Importance of a Good Business Plan to an Organization
For a business to succeed in its operations, there are underlying factors that play a major role in its success. Among the factors is a good business plan that determines the objective of a company, demand and supply factors as well as good business ethics all these work closely to define a good business environment both in the short run and in the long run.
A business plan is a vital requirement for many organizations. A company without a business plan is equivalent to a ship without radar. A business plan gives the objectives of an organization. Demand and supply are the forces that determine the equilibrium in a market. Through them a firm can know how much to produce and at what price to supply in the market. Demand and supply are the basis of a firm’s growth in the long run among other factors. In addition to demand and supply, there is the business ethics. Good business ethics adds value to the reputation of the firm which will translate to increased demand for the firm’s products. Contrary, poor business ethics will derail the firm’s reputation hence lower the firm’s output in the long run (bnet website, 2010).
This is a document that offers the blue print of an organization. It states out a variety of goals that the company wants to meet. A business plan usually addresses issues like the source of capital for the firm, marketing, employee recruitment and the outline of the budget of a firm. A business plan should inform as well as specify goals and the vision of the organization. It should address things that reflect the vision and mission of the organization. This can include things like the management of the firm, action plan, the mission statement and intended business strategy. A realistic business plan is very important in meeting the expected financial projections of a firm (bnet website, 2010).
Depending on how it is used, a business plan is of great value regardless of the type or size of business. A business plan can be used for various purposes including the following:
Ø Planning: drawing information from a business plan, a company management can draw a short run or the long run plan for the company. Planning is a good source of information for lenders, business partners and suppliers. A goo plan should be written both for internal and external use (bnet website, 2010).
Ø Securing capital: many business financiers usually rely on the information provided in the business plan to gauge how much to invest in a business. Therefore a good business plan should specify how much capital is required. Remember, capital is needed for starting, merging or even running a business (bnet website, 2010).
Ø Marketing: a business plan highlights the practices that make up the culture of the organization. These can then be used to design the strategies that can be used to market the firm’s products (bnet website, 2010).
Ø Recruiting: information about the recruitment practice of a firm should be provided in the business plan.
Ø Planning and budgeting: a business plan is the primary tool that is used in business budgeting. A business plan should incorporate a budget component that projects the expected revenue and the cost to be incurred (bnet website, 2010).
According to the bnet website (2010), it is easier for a business to merge or venture into a new market with a business plan than without. The information in the plan should be precise, concise and accurate. It is advised that a good business plan should not be more than 50 pages. A business plan is like a compass direction because through it you can project the direction of the business (bnet website, 2010).
Supply and Demand
Equilibrium in a market is modeled using the concepts of supply and demand. According to iscid website (2010), demand is the quantity of goods that a customer is willing and able to purchase at any given moment, while supply is the quantity of goods that a supplier is willing and able to supply at any given time when all other conditions are held constant. Therefore, demand and supply are factors of price and quantities of good either demanded or supplied. A demand curve is a line representing the amount that consumers are able and willing to pay for a given quantity of a good. On the other hand a supply curve represents the amount that the producers are willing to receive in exchange for their goods.
Impact of Demand to a Firm in the Short Run
The production of the firm is based on the forces of demand and supply which in turn are based on the prices. Due to demand shocks (e.g. the oil demand shock of the 1970s), prices of commodities fluctuate a lot in the short run. Increased demand can lead to the rise in the prices of goods. This will lead to higher profits that a company realizes. In the short run, the company can’t increase its operational capacity due to fixed factor of production like land and some heavy machinery. Therefore, in the short run, the firm will just have to realize excess profits and plan for long term increase in its capacity so that it can raise its operational capacity to meet the rise in demand.
On the other hand, low demand in the short run will mean that the company is operating with excess capacity. It will be supplying more in than the consumers demand. This will translate into losses for the firm. However, the firm can only reduce its capacity after a serious study and understanding of the market which can only happen in the long run. Therefore, in the short run a company can do little to either increase its productive capacity or reduce it.
Impact of Demand to the Firm in the Long Run
The long run is a time that is long enough to allow all factors of production to be variable. Demand, which is a function of prices, rarely fluctuates in the long run. This is as a result of stability in prices in the long run. Prices rarely change and if they change, the firm always has a room for expansion. The firm can always increase its operational to meet the increasing demand through expansion, increased labor intake and purchase of heavy machinery.
