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Importance of Planning for Small and Medium Enterprises

importance of planning

The modern day business dynamic has considerably transformed. Alongside this radical change, the need for companies to adapt to the ever-changing environment has also surfaced exponentially. Today, all companies, regardless of their size need to be extremely receptive to the external market factors in order to ensure that they are able to sustain themselves in the increasingly competitive business space.

For Small and Medium Enterprises (SMEs), this challenge is even more severe. This is essentially because their tendency to withstand market fluctuations (and eventual losses) is considerably lesser as compared to companies that operate at a larger magnitude. The essential methodology to remedy this particular challenges is contingent on the effective planning executed by these SMEs.

Planning simply refers to the practice adopted by companies in order to predict the future, and prepare for it accordingly. This includes both, demand side, as well as supply side policies that can ensure that organizations are able to sustain themselves in the competitive space they are a part of. The importance of planning is as follows:

  • Certainty: Planning helps SMEs to be certain about the future. Regardless of the fact that planning does not eradicate ambiguity altogether, yet it does help companies to know what to expect. It helps them to plan their revenues, and subsequent expenses in order to ensure that they have the required resources to process these orders.
  • Risk Control: One of the biggest advantages of planning is the fact that it helps companies to control and mitigate their risk to a reasonable level. This is because it helps them to plan for any supply shortages, or any other material related shortages in the near future. This helps them to hedge their risks against bigger downturns that might impact their business in the longer run.
  • Decision Making: Planning also helps SMEs identify areas they need to work on in the coming future, in order to improve, and concentrate on areas which need proper attention for the businesses to generate higher profits over the course of time.
  • Budgeting: Budgeting is also an important aspect of planning. Budgeting helps companies to identify if they would be needing cash within the coming year. In the same manner, it is also gives businesses an opportunity to revisit their budgets at the end of the given year, so that they can identify if targets were met, and check for respective variances.

Therefore, it can be seen that planning is inevitably one of the core features behind organizations that are well-grounded, and have solid growth prospects. Stringent planning is mostly characteristic of good eventual outcomes that can be met by companies in the longer run, in order to ensure that they are able to carry out better decisions in the longer scheme of affairs. Factually, planning does help companies achieve their targets, and maintain their competitive edge in the market. It is often incorrectly perceived as a cost, whilst it can best be described as an investment towards better and smoother functioning of the company.

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Willaim Wright

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