AN ASSESSMENT OF BUSINESS PLAN ON SMALL BUSINESS SURVIVAL POTENTIAL
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Chapter One
Introduction
- Background of the Study
The contributions of Small and Medium Scale Enterprises(SMEs) both in Nigeria and abroad can not be overemphasized. SMEs according to peacock(2004) have created jobs in Organization for Economic Corporation and Develop(OECD) countries since 1970s in which Nigeria is a member.SMEs’ collective contributions to respective Gross Domestic Product(GDP) in Australia and New Zealand, UK and USA, Canada and Japan as well as Luxembourg are huge irrespective of their sizes. According to Aganga(2012) 99% of small business in Nigeria are micro-businesses and they are the major contributors to GDP and employment creation while the remaining 1% are SMEs. Aganga(2012) further posits that in a survey conducted by Federal Bureau of Statistics it was found that there are 17.28million SMEs in Nigeria and Lagos state has the highest number ie 17% of the national figure. SMEs essentially are the largest employers of labour and they employ about 70% of the workforce of any nation. This is why globally the emphasis is on SMEs because they are the drivers of the economies around the globe. Wichira and Musyoki(2015) opine that in Kenya for example SMEs are major source of employment and income generation. According to the economic survey(2006) the sector contributed over 70% of new jobs created in 2005.
Abbrey et al (2015) assert that the major objective of any meaningful business is to make profit and strive towards obtaining a fair share of the market and ultimately ensure dominance in its area of operation, being it product development, trading or service delivery. The economic strength of the nation lies on how well its businesses (private or public) fare in the face of whatever challenges that may prevail domestically or globally. Technological and scientific advancement has brought with it a paradigm shift from the classical concept of total isolation in business to an approach that involves national consideration in major business decisions.
According to (Castrogiovanni 1996), it is conventional wisdom that new businesses be planned prior to their start-up hence prospective business founders are generally advised to develop formal plans of their proposed ventures. For instance, a study by (Van Auken and Sexton 1985) found that 20% of non-planners failed within three years. This correlates with the dictum that “failing to plan is planning to fail”. Thus, businesses that want to maintain a firm grip on its market share require strategic and comprehensive planning.
Large firms develop fundamentally from small and medium scale enterprises (SMEs). The dynamic role of small scale enterprises in developing countries as engines through which the growth objectives of developing countries can be achieved has long been recognized (Kayanula Dalitso and Quartey 2000).
A business plan is a document that contains specific information about a business, and its future is essentially becoming an imperative document in the development of SMEs.
In the struggle for market share and finance for expansion, communication is inevitable. A business plan will communicate to potential investors where the business is going and the plan to get there. It aids in tracking, monitoring, and evaluating business progress over the short and long term. It also assists in strategic and successful planning for the future. In fact the business plan is a great tool with which to chart and gauge business growth. However, the business plan will continually change and evolve over time.
The business plan as a layout of intention and strategy is no different from any other plan. The main distinction between the business plan and other plan is the business focus. The business plan therefore becomes a formal statement of intent of economic activity (Kuratko 2013).
In general, a business plan is a document that outlines the basic idea underlying a business and describes related start-up considerations (Rhonda and Abrams 2003). This definition implies that a business plan is a planning documents hence a business planning document.
(McPherson 1996), in his definition confirms business plan a document which shows how the business is going to be managed detailing financial commitments and returns with a timeline. Levinson (1989), also describes business plan whilst focusing on how it should lead to action as “a document that convincingly demonstrates that the business can sell enough of its products or services to make satisfactory profit and to be attractive to potential investors.
Ven, Hudson, and Schroeder( 1984), posit that business plans define the directions set by management for each business area including catalysts such as the mission statement and relevant policies, key performance indicators, goals, objectives, strategies and tactics. A business plan is also defined by Nordström (1999) as a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals.
While most writers agree that a business plan is a document, a few contend that though a business plan may be communicated or presented through a document, in its basic form, it is not a document but about management decisions.
A business planning document such as a business plan practically tells what the business operators or entrepreneurs think about the future and how they have prepared to deal with it rather than a mere rollover of previous year’s plan (Honig and Karlsson 2004). Thus, the business plan is the entrepreneur’s game plan which helps to crystallize the dreams and hopes that motivate him/her to take the start-up plunge (Mason and Stark 2004).