Impact of Supply in the Firm in the Short Run
As said earlier, in the short run not all factors of production are variable. A persistent shortfall in the supply of raw materials to the firm will impact negatively on the firm as the firm will be incurring more costs but less output hence a cut in the revenue realized. The organizational management might decide to cut on the cost by cutting back on the labor employed. Since the future may be uncertain, the management may decide to wait a little longer while the firm makes losses.
Contrary, an increase in the supply of raw materials will translate in a rise in the out put. For rise in output to be sustained, there has to be sustained increase in supply of raw materials as well as a sustainable rise in the demand of the company’s products. The increase in the company’s output based in the increased supply of input will be limited in the short run to the excess capacity available. With no excess capacity, the firm will not increase its output in the short run due to fixed factors of production.
Impact of Increased Supply on Firm in the Long Run
Due to variability of factors of production in the long run, the firm will be in a position to increase its output in line with a rise in supply which also has to match increase in demand.
Business Ethics and its Importance to Business Success
Business ethics are basic standards that business people are expected to conduct themselves with. Business leaders are expected to run the business ethically for it to make profit. According to asq website (2010), a company is awarded a high degree of quality, productivity, loyalty and honesty, when it cares to meet all its customers’ requirements. There are various ethical categories in the business field:
Abusive and intimidating behavior: this is part of the ethics found in business. A business with highly abusive staff will be jeopardizing the future of the business. This is because would be customers are abused by the employees of the business and ruining the reputation of the organization. The customers will shun away from the products of the organization asq website (2010).
Conflicts of interest: this usually occurs when one is not independent in thought or action due to multiple relationships with other individuals or companies. To capture properly the day to day activities of an organization, the employees should be independent-minded and objective. Conflict of interest can lead to poor decision making in an organization. It can also increase the risks and additional expenses in an organization (Carolina newswire website, 2010). It is worth and time saving keeping your firm health and effective by eliminating bias through expert advisors and reviewing the business relationship periodically.
Fairness and honesty: Firm-specific fairness norms promote the firm’s efficiency best when supported by firm’s reputation. Therefore the reputation of the firm matters as far as its efficiency in production is concerned. A poor reputation without fairness and honesty will cost the firm dearly (Carolina newswire website, 2010).
Business associations: Diversity involves organizations increasing the scale of their business interaction (productive capacity) in every aspect. It is possible for firms to lower their transactional costs by increasing the volume of information they exchange with other firms or by increasing the number of trading partners. Turnover in inventory can be increased when firms place multiple small quantity orders Britanica website (2010).
For any business to succeed it must understand the market in terms of demand and supply trends, well otherwise it is bound to make losses and even walk out of the competition. With a good business plan that defines the objectives of the firm, the management can steer such a company to success. On top of the demand and supply factors and a good business plan, good business ethics are vital in developing a good reputation of the business. This will positively influence the demand of the products of the firm.
Above all, the importance of ethics is not only limited to business, but also extends to other life aspects. Civilized societies are found on ethical grounds. Societies or organizations without ethics are bound to fail.
asq website (2010). “Importance of ethics in business.” Retrieved on February 15, from: http://www.asqsandiego.org/articles/ethics1.htm
Bnet website, 2010). “Business plan.” Retrieved on February 15, 2010 from: http://jobfunctions.bnet.com/abstract.aspx?docid=68345&tag=content;col1
Britanica website, (2010). “Diversity in Business-to-Business Information Exchange.” http://www.britannica.com/bps/additionalcontent/18/34435960/Diversity-in-BusinesstoBusiness-Information-Exchange-An-Empirical-Analysis-of-Manufacturers-and-their-Trading-Partners
Carolina newswire website, (2010). “Defining conflict of interest and how they impact on your business.” Retrieved on February 15, from: http://carolinanewswire.com/news/News.cgi?database=columns.db&command=viewone&id=123&op=t
Find articles website, (2010). “Writing a group practice business plan.” Retrieved on February 13, from: http://findarticles.com/p/articles/mi_m3257/is_7_53/ai_55208151/