5.03 Develop Business Plan

Why Is a Business Plan Important?

A business plan is a company’s blueprint for success. This blueprint shows how the business works now and how it is intended to work in the future. o In fact, the business plan is often considered to be the

company’s business model in written form, describing how each major component participates in the company’s success.

  Companies prepare business plans for many reasons.

The most obvious reason is to be as successful as possible—since, without a plan, many businesses fail.o “Selling” the company’s capabilities to a bank or investor is

almost certainly the number one motive for writing a business plan

Start-Up Businesses and Business Plans

Consider the needs of a start-up business. Equipment and labor will cost money, but the business won’t have any money until it makes money.

A bank loan or investment will allow the business to begin operating, so it can earn the money it needs to pay for equipment, labor, etc. o By describing how the company expects to make money, the

business plan can potentially convince a bank or investor that the company is prepared to operate successfully.

Sometimes, a start-up firm has a sufficient amount of cash, but its owners or partners do not have clearly identified roles. o A business plan can help a company in this situation to establish

who is expected to do what.

Existing Businesses and Business Plans

Existing businesses often compile a business plan so that they can:o Acquire fundingo Implement a strategic plano Assess a new product or promotiono Prepare for an expansiono Obtain a specific contract or agreemento Place a value on the business

Components of a Business Plan

Although each business plan is unique, a typical business plan contains the following sections in the following order: Cover page, including: Executive summary, which is:

o The most critical part of the plano Used to determine whether or not it’s worth reading any furthero A two- to three-page “miniature” of the full plan

Table of contents Company description Product(s) offered Market analysis Strategy and implementation Management plan Financial plan Appendices

Developing a Business Plan

To create an effective business plan, you should:o Make the plan clear, concise, focused, realistic, and accurate.o Make the plan have a logical structure and flow.o Begin each section with a short summary.o Make the executive summary interesting and intriguing

enough to capture your readers’ attention.o Describe goods and services in terms that are easy to

understand.o In your market analysis, include only information that makes

a specific impact on your business and the decisions you will make while running it.

o Make the financial plan simple.o Plan ahead for tracking and follow-up.o Plan for regular reviews, updates, and corrections.

Mistakes to avoid when developing a business plan.

While including the necessary items in a business plan is important, you also want to make sure you don’t commit any of the following common business plan mistakes: Putting it off.

Too many businesses make business plans only when they have no choice in the matter. Unless the bank or the investors want a plan, there is no plan.o Don’t wait to write your plan until you think you’ll have

enough time. “I can’t plan. I’m too busy getting things done,” business people say. The busier you are, the more you need to plan.

Mistakes to avoid when developing a business plan.

Cash flow casualness.

Most people think in terms of profits instead of cash. When you imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. o We are trained to think of business as sales minus costs and expenses, which equal

profits. o Unfortunately, we don’t spend the profits in a business. We spend cash. So

understanding cash flow is critical. If you have only one table in your business plan, make it the cash flow table.

Idea inflation.Don’t overestimate the importance of the idea. You don’t need a great idea to start a business; you need time, money, perseverance, and common sense. Few successful businesses are based entirely on new ideas. o A new idea is harder to sell than an existing one, because people don’t understand a

new idea and they are often unsure if it will work.o Plans don’t sell new business ideas to investors. People do. Investors invest in people,

not ideas. The plan, though necessary, is only a way to present information.

Mistakes to avoid when developing a business plan.

Fear and dread.Doing a business plan isn’t as hard as you might think. You don’t have to write a doctoral thesis or a novel. o There are good books to help, many advisors among the Small Business Development Centers

(SBDCs), business schools, and there is software available to help you (such as LivePlan, and others).

Spongy, vague goals.Leave out the vague and the meaningless babble of business phrases (such as “being the best”) because they are simply hype. o Remember that the objective of a plan is its results, and for results, you need tracking and follow

up. You need specific dates, management responsibilities, budgets, and milestones. Then you can follow up. No matter how well thought out or brilliantly presented, it means nothing unless it produces results.

One size fits all.Tailor your plan to its real business purpose. Business plans can be different things: they are often just sales documents to sell an idea for a new business. o They can also be detailed action plans, financial plans, marketing plans, and even personnel plans.

They can be used to start a business, or just run a business better.

Mistakes to avoid when developing a business plan.

Diluted priorities.Remember, strategy is focus. A priority list with 3-4 items is focus. o A priority list with 20 items is certainly not strategic, and

rarely if ever effective. The more items on the list, the less the importance of each.

Hockey-stick shaped growth projections.Sales grow slowly at first, but then shoot up boldly with huge growth rates, as soon as ‘something’ happens. o Have projections that are conservative so you can

defend them. When in doubt, be less optimistic.

Business Plan Formatting and Presentation

Before discussing the contents of a business plan, let's take a few moments to consider some basic issues regarding the format and presentation of the plan. Your plan should look professional and be a useful tool. There are a number of things to do to ensure that: Print the plan on a high-quality paper. Print on one side of the paper

only. Incorporate a cover page that includes your logo, company motto, or

other identifying information or graphic. o Be sure to include identifying information for the business and to name the

person who should be contacted regarding the plan. Use a typeface that is easy to read, and a font size that is large

enough to prevent eye strain. o This may require that financial projections be spread over several pages in order

to maintain readability. Maintain reasonable borders. If your business uses specialized language or acronyms, use them

sparingly and be sure to define any terms that someone outside your area of expertise wouldn't readily know.

Number the pages and be sure that the page numbers are accurately reflected in the table of contents.

Business Plan Formatting and Presentation

Keep the plan short and concise. o Limit the inclusion of extraneous material. You can always provide additional

detail in an appendix, if required. Include samples of ads, marketing material, and any other

information that aids in the presentation of your plan. Carefully edit the document.

o Spelling and grammar errors do not make a good impression. Bind the plan so that it lays flat when opened. Don't go overboard on expensive binders, binding, embossing, etc.

o Elevating the look of the plan over its substance can raise doubts among those reading the plan.

o But avoid looking cheap or sloppy. Don't get carried away on slick presentation pages; there are times

when presenting information graphically is appropriate, but unless you're a graphic artist, your audience isn't going to be impressed by the graphical quality of the plan.

Business Plan Formatting and Presentation

Cover Page and Table of Contents If you have spent any time and effort at all on a company logo, slogan, or other

identifying graphic or text, highlight it on the cover page. o If you haven't considered these basic marketing tools, we strongly suggest that you do.

Building an identity is vital if you want people to recognize and remember your business. In addition, the cover sheet should contain all the usual and appropriate

identification information about the business. o This includes business address, telephone numbers, facsimile numbers, etc. o The cover sheet should state the date that the plan was prepared, and the period it covers.

It should identify the person to contact regarding any questions about the plan (generally, you).

o If you have prepared multiple copies of your business plan, you might also put a copy number on the cover page to identify them.

The table of contents should clearly and simply lead a reader to each of the documents in the plan. o Be sure that page numbers are accurately reflected. o If the plan is large, consider dividing it into separately numbered sections. For smaller

plans, just numbering the pages in sequence is fine. o If your table of contents is more than one page long, reconsider the length of the entries,

the length of your plan, and the number of documents you've included.