If you want your business to thrive, you’ll need to commit to planning and forecasting right from the start. If you are starting or have recently started your own business, you will undoubtedly have heard of making a business plan. Many business owners fail to make a proper business plan that details everything that they need to consider to help their business thrive and survive in today’s market.
However, what is business planning, and why is it so important? And, what is forecasting, and how does that affect your business planning? In this article we’re looking at why all these aspects are crucial for your business growth.
What is business planning?
Business planning is the process of reviewing the state of a business and creating a plan on how to improve the business in the future. Making a business plan is a crucial aspect for any business owner and the stakeholders involved. A well researched and detailed business plan will help you, your partners or investors better determine the business’s profitability.
There are multiple things that you will have to encompass in the business plan, including:
What your business does
The first thing that you will have to determine is what exactly your business does or will be. What will you be selling? Why are you selling it? What is the point of the business? What image do you want for your brand? Suppose, during this first step, you have difficulty answering some of the questions. In that case, it may be an indicative sign as to your current business idea’s potential, and it may require some fine-tuning or a different idea.
Where your business is going
Where do you want your business to go? How big do you expect it to grow? Having an idea of your business’ future will give a better impression to your investors, as they will be able to see that the business does potentially have a future. It will also help you build a clear goal in mind, which can serve as a guide to move your business forward during the first few years.
Where your business is located
The location of your business is extremely important as well. Do you need a factory? A warehouse? Do you plan on working from home? Do you need a shop? You do not have to have the exact location in your mind when you are creating a business plan, but knowing what kind of space you will need and a rough idea of the location will help you to better determine how much money you will need, what the rent could be, and how much it will cost in taxes.
What taxes you’ll pay
All businesses have tax obligations, no matter how small or big they are. The amount of taxes you owe will depend on the type of business you run (sole trader, a partnership, a limited company, etc.), your profits, whether or not you have employees and the location where your business works.
As there will be multiple taxes to pay, or at least for which you will need to provide a tax statement, it is essential to know how much approximately it could take out of your profits. It will also help to prepare you to keep a better business accounting system and will be vital information for your investors.
How you will finance your business
Finally, it is essential to determine from whom you plan to get the money you need to start your business. Some choose to use (if applicable) their savings in order to fund the start of their business and themselves through their first year or more. Others are also eligible for government grants, depending on the businesses that they run.
However, for many others, starting a business requires finding business partners, borrowing money from loved ones, investors, a credit card, or indeed a bank loan.
It is essential to determine to the best of your capabilities in your business plan how much you could need to borrow in money and where you could get it from.
Creating a detailed business plan will help you to prepare for what you need and to see how profitable your business could potentially be. You will also come to realise that in order to obtain a loan from a bank or indeed other entities, you will be required to show a detailed business plan in order for them to make their decision about financing your business.
In order to make the best kind of business plan, you will also need to do some forecasting.
What is the difference between planning and forecasting?
So, now that you know what a business plan is, it is essential to know what business forecasting is and how it will affect your blueprint.
Ultimately, when you are writing the numbers down for your business about the profitability ratio, the pricing, and the growth potential, you are guessing. You will also most likely be doing it on a hunch or based on information that you might have lightly researched or seen.
Forecasting requires detailed research on the market in which you plan to start selling.
Experienced businesses can make sales forecasts based on their previous years in sales. They may also use similar businesses’ information to make better decisions about theirs.
However, a new business will have to rely on the information that is available about the other businesses on the market. In order to make a preliminary forecast, a new business will have to look into the audiences which they are targeting, their highest and lowest periods of consumption, the prices that they are willing to pay for the products or services that the business will be selling, etc.
With that information, the business will be able to make more informed decisions based on future sales, the popularity of future products, and the profits of the next month, months, or year.
It is important to remember that forecasting is not an exact science. Many things influence the success of a business and its sales, as much from the inside of the company as from the outside.
For example, you could have a perfectly good product at a competitive price, being sold at the right time and targeted at the right audience, but the world could be suddenly plunged into a global pandemic! Needless to say, nobody in business, no matter how skilled and experienced they may be, could predict that.
The forecast will only help you to make better choices for your business but will not necessarily ensure your success.
However, it is an essential aspect of running a business and should not be overlooked. It will help a business owner with their current business plan. With a decent sales forecast, you will have better information that could help you to decide whether or not it is the right time to sell a certain product or service, whether you should hire employees, whether you will need to use some savings in the next coming months, to pay off taxes, loans, rent, etc.
Do I need to hire a professional for my business planning and forecasting?
First of all, it is essential to know that you are fully capable of handling your business planning and forecasting by yourself as a business owner. If you work in a team, then it should be even easier to create detailed and promising plans and forecasts.
However, it can indeed take some time to learn how to do both properly. It will take some research, some calculating, and some hard decision-making. However, it is all a part of becoming a business owner, and both tasks are crucial to the success of a business.
If, for whatever reason, you are unsure about your current findings, are uncertain about your understanding of certain aspects, or simply do not have the time to look through all of it by yourself or with a team, then, of course, you should hire a professional.
A professional will be able to help you to better understand your financial requirements, the current state of the market, and the potential gain for your business. You will have to make an investment into your business by hiring a professional, but it could indeed be an investment worth making.