SCORE Minnesota

Do I Really Need a Business Plan?

March 10, 2010

Many people who take the leap and start their own businesses are chomping at the bit to get started. Later on down the road, if someone asks them about their business plan, they respond by asking, “Do I really need a business plan?” The answer is no, unless you want your business to have the best chance of succeeding.

What is a Business Plan?
A business plan precisely defines the business, identifies its goals, and effectively serves as its resume. It is designed to help a business look ahead, allocate resources, focus on key points, prepare for problems and leverage opportunities. Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But they are also vital for running a business.

The impetus for developing a business plan is usually to raise capital from potential investors, bankers and other lenders. In fact, without one, asking a bank for funds is an exercise in futility. To lenders or potential investors, the business plan not only provides critical information and demonstrates feasibility, it also reflects the entrepreneur’s management strengths and abilities. A well prepared business plan convinces lenders that you are capable, organized and prepared. One that is poorly researched, or makes unsupported assumptions reveals weakness and inexperience. Lenders receive many proposals and usually don’t spend much time with them. This means a business plan has only a few minutes to make a good impression and serve as an effective initial sales tool.

While plan formats and outlines vary, generally a plan will include components such as descriptions of the company, product or service, market, forecasts, management team, and financial analysis.

Why do I need a business plan?
For any business to be successful, it must have a clear understanding of its customers, internal strengths, current competitive environment, and a vision of how it will compete in the future. A business also needs money to start, to operate, and to grow. By expending the effort to develop a comprehensive business plan, the firm will have a powerful tool for attracting investors.

The business plan is the road map for the company. It clearly states where they are, how they got there, and how they plan to proceed. A typical entrepreneur has a good business idea but is rarely qualified in all areas of running a business. Good business plans are comprehensive, well thought-out documents that provide the basis for entrepreneurs to make sound business decisions.

A good business plan will also provide critical information to sales personnel, suppliers, and others about operations and goals. It is absolutely essential when taking a business public or when selling all or part of a company.

The more relevant and important reason to write a good business plan, whether the firm is raising money or not, is that it forces the management team to establish key objectives (what), strategies (how) and tactics (when, where, who).

Getting Started
If an entrepreneur is to become an expert in their business or to fine-tune their knowledge, they must be willing to roll up their sleeves and begin digging through information. Since not all information that is gathered will be relevant to the development of the business plan, it saves time to know what to look for before getting started. An outline of the major elements of a good business plan is provided in the next section.

In business, there are no guarantees. There is simply no way to predict and eliminate all the risks associated with starting a small business – but a company can improve its chances of success with good planning, preparation, and insight. Entrepreneurs should start by evaluating their strengths and weaknesses as potential business owners and managers of a small business. They can start by considering the following questions:

How well do I plan and organize? Research indicates that poor planning is responsible for most business failures. Good organization ­ of financials, inventory, schedules, and production ­can help avoid many pitfalls.

What do I want my company to look like in the future? What will my company do for my customers? The answers to these questions will define the vision and mission of a company. The Vision Statement should paint a picture of what the business will look like at a specific point in the future.

The Mission Statement, on the other hand does not look inward at all. It focuses exclusively on what the firm will do for its clients. It should be able to withstand the test of time. With the Vision and Mission Statements completed the entrepreneur knows who their customers are, what they’re doing for them, and what kind of employees they need, etc. It is now possible to proceed to complete a business plan that’s consistent with what the entrepreneur wants for their company, and their clients.

Major Elements of a Business Plan
The purpose of a business plan will depend on the company’s specific situation. For example, if it’s primarily purpose is for internal use only, it may not be necessary to include all the background details the entrepreneur already knows. On the other hand, the description of the management team is very important for investors and financial history is most important for banks. So, the plan should match its purpose.

There are specific elements that a potential investor will look for in any business plan. Every successful business plan should include information in each of the following areas, since these are what make up the essentials of a good business plan:

• Executive Summary
• Market Analysis
• Company Description
• Organization & Management
• Marketing & Sales Management
• Service or Product Line
• Funding Request
• Financials
• Appendix

While all of the areas are valuable, the executive summary is the most important component of a business plan. If it isn’t compelling enough no one will be interested in reading beyond it to find out who’s on the team, what’s the business model, and why the products/services are so great.

Bankers will assess the market analysis, cash flow and profit/loss statements to decide if they make sense.  Many entrepreneurs do not understand the difference between cash flow and profits. Profits don’t guarantee cash in the bank. Lots of profitable companies go under because of cash flow problems. Every entrepreneur needs to develop an understanding of their start-up company’s potential cash and profit scenarios before going into business.

Tips for Getting the Most from a Good Business Plan

• Use the plan to set concrete goals, responsibilities, and deadlines to guide the business.
• The plan should provide a forum for regular review and course corrections.
• Good business plans are simple, specific and realistic.
• Use a software program, like Business Plan Pro™ to obtain the right information and save time.
• Share the plan with colleagues, associates, and subject matter experts to obtain feedback and make improvements.

Summary
Every new and existing business should have some form of a business plan.  It may not require all of the information and details as described here. At the very least, the entrepreneur needs to define the company in terms of its purpose, what it offers, who are it’s customers and what it needs to succeed.  By putting these thoughts in a written plan, both the internal team and external supporters will better understand what the entrepreneur is hoping to accomplish.

What Additional Resources Are Available?

• Business Planning Center
• Business Plan Pro™ software
• SCORE Seminars
• Small Business Administration Website
• SCORE Experts
• James J Hill Reference Library

To learn more about how to develop a business plan contact SCORE by clicking the link on the right to the office nearest you or click here to request free face to face counseling.

Have you ever considered volunteering for SCORE? SCORE volunteers help millions of new or existing small businesses succeed each year by sharing their knowledge and experience. Click here or the link on the right to the office nearest you to