Chang, Chen, and Wang (1997), business plans indicate the business information that is needed to measure achievement of goals and objectives within defined policy boundaries. These plans also indicate the business processes that implement the strategies and tactics to implement those plans.
Strategic plans, investment plans, expansion plans, operational plans, annual plans, internal plans, growth plans, product plans, feasibility plans, and many other names are used synonymously for business plans (Berry 2013).
Der Foo et al( 2005) opines that a good business plan lays out the basic idea for the venture and includes descriptions of where the business is now, where the business wants to go, and how it intends to.
It therefore follows that business plan has been viewed as very critical for business success and survival of small businesses as well as large ones. This is what we intend to establish from the data that were obtained from Jutec Chemicals and Allied Products where this study was be conducted.
1.1Statement of the Problem
Abbrey(2015) posit that most of the scholarly writings available come to an agreement that a business plan is necessary for the entrepreneur in organizing his business. There is a contention however on whether the business plan is a prerequisite to successful business.
Many researchers (Baron and Markman 2003; Bhide 2000; Carter, Gartner, and Reynolds, 1996) have also criticized business planning as a distraction, arguing that it interferes with the efforts of time-constrained firm founders to undertake more valuable actions to develop their fledgling enterprises ( Delmar and Shane, 2003). Osiyevskyy et al.( 2013) also assert that the impact of business planning on performance (survival, growth, profit) of Small and Medium Enterprises (SMEs) has been debated in strategic management and entrepreneurship.
According to (Rhonda and Abrams 2003), the central motivation for designing a business plan is to have a successful business. However, Moore et al. (2006) contend that business plan in itself is not a prerequisite to success and that major companies like Apple, Calvin Klein started without a business plan. Other arguments post that it is possible to write up an elaborate business plan without following through during business execution (Fullen and Podmoroff 2006). The business plan therefore becomes meaningful and useful if it is applied or implemented.
According to (Mancuso 2006), a business plan has both external and internal functions. Internal functions being the shaping of performance by identifying the strengths and weaknesses of the SME.
Nevertheless, (Delmar and Shane 2006) proposed that business planning would enhance founders’ product development and venture organizing activities and would reduce the hazard of venture disbanding. They examined 223 new ventures initiated in Sweden in the first 9 months of 1998 by a random sample of Swedish firm founders over their first 30 months and found support for their arguments.
Wichira and Musyoki(2015) opine that studies have proved that having a business plan enhances growth in small business enterprises. It is important to note that almost every entrepreneur recognizes the need for a quality planning but it remains one of the most neglected aspects of management. Most entrepreneurs however believe that they can do without a business plan.McCarthy (2003) asserts that business planning no doubt occurs in small business enterprise. It is of note that planning activities of SMEs often involve the use of intuition, rule of thumb or less sophisticated and less formalized approaches in comparison to large enterprises(Stonehouse and Pemberton(2002).Lack of proper planning together with other external factors such as government policies, unsupportive legislations, inaccessibility to markets and lack financing have made SMEs to persistently remain small as they rarely graduate to medium or large businesses and in most cases characterized by low capital investment. Barringer(2008) posits that a large percentage of entrepreneurs do not write business plans for their ventures. Many entrepreneurs are of the opinion that day to day pressures of getting a company up and running leave them little time for planning. Lack of management and technical skills have been identified as amongst the factors that affect business planning in SMEs. Stakeholders whose interests should be protected and individual entrepreneur’s attitude are also implicated as also affecting business planning. This study will amongst other issues therefore examine the factors that can impact on business plan development by Small business enterprises in Nigeria.
- Objectives of the Study.
The main objective of this study is to assess the extent to which business plan facilitates survival of small business.
The specific objectives are:
1.To check the extent to which business plan gives small business strategic direction.
2.To evaluate the effect of business plan on performance of small business.
- To ascertain the extent to which lack of business plan document leads to failure of small business.
1.4 Research Questions
The research would try to find answers to the following research questions:
- Does business plan facilitate survival of small business?
- Does business plan give strategic direction to business?
- Does business plan affect performance of small business?
