Identify three (3) common problems associated with business plans and share the implications of these shortcomings. Provide support for your response.
Unrealistic financial projections- Business plans grossly overestimate the value of a company. Investors and lenders expect to be shown a realistic picture of the current position of a business and where it hopes to be in the future (Peterson et al.,2010). Also, business plans which are over-optimistic with no explanation of the projections, they will ring warming bells to investors and can lead to rejection.
No focus on your competition- An entrepreneur can be sure of having a ”unique” business idea and maybe no other business exists like the one he or she intends to start but should check and double-check. Business plans should cater to competition with other businesses that are in the same industry (Peterson et al.,2010). Customers needed by one business are also required by other businesses therefore business plans should recognize competition for customers exists. If business plans do not consider competition then they will end up losing customers. On the other hand, if business plans highlight their competition being too much then investors will worry that the business will not survive.
Hiding your weaknesses- Business plans should not hide weaknesses but do not highlight them too much (Peterson et al.,2010). Each business has its weaknesses but also by hiding them or highlighting them too much you will put off investors.
Select two (2) forecasting techniques and compare the strengths and weaknesses of each approach. Next, discuss how each of your chosen forecasting strategies reduces the element of risk and uncertainty associated with change.
Historical method- This method deals with the analysis and interpretation of past events as a basis for understanding current problems and forecasting future trends (Evans, 2002). Data about past sales, production, capital needs and purchases of the industry and particular company are compiled and tabulated. One of the strengths of the historical method is taking into consideration the records. Another strength of the historical method is recording can easily be produced and present is also not ignored. One weakness of the historical method is it not often possible to find trend or cycling movements of past data or to develop correlation or mathematical relationship between them and other variables that have bearing upon them. Another disadvantage of the historical method is not possible for a company of average size to afford costly investigation. The historical method reduces the element of risk and uncertainty associated with change by assisting the management of the company to know the future trend, effects of trade cycle and correlation between various aspects of production.
Deductive method- There is no past information or data required for deciding the future trend. Forecasting believes that old data becomes obsolete after the lapse of a certain time and thus gives more emphasis on the recent data available in the company (Evans, 2002). Moreover, forecaster analyzes the current information and comes up with specific conclusions, about the results shortly. One strength of the deductive method is it takes into account the latest development thus it is more dynamic. Another advantage of the deductive method is it enables management of a company to acquire future information without waiting for the past information. Moreover, delay in forecasting certain events or results is avoided in the deductive method. One weakness of the deductive method is it relies more on individual judgement than on the record. The deductive method reduces the element of risk and uncertainty associated with change by getting future information without waiting for records.
References
Evans, M. K. (2002). Practical business forecasting. John Wiley & Sons.
Peterson, S. D., Jaret, P. E., & Schenck, B. F. (2010). Business plans kit for dummies. John Wiley & Sons.