You probably have a very clear concept of the product or service you want to offer, so you may be asking "why do I need a business plan?" The following is the result of a magazine article Q&A session with Kylon Gustin, BRS Partner and Consultant, that will answer many of the common questions.
1. What is the purpose of a business plan?
The purpose of the business plan, for most entrepreneurs and business owners, is to raise capital. However, if written properly, the business plan will become your roadmap for the coming years. The process of converting that "great idea" into a real business plan will either validate or disprove the business model. The plan will be of value at all stages of your business.
2. How should the business plan be structured?
The plan should begin with an "Executive Summary" that clearly describes the objectives and expectations of your business. This is followed by more detailed information describing each of the key aspects of your business, ending with your financial projections. And then you close the plan with charts that graphically present what a successful implementation of the plan will mean in terms of business growth, market penetration, and market control and profitability.
A high-level outline of a comprehensive plan would include: Executive summary, company and personnel descriptions, the market, product or service, marketing strategy, competitive analysis, operations, and five-years of profit and loss statements, cash flow and balance sheet.
Venture capital and angel investors usually do not want more than the Executive Summary with financial projections in the early stages of your discussions. Some banks will be happy with this and others appreciate a more comprehensive plan.
3. Which issues are the most important?
The most commonly overlooked aspect of the business plan is the information about the business owner/operator. A great idea is not enough. The lender or investor needs the assurance that you have the ability to implement the business plan and adapt as problems arise. Since the reader may not be familiar with your industry you also need to clearly articulate the benefits and needs of your product or service, market requirements and competitive strengths. A solid marketing strategy and realistic set of financial assumptions will tell the investor if you have done your research.
Just as location, location, location is the mantra for real estate investors so is research for developing a business plan. Research the market trends, competition, successful marketing tactics, financial expectations and any other assumptions you plan to make within your plan.
Each operation in your business will have specific short term goals, but they must ultimately have the same long term objectives. If any one of these operations is working in opposition to the long term objectives you are likely to fail. Therefore "all" issues are important.
4. How long will it take to write the business plan?
Your business plan may be the key instrument for acquiring investment capital or a bank loan and it will certainly be the "instrument" for management to use as they build your business. The success of your business depends a great deal on how well you have thought through the issues ahead of time. The business plan is an ideal tool for documenting this thought process.
So, how much time should you spend writing your business plan? It will certainly take you more than a week to do a thorough job of reviewing and documenting all of the issues critical to the success of your business endeavor. Using the right tools and having access to the necessary data can speed up the process considerably.
5. Can you successfully run a business without a written and updated business plan?
Many successful businesses have been started without a business plan, either due to luck, timing, or a natural business sense. But most entrepreneurs don’t have a well-rounded business background and must force themselves to think-through each aspect of starting and running a business. Even if you solicit the help of a consultant you will need to be an integral part of the planning process, which will prove to be an invaluable resource towards your success.
6. Is the business plan a one-time document?
A common misconception regarding the business plan is that it is only a tool to acquire funds for the business. The business plan should also be used as a management tool for regularly reviewing objectives, defining new market opportunities and the document that insures that all management personnel have the same understanding of why they are in business.
All businesses need a business plan. A well written business plan can provide a pathway to profits for a new or existing business. The principal reason for business failure is the lack of an adequate business plan. It’s fun to go on a road trip but without a map it’s very difficult to reach your destination or in the business case to reach potential profits.