- Will lack of business plan document lead to failure of small business?
- Hypotheses of the Study
The following hypotheses would be tested in this study:
.H0: Business plan will not facilitate survival of small business.
H1: Business plan will facilitate survival of small business.
2.H0: Business plan does not give strategic direction to small business.
H1: Business plan gives strategic direction to small business.
3.H0: There is no significant effect of business plan on small business
H1: : There is significant effect of business plan on small business.
- H0: Lack of business plan document will not lead to failure of small business.
H1: Lack of business plan document will lead to failure of small business.
1.6 Significance of the Study
Any study that has to do with Small and Medium Scale Enterprises(SMEs) is always welcome by both the operators, government, customers, suppliers and other stakeholders. SMEs are drivers of the economy of any nation. In Nigeria ,SMEs are not being encouraged to grow because of lack critical infrastructure lack electricity, road, water as well as funding. Most banks do not lend to SMEs because they view them as high risk. It is important to note that the issue of business plan which is the main focus of this study is neglected by most of the operators of SMEs. This work will highlight some of the benefits of business plan document as presented by different scholars reviewed and the need for new star-ups to see the need to write business plans before takeoff. The work will contribute to knowledge in general because of quality of the literature review which anybody wanting to go into new venture can have access to and the findings that would be established. It will also serve as a reference material for students that intend to do research in this area.
- Scope of the Study
This study dwells on An Assessment of Business Plan on Small Business Survival Potential. Jutec Chemical and Allied Products was studied. Relevant literature on the business plan as it affects the operations of Small and Medium Scale Enterprises(SMEs), SMEs’ contributions to economy, factors that can cause failure of SMEs, conceptual clarification of SMEs amongst others would be reviewed to enable us carry out this study. We would also highlight the conceptual framework, theoretical framework and empirical review so as give the work more impetus.
1.8 Limitation of the Study
Some negative attitudes were experienced from some respondents who collected the questionnaires and eventually did not complete them. This might be attributable to the fact that there was no financial attachment and /or lack of interest. Time allocated to completing and defending this seminar paper seems to be short . High cost of materials in this period of recession also created some constraints.
1.9Definition of Terms
The following terms are accordingly defined here:
A Business Plan: is a written presentationthat carefully explains the business, its management team, its products/ services and its goalstogether with strategies for reaching goals.
Business Planning:refers to those efforts by firm founders to gather information about a business opportunity and to specify how that information will be used to create a new organization to exploit the opportunity.
Small and Medium Scale Enterprise(SME):is an enterprisewhose capital investment does not exceed five million naira including land and workingcapitalor whoseturnoverisnotmorethan twenty-fivemillionnairaannually.
1.10 Profile of Jutec Chemical and Allied Products
Jutec Chemical and Allied Products Ltd was incorporated in Nigeria in 1998.It is located beside Metropolitan College in Ire-Akari Estate ,Isolo, Lagos.
Ownership
It is solely an indigenous company. The Managing Director/CEO and Factory Manager have vast knowledge in paint manufacturing and allied products. The Managing Director/Owner Manager of the company is late but the wife is also knowledgeable in the business and she has taken over fully. Something in 2009 the MD/CEO had consulted ResourceHouse Ltd for a business plan for their expansion programme. He believed that business plan can help them know how to go about their expansion programme. The plan was completed and handed over to the MD/CEO for implementation.
Business Activities
The company’s core line of business is production of paint and allied products. The company has chosen this line of business because it can be operated at micro, small, medium and large scale. It does not require very large initial capital outlay and high-tech .Once you know the necessary chemical components to mix, it will go a long way in facilitating production of the end product-paint.
PRODUCT
The company produces different types of paint which include Jutec Gloss, jutec Gloss, Julux Gloss, Jutec Emulsion and Julux coat
Corporate Vision
Jutec’s vision statement states that:’’ To be a world-class leader in paint manufacturing“
Mission Statement
The company’s mission statement states that:’’ To be the leading paint manufacturing company that is marketing high quality products to satisfy customers in an environmentally friendly
manner’’
Corporate Philosophy
The company’s corporate philosophyis;
Respect for customers and other stakeholders; Passion for quality; Integrity and honesty.
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