Business Planning According to Ehmke & Akridge (2005) a business plan covers what you intend to do with your

business and how it will be done. The process of writing down what is involved in bringing your idea to reality requires dealing with the why, what, who, how, where, when, and how much of your venture. Writing a business plan forces you to take a deep look at your idea and how you will turn it into a business. Doing so helps you recognize areas that need rethinking or support. The success or failure of SMEs is largely dependent on the level of planning, hence the performance of these business entities are affected by planning. Planning is the starting point of the management process and whether strategic, tactical or operational, it does not always take place in well-defined steps. It is a vital management process that involves goal setting, determination of vision and mission, setting short, medium, and long-term objectives and the implementation of plans through the remaining management processes. However, the ability to plan is dependent on the mental capacity of the planner, which in the case of SMEs is usually the owner or manager. Therefore, just as in large businesses, SME owners or managers need to have experience, intelligence, vision, and good judgment. These are some of the most important mental tools to be able to plan properly (Dzansi, 2004). The majority of the owners or managers of small and medium enterprises do perform the planning function in their businesses, but the amount of planning they do is limited. Their planning tends to be short term driven and focused on specific, immediate issues. An example of this is how much inventory to purchase or whether to lease or purchase a new piece of equipment. Circumstances affect the degree to which formal planning is needed, but most businesses could function more profitably by increasing the amount of planning done by managers and making it more systematic. The payoff from planning comes in

several ways. Firstly, the process of thinking through the issues confronting a business and developing a plan to deal with those issues can improve productivity. Secondly, planning provides a focus for a business, managerial decisions over the course of the year can be guided by the annual plan and employees can work consistently toward the same goal. Thirdly, evidence of planning increases credibility with bankers and suppliers (Longenecker et al., 366-67). Planning is widely regarded as the key component of the management process in any business without which the other management tasks cannot function effectively. Despite this awareness, the planning function is lacking in most SMEs. Limited planning takes place in SMEs and the extent of planning is usually related to the performance of the business. The smaller the size of the SME, the lesser the amount of planning that occurs. Most SMEs use planning for specific purposes, for example they might use business plans to legitimise requests for financing. SME planning usually involves short time horizons and are informal, irregular, and incomprehensive. However, where formality was found to exist, it may have been related to survival (Dzansi, 2004:146). The lack of planning in SMEs is mainly as a result of resource constraints. Since SMEs lack financial and other resources all the management tasks of planning, organising, leading, and controlling have to be done by one person, namely the owner or manager. This puts enormous pressure on the owners or managers of SMEs to the extent that they are caught up in the day-to-day operational activities of their businesses and have little time to do formal planning (Schollhammer & Kuriloff, 1979).

Peel & Bridge (1998) reports that there is a positive relationship between the success of SMEs and the degree of long-term planning which they undertake. Glaister & Falshaw (1999) echoes the importance of strategic planning in an organisation as it results in improved performance. This is also supported by a study carried out by Stonehouse & Pemberton (2002) who states that it could also be argued, however, that a greater use of strategic planning tools for the analysis of the business environment, as well as for internal analysis, would facilitate improved organisational learning, enhance strategic thinking and help to reduce failure rates among SMEs. It can therefore be concluded that planning is important for the survival, growth and development of a business since it gives direction to its operations. Another great reason for having a business plan is that it can help you if you are trying to get outside funds for your business. Most lenders and investors want to see that you have a clear business plan before they take a risk on your business. Having a plan already drawn up shows them that you are serious about being successful at your business. If you are going to show your business plan to potential lenders and investors, make sure that the figures you use are accurate so your plan is credible Adams (2006). In spite of their many contributions, SMEs are plagued by high failure rates and poor performance levels (Jocumsen 2004, p.659). To ensure sustained development of the sector, it is vital to understand why some SMEs are more successful than others. Comprehensive reviews of extant studies into SMEs (e.g., Lurie 1987; Schwenk & Shrader 1993; Miller & Cardinal 1994; Hormozi, Sutton, McMinn & Lucio 2002) suggest that, ceteris paribus, a key determinant of business success lies in the absence or presence of strategic planning. Strategic planning is concerned with the setting of long-term organisational goals, the development and implementation of plans to achieve these goals, and the allocation or

diversion of resources necessary for realising these goals (Stonehouse & Pemberton 2002; O'Regan & Ghobadian 2004). In a practical sense, strategic planning is about competitive advantage. This is encapsulated by Ohmae (1983 in O'Regan & Ghobadian, 2002, p.664) who stated that the purpose of strategic planning is to enable a business to gain as efficiently as possible, a sustainable edge over its competitors. With respect to performance, strategic planning is generally more common in better performing SMEs. For example, SMEs that engage in strategic planning (compared to those that do not) are more likely to be those that achieve higher sales growth, higher returns on assets, higher margins on profit and higher employee growth (Bracker, Keats & Pearson 1988; Berman et al. 1997; Carland & Carland 2003; Gibson & Casser 2005). Moreover, SMEs that engage in strategic planning are also more likely to be those enterprises that are more innovative, that have more newly patented products, that employ new process and management technologies, and that achieve international growth (Upton, Teal & Felan 2001; Beaver & Prince 2002; Stewart 2002; Gibbons & O'Connor 2005). Perhaps most importantly, SMEs that engage in strategic planning are less likely to be those that fail (i.e., involuntarily wound up) (Gaskill, van Auken & Manning 1993; Perry 2001). While it is certainly true that SME performance success is driven by more than strategic planning alone, findings generally support the contention that there are, on balance, greater advantages to planning than not planning. However, given all the evidence, it is wellrecognised that strategic planning is rare or non-existent in the majority of SMEs. In practice, SMEs tend to orientate towards short-term operational rather than long-term strategic issues, and decisionmaking tends to be reactive rather than proactive (Jones 1982; Gaskill, van Auken & Manning 1993; Brouthers, Andriessen & Nicolaes 1998; Stonehouse & Pemberton 2002; Mazzarol 2004).

In SMEs that claim to plan, plans are frequently ad hoc and intuitive rather than formally written, and provide little basis upon which business performance can be measured or analysed (Kelmar & Noy. 1990).