5 Things You Should Know About Business Plans
Building a business plan is something many entrepreneurs either avoid or put off because they would rather being “doing” instead of writing. Often the only reason a business owner – old or new – writes a business plan is because they need it for a loan and the bank requires it. During that time the focus is not on the plan but on the need to put something together to make the bank happy. What will make the bankers happy is a substantive, well thought out plan which will in turn serve the business well in the future. So here are five things the business owner should know about the business plan.
- The plan is for you not the bank.
It is for you and your business. It should become a part of your strategic and tactical planning for your business success. In business, the business plan should be one of the first things that the prospective business owner completes. The business plan is just as it suggests – a roadmap for your journey to business success. Many business owners start out with no definitive objectives or goal of where they are heading. They don’t know pricing. They don’t know who will buy and they don’t know how much customers will pay or how much they need them to pay. It is imperative that the owner knows the customer or the target market, the competition, and the industry. Then knowing the demographic, technological, socio-cultural, economic, as well as political and legal trends will help the owner to better position his business to sell to his intended customer. Having insight into the way the customer is influenced can help in the development of highly effective marketing plans.
- The plan should adequately describe the nature and operation of the business.
What are the specifics of the business? What are you going to sell – a service or a product, or both? Does it fulfill a need or a want? Will sales take place from your home, from a storefront, over the Internet, or some combination of venues? What distribution systems are needed to connect the product and the customer? How much money is needed to start the business and keep it going? This and many other questions should be answered to have a better grasp of what the scope of the business is about.
- The plan should address the risks and pitfalls and the mitigations for the risks.
Besides the expected gains and profits expected from the business, the plan should address potential pitfalls and how the owner plans to avoid or mitigate the problems. Too often a business owner does not assess potential problems and is caught unprepared when crisis appears. The plans helps the business owner explore their business from the downside to better prepare for contingencies and survive the challenges of running a business.
- The financials and the narrative should tell the same story.
Many business owners prepare their plan and their financials as separate items, often resulting in the plan and the financials telling two different stories. If done properly, the plan and the associated financials say the same thing, one in words and one in numbers. While writing the plan, the owner should be constantly asking how the sections of the plan translate into numbers of products, customers, dollars, employees, etc. and these should in turn show up in the financial projections. This will make the business stronger and the financials a better management tool for the owner.
- The plan should be a living document, reviewed and updated on a timely basis.
As the business progresses, comprehensive review of the plan including financials and new customer or product bases should be reevaluated at least yearly and updated as needed. Many factors such as legal changes, a shift in the industry, or new markets may necessitate a more frequent review and update of the plan.
Remember the plan is a document you will use to help evaluate the successes and challenges of your business. The plan should be part of the business owner’s toolbox. There are many resources available to assist business owners in building the ultimate business plan.