Introduction
The business plan is one of the essential tools that entrepreneurs rely on while crafting their business ideas. It acts as a roadmap that guides the entrepreneurs and ensures that all potential risks are mitigated while realizing the business goals (Sahlman, 1997). The plan contains key elements that play a significant role in supporting the business idea.
Business Plan Elements
People
One of the key elements of the business plan is the people. This section outlines the names of the people involved in the business. It is critical because it enables the financier of the business to know the team’s experience. This section also outlines the people known by the team and those who know them. This is key as it helps to know the team has experience in the industry and their relationship with the industry’s key players.
Opportunity and Competition
Apart from the people, the business plan should include opportunity as a key element. The planner should include market analysis to identify the available market share for the product or the service. By conducting an in-depth market analysis, an entrepreneur may be able to assess the market and identify their target market and also the trends in the market.
The business may also be able to identify its key competitors in this section and the dynamics and consumer preferences (Sahlman, 1997). In this way, the planners will be able to develop a marketing strategy that will target a specific audience and further differentiate their products from competitors.
Financing
The other key section of the business plan is how the business will be financed. This area outlines the financial avenues the entrepreneur intends to explore to finance the business. This may include loans from banks, families, and other sources the business person intends to explore.
Financing Small Business
Friends and Family
After developing a compressive and well-structured business plan, it is therefore critical for the entrepreneur to seek funding for the business. There are various avenues for financing a business idea. The business owner may seek financing from friends and family. This method is viable for entrepreneurs with financially endowed friends and family members. However, it can sometimes compromise relationships and create problems when the business faces difficulties (Park, 2007).
Investors
The other sources of finance for the business can be angel investors. These are individuals or businesses that finance startups. This financial source is highly appropriate for businesses with high growth potential. The angel financiers are also known for the mentorship programs they offer entrepreneurs. However, it can sometimes be challenging to secure this kind of financial source as business owners are often expected to convince investors of their business potential (Park, 2007).
Other Sources
The business owner may also consider venture capitalists, government grants, and bank loans as a source of finance for the new business idea. The viability of financial support to a typical entrepreneur depends on various factors. These factors include the nature of the business, business growth potential, and the financial situation.
Bank Loans and Crowdfunding
Microloans and angle financing can be a good possibility for various entrepreneurs. This is because these sources often take a keen interest in the business and thus offer their full support. In contrast, sources like crowdfunding are also a good source of financing as they allow the business owner to engage with their target audience (Park, 2007).
Venture Capital and Government Grants
Venture capital and government grants can also become more challenging for a serial entrepreneur to secure. This is because financial sources like venture capital demands high returns; thus, they may prefer a more established business. While the movement grants, on the other hand, may have specific eligibility criteria for the business to meet.
Managing Cash Flow
In the business world, cash flow is often referred to as king. This is because it is an important aspect of financial management that ensures viability and sustainability. Cash flow refers to the flow of money in and out of the business. It includes the inflow of revenues and the outflow of expenses (Editors at All Business, 2019).
Taxes are one of the key aspects of cash flow in the business. It is, therefore, critical for business owners to be fully aware of the government policies on taxes for them to save money. This way, they can take all possible opportunities like tax waivers by the government (Inc. Africa, n.d.). This way, the business can maximize profit as tax laws give businesses an advantage over their competitors.
Challenges of Cash Flow Management
Impulse Spending
Managing cash flow is a major challenge for small businesses. One of the challenges faced by small businesses is impulse spending by the small businesses during the startup phase. However, to avoid unnecessary expenses and ensure the business’s cash outflow is managed, the business owner needs to analyze every single expense by considering a cost-benefit analysis (Hecht, 2015). The owner must also create their revenue forecast and a realistic budget and ensure they stick to it. In this way, the business can avoid unnecessary spending that would delay the company’s breakeven point.
Inadequate Tracking and Budgeting
Startups also fail to manage cash flow by not tracking the inflow and not using their cash flow budget (Hecht, 2015). Using the cash flow budget is instrumental to the business to overcome the challenge as it can track the cash inflow and outflow. This will enable the business to plan activities such as paying retailers, as it will know when it will have excess inflow or outflow. Without a cash flow budget and statement, the business will rely on guesswork, which may result in late repayment and payments (Gharani, 2020). This might attract penalties, which might reduce the business revenue.
Conclusion
In summary, a well-structured and detailed business plan is important to ensure the business succeeds. It acts as a guide that helps the entrepreneur sail through the complex business environment. It is critical as it helps the business owner visualize their ideas, secure funding, and align their efforts with defined goals.
Therefore, a well-structured business plan is critical in laying the groundwork for the business to thrive. Through business planning, the entrepreneur may also be able to plan their cash flows. This is critical as it will help them avoid penalties due to late payments and control money outflows.
References
Editors at All Business. (2019). 4 cash flow challenges facing small business owners today. Forbes. Web.
Gharani, L. (2020). Cash flow statement basics explained.YouTube. Web.
Hecht, J. (2015). The 5 worst cash-flow mistakes small-business owners make. Entrepreneur. Web.
Inc. Africa. (n.d.). Tax returns. Web.
Park, A. (2007). The people’s bank: How to borrow from people who love you without making them hate you. Bloomberg. Web.
Sahlman, W. (1997). How to write a great business plan: Which information belongs and which doesn’t may surprise you?Harvard Business Review. Web.