Ask random business people what they think a business plan is for and you’ll get a variety of answers.Business Charts & Graphs
“It’s for raising capital,” says the entrepreneur.
“It’s for judging the investment potential of start-ups,” says the angel investor.
“I need it to decide on a company’s creditworthiness,” says the banker.
All wrong.
A Plan Is for Planning
The above are important uses of business plans, but they aren’t what the business plan is for. The business plan is for business planning. But isn’t that obvious? Not to everyone. You’ll be shocked to hear this, but many business owners just use their business plan for getting started and then forget about it. Imagine that.
If you’re starting a new business, you need to go through the rigor of writing the business plan, all the while thinking about the many important aspects of the enterprise and working through the problems that you encounter. You need to do this yourself.
Let’s consider a few elements of the business plan.
Your Market
Do you understand your market? Do you have experience in the market or are you looking at it from the outside? What about competition? Will your product or service meet an existing need? Why is your product or service better than what’s already out there? What about pricing? Can you realistically predict sales results? Do you truly have a feeling for your market?
People
Your new company may need only a few people at first, but you’ll still have to consider the costs of employment. What kind of people will you need? What are the prevailing levels of pay? Profit sharing? What about health insurance? What laws and regulations need to be followed? Will everybody work full time? What about unions?
Finance
How much capital will you need to launch your new business and sustain it for, say, two years, until you can achieve a toehold in your industry? Will you need bank loans? You’ll need to draw up a starting balance sheet and forecast operating results going out for two or three years. The forecast will have to be based on realistic assumptions. It’ll be worth your while to build a detailed financial model that takes a myriad of items into account: salaries, wages, capital expenditures, taxation, and much more. The model should take virtually everything into account that bears on the performance of the business. If you’re not a spreadsheet whiz, hire an expert to build the financial model. Work closely with your expert on this. Don’t just turn it over for someone else to do.
Revise, Revise, Revise
Say your business plan is complete. You’ve launched the business and used the plan to bring in an investor to provide much-needed capital. Your banker used the plan in getting approval for your line of credit. Now, what do you do with the business plan? File it away? The astute business owner will make the business plan a part of his ongoing planning process. Quarterly and annual budget reviews should tie into the business plan. In the process, it should be updated on a continuing basis as the company matures. If you keep revising the business plan as the company moves forward, the plan becomes more and more of a valuable tool.
“It’s for raising capital,” says the entrepreneur.
“It’s for judging the investment potential of start-ups,” says the angel investor.
“I need it to decide on a company’s creditworthiness,” says the banker.
All wrong.
A Plan Is for Planning
The above are important uses of business plans, but they aren’t what the business plan is for. The business plan is for business planning. But isn’t that obvious? Not to everyone. You’ll be shocked to hear this, but many business owners just use their business plan for getting started and then forget about it. Imagine that.
If you’re starting a new business, you need to go through the rigor of writing the business plan, all the while thinking about the many important aspects of the enterprise and working through the problems that you encounter. You need to do this yourself.
Let’s consider a few elements of the business plan.
Your Market
Do you understand your market? Do you have experience in the market or are you looking at it from the outside? What about competition? Will your product or service meet an existing need? Why is your product or service better than what’s already out there? What about pricing? Can you realistically predict sales results? Do you truly have a feeling for your market?
People
Your new company may need only a few people at first, but you’ll still have to consider the costs of employment. What kind of people will you need? What are the prevailing levels of pay? Profit sharing? What about health insurance? What laws and regulations need to be followed? Will everybody work full time? What about unions?
Finance
How much capital will you need to launch your new business and sustain it for, say, two years, until you can achieve a toehold in your industry? Will you need bank loans? You’ll need to draw up a starting balance sheet and forecast operating results going out for two or three years. The forecast will have to be based on realistic assumptions. It’ll be worth your while to build a detailed financial model that takes a myriad of items into account: salaries, wages, capital expenditures, taxation, and much more. The model should take virtually everything into account that bears on the performance of the business. If you’re not a spreadsheet whiz, hire an expert to build the financial model. Work closely with your expert on this. Don’t just turn it over for someone else to do.
Revise, Revise, Revise
Say your business plan is complete. You’ve launched the business and used the plan to bring in an investor to provide much-needed capital. Your banker used the plan in getting approval for your line of credit. Now, what do you do with the business plan? File it away? The astute business owner will make the business plan a part of his ongoing planning process. Quarterly and annual budget reviews should tie into the business plan. In the process, it should be updated on a continuing basis as the company matures. If you keep revising the business plan as the company moves forward, the plan becomes more and more of a valuable tool.
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