from the perspectives of the environmental elements of a business. Next week, in the fourth and final part of “Planning your business”, we will discuss the presentation of the content of a business plan.