Writing a business plan is one of the most important aspects of starting a business. Proper planning is needed for success in business and, for that matter, anything you do in life.
What is a business plan?
A business plan is a blueprint of your company, presented in standard business format that is logical and well documented. A business plan precisely defines your business, identifies your goals and serves as your firm’s resume.
Its basic components include a current and pro forma balance sheet, an income statement and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make the right decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan package. Additionally, it can tell your sales personnel, suppliers and others about your operations and goals.
In short, a good business plan is:
- A strategic vision of your company
- Your most important communication tool
- A document to obtain working capital and/or investments
- A tool for planning, measuring and improving performance
- A basis for sound decision-making
- A way to motivate employees
Why is a business plan important?
The success of your business depends largely upon the decisions you make. A business plan allocates resources and measures the results of your actions, helping you set realistic goals and make decisions.
You may have asked yourself these questions: Do I need a business plan? Why should I spend my time and energy drawing up a business plan?
Remember, first and foremost that lack of planning leaves you poorly equipped to anticipate future decisions and actions you must make or take to run your business successfully.
To be sure, a business plan is important. A sound business plan serves multiple purposes:
- Business Plan as Reality Check. The process of putting a business plan together, including the thought you put in before you begin to write it, forces you to take an objective, critical, unemotional look at your business project in its entirety.
- Business Plan as Performance Tool. Your written business plan is an operating tool which, when properly used, will help you manage your business and work effectively towards its Success. Your business plan will allow you to set realistic goals and objectives for your company’s performance, and, if maintained, will also provide a basis for evaluating and controlling the company’s performance in the future.
- Business Plan as Message Sender. The completed business plan communicates your company’s ideas and message to employees, outside directors, lenders, and potential investors. outside your company. A business plan helps you do that in an organized, credible manner. Also, the process of planning helps you determine if your vision is realistic, and tells you what you need to do in order to achieve it.
- Business Plan as Motivation Tool. The development of your business plan is one of the best ways for you to communicate how well you understand your business and describe your vision of your business. Without proper planning, it becomes impossible for you to get all of your employees reading off the same page of the book and generating energy through high levels of team work. It is impossible to motivate people when they do not know where they are going or what they are trying to achieve.
- Business Plan as Management Development Tool. Putting together your business plan will help you develop as a manager because it can give you practice in thinking and figuring out problems about competitive conditions, promotional opportunities, and situations that are or may be beneficial or harmful to your business.
- Business Plan as Road Map. Your business plan, once it is completed, will give you and your employees goals and direction: a roadmap to follow in guiding your business through good and bad times.
Why write business plans?
A business plan precisely defines your business, identifies your goals, and serves as your firm’s resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others about your operations and goals.
The importance of a comprehensive, thoughtful business plan cannot be overemphasized. Much hinges on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, and achievement of your goals and objectives.
Despite the critical importance of a business plan, many entrepreneurs drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don’t have enough time. But just as a builder won’t begin construction without a blueprint, eager business owners shouldn’t rush into new ventures without a business plan.
Before you begin writing your business plan, consider four core questions:
- What service or product does your business provide and what needs does it fill?
- Who are the potential customers for your product or service and why will they purchase it from you?
- How will you reach your potential customers?
- Where will you get the financial resources to start your business?
Writing a Good Business Plan
Your business plan is your roadmap for building your business and it’s the admission ticket for the investment process. In order for you to succeed, your business plan has to be as good as it can possibly be.
If you run a business by the seat of your pants, you end up with torn pants. It’s extremely important to take the time to write a business plan.
What goes in a business plan? The body can be divided into four distinct sections:
- Description of the business
Addenda should include an executive summary, supporting documents, and financial projections.
Although there is no single formula for developing a business plan, some elements are common to all business plans. They are summarized in the following outline:
Elements of a Business Plan
- Cover sheet
- Statement of purpose
- Table of contents
I. The Business
- Description of business
- Operating procedures
- Business insurance
II. Financial Data
- Loan applications
- Capital equipment and supply list
- Balance sheet
- Breakeven analysis
- Pro-forma income projections (profit & loss statements)
- Three-year summary
- Detail by month, first year
- Detail by quarters, second and third years
- Assumptions upon which projections were based
- Pro-forma cash flow
III. Supporting Documents
- Tax returns of principals for last three years Personal financial
- statement (all banks have these forms)
- For franchised businesses, a copy of franchise contract and all
- supporting documents provided by the franchisor
- Copy of proposed lease or purchase agreement for building space
- Copy of licenses and other legal documents
- Copy of resumes of all principals
- Copies of letters of intent from suppliers, etc.
Presenting a Business Plan
Presenting a busines plan is an opportunity to make a positive impression that may change your fortunes for the better forever. We discuss some key presentation tips that will help you make the most of your big opportunity.
There are many occasions when you, as an entrepreneur, will be called upon to explain your business.
These presentations will be given to many diverse groups including potential customers, bankers, suppliers, and investors. Each group requires different information about your business and it should be presented in a format appropriate to the situation.
To begin preparing your presentations, develop a ten-second, one-minute, and detailed description of what you do. Practice each presentation with people who know you as well as with strangers. Ask if you are providing the information they need to understand your business.
You will generally use the ten-second description on the phone with people learning about you for the first time and at networking functions. It should be informative and interesting so that the audience will ask for more detail.
The one-minute presentation should concisely describe your product/service and anything unique about your business, such as materials used or business philosophy. You will use this presentation on the people you hooked with your ten-second description.
Information provided in the detailed presentation will vary by audience. Before you begin talking, take into consideration whom you are are talking to and why they want to know about your business. For example, a loan officer is going to want to know about business stability, experience, and ability to generate revenue to repay the loan. Suppliers may want to know about the exposure their products will receive, your target market, and your ability to the supplier. Make sure you answer the following questions:
- Who are you?
- What do you want to do?
- When do you want to do it?
- Why do you want to do it?
- Who do you want to do it for?
- How are you going to do it?
- What is your experience to do it?
- What do you need to do it?
- What will it cost to do it?
- How much will you make when you do it?
Your appearance is at least as important as what you say and how you say it. Take a look at other business owners in your industry by visiting their businesses, attending trade association meetings, and reviewing trade publications.
Your audience will develop an initial impression of your business before you speak. Make sure you are conveying professionalism and expertise in your industry.
Why should anyone go to the trouble of creating a written business plan?
There are several good reasons to write a business plan:
- The process of putting a business plan together, including the thought put in before beginning to write it, forces one to take an objective, critical, unemotional look at the business project in its entirety.
- A business plan is an operating tool, which, if properly used, will help manage the business and work effectively toward its success.
- Lenders require one. A completed business plan communicates ideas to others and provides the basis for a financial proposal.
The importance of planning cannot be overemphasized. Taking an objective look at the business plan will identify areas of weakness and strength, pinpoint needs that might otherwise be overlooked, spot opportunities early. One can then begin planning on how best to achieve a business goal.
A business plan will help avoid going into a business venture that is doomed to failure. If the proposed venture is marginal, the business plan will show why and may help avoid paying the high tuition of learning about business failure. It is far cheaper not to begin an ill-fated business than to learn by experience what a business plan would have taught at the cost of several concentrated work hours.
The business plan also provides the information needed by others to evaluate a venture, especially if seeking outside financing. A thorough business plan will quickly become a complete financing proposal that will meet the requirements of most lenders.
Your business plan provides benchmarks and milestones for you to use as measures of your success.
Going into business is rough-over half of all new businesses fail within the first ten years. A major reason for failure is the lack of planning. The best way to enhance chances of success is to plan and follow through on that plan.
Free Business Plan Templates
Looking for sample business plans? Start with a blank slate with one of our free business plan templates. The business plan outline is there. You just need to customize it to describe your business and what you hope to accomplish.
Free Business Plan Template (Word Doc) – Download and complete this free business plan template and you’ll be well on your way to winning the attention and financial support of potential investors.