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How to Business Plan – Top 10 Reasons to Write One

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Home Page > Business > How to Business Plan – Top 10 Reasons to Write One

How to Business Plan – Top 10 Reasons to Write One

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Posted: Aug 19, 2009 |Comments: 0
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Copyright (c) 2009 Marco Carbajo

You’ve probably heard the importance of’business plans’ but do you know the real benefits of having one?

Not every entrepreneur who starts and runs an online or offline business begins with how to write a business plan, but it definitely helps to have one. If you’re seeking funding from a venture capitalist, angel investor or other source of private capital then you will definitely need a comprehensive business plan that is well thought out and shows sound business reasoning.

However, too many entrepreneurs believe that business plans are only needed when you require business capital or financing to launch your business.

When it comes to the internet many entrepreneurs can start their business on a shoe string budget so in their minds ‘business plans’ don’t apply to them right?

WRONG!

Nothing can be further from the truth. It’s like building a home without using any plans or blueprint. Imagine making the mistake of believing that just because you have all the materials, laborers, and tools needed to build a home you figure why do we need the plans? Let’s just start building away!

A business plan is your blueprint that lays out every necessary ingredient for the success of your business. Now for internet entrepreneurs how can you expect to build your business online without a simple business plan? If you plan to build your business on the internet using internet marketing and social media you’re going to need a plan?

You’ve probably heard me say this ‘A sign of no business plan is a sign of no business’.

Still not convinced?

If you ever decide to approach a banker for a loan for your business, your loan officer will require a startup business plan. If you have an existing business and you are approaching a bank for capital to expand the business, they may not require a business plan, but it will look much more favorably on your application if you do have one.

Here are ’10 Reasons Why You Should Have a Business Plan’

Supports a loan application

To raise equity funding

Define objectives and describe programs to achieve those objectives

Compete in the marketplace (through an analysis of what your competition lacks)

Make money from the start by devising an effective marketing strategy

Provide a revenue estimate (by defining your market —who your customers will be — and the percentage of the market you can expect to reach)

Define agreements between partners

Set a value on a business for sale or legal purposes

Evaluate a new product line, promotion, or expansion

Determine whether your business has a chance of making a good profit

What’s in a business plan?

A business plan should prove that your business will generate enough money to cover your expenses, but a business plan may vary depending upon who your target audience is.

If you are writing a plan for your associates and partners, for example, to expand an existing business, then the focus of that plan may be more on the operation side than it will be on the financial side. This plan would show your partners how the expansion will mean more revenues, but they are going to want to know the nuts and bolts of how this new venture is going to be implemented.

If you are writing a business plan for a bank, your bank manager will want to see that your ideas are well thought out, but the most important aspect to him or her will be your financials. Are your projections realistic? And will the cash flow of the business be enough to ensure that you can make the monthly payments for the loan that you have requested? If your business is making ,000 a month and your payments are ,200 a month, the bank is likely to reject your application.

When considering an investment opportunity, most venture capitalists will look at the obvious trends and market niches. The most important factor in a decision to invest in a company is the quality of the people.

In real estate, the three biggest factors are “location, location and location.” The venture capital factors are “people, people and people.” VCs will ask, how experienced are the people that are going to run this business? Do they have knowledge of the industry? Have they started successful businesses in the past?

I know it’s quite a bit to digest but are you seeing all the benefits to having a business plan?

Excellent!

What makes a successful business plan?

Presents a well thought out idea

Contains clear and concise writing

Has a clear and logical structure

Illustrates management’s ability to make the business a success

Shows profitability

Lets bring it all together…

Your business plan is your business blueprint and like a calling card, it will get you in the door when you’ll have to convince investors and loan officers that you can put your plan into action. You want your calling card to look impressive, so make sure your business plan is printed out on good quality paper, you have checked the spelling and grammar and that your numbers add up. Anyone who sees errors while reading your plan will wonder whether you are going to make similar errors in running your business.

A sound business plan accomplishes two main goals:

1) It provides you a blueprint for building your business including but not limited to product development, target marketing, operations, and revenue projections

2) Show bankers, venture capitalists, and angel investors that you are worthy of financial support.

Make sure that your plan is clear, focused and realistic. Then show them that you have the tools, talent and team to make it happen.

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A business plan precisely defines your business, identifies your goals and serves as your firm’s resume. The importance of a comprehensive, thoughtful business plan cannot be over- emphasized. Much hinges on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, achievement of your goals and objectives. Yet many small businesses never take the time to prepare one. Now it’s easy and you can do it in less than an hour. This new book and companion CD-ROM will demonstrate how to construct a current and pro- forma balance sheet, an income statement and a cash flow analysis. You will learn to allocate resources properly, handle unforeseen complications and make good business decisions. The CD-ROM, written in Microsoft Word, allows you to simply plug in your own information while providing specific and organized information about your company.

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A business plan precisely defines your business, identifies your goals and serves as your firm’s resume. The importance of a comprehensive, thoughtful business plan cannot be over- emphasized. Much hinges on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, achievement of your goals and objectives. Yet many small businesses never take the time to prepare one. Now it’s easy and you can do it in less than an hour. This new book and companion CD-ROM will demonstrate how to construct a current and pro- forma balance sheet, an income statement and a cash flow analysis. You will learn to allocate resources properly, handle unforeseen complications and make good business decisions. The CD-ROM, written in Microsoft Word, allows you to simply plug in your own information while providing specific and organized information about your company.

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The financial plan of a startup business plan is not only necessary to complete the plan, but a place where you can either win points with funders or make mistakes from which you cannot recover. The pro forma financial statements each have something to say to funders.

Income Statement

The income statement (also called the profit and loss statement or P & L) is the most explicit statement in terms of a telling a funder if the business is sound. The business can be called successful if it manages to create a profit and show continued growth year after year. Some small businesses, such as sole proprietorships, may show only modest growth if they are tied to the work of one individual, and this may be enough for some lenders. Investors, however, are interested in a business which can grow as this will be the most valuable in a sale or other “liquidity event” eventually. While the first year may show a loss or very small profit, it is expected that the company will become profitable soon after that point.

Balance Sheet

The balance sheet shows the balance of assets with liabilities and owner’s equity in the business. This statement illustrates the amount of leverage (debt) the company has, as well as the type of assets in the company. This will be of interest to both lenders and investors when they consider potential worst-case scenarios for the company. If the company fails, they know they will probably be able to recover at least some of the market value of sellable assets that the company owns, such as equipment, intellectual property, and inventory. This prevents the failure from being a complete loss for funders.

Cash Flow Statement

The cash flow statement shows the cash needs of the company, which relates to the startup capital required. It also shows how cash reserves will keep the company’s bank balance positive over the first difficult years. The effects of being granted credit by suppliers (accounts payable) and collecting payments for customer purchases after the fact (accounts receivable) are shown on the cash flow statement, changing the requirements for cash reserves. Ideally, payments on expenses are delayed as much as possible and payments by customers are collected as early as possible (even ahead of the date of service or product delivery). This advantageous situation can mean the difference between bankruptcy and success for a business.

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Writing a small business plan begins by finding a format to follow, as there can be as many as 14 sections to complete, and researching sample business plans can help illustrate all of the information required. Write out a business plan to gain direction and to generate funding with advice from abusiness owner in this free video on business. Expert: John Niemira Bio: John Niemira is a business professional who has been in the business industry for many years. Filmmaker: Michael Burton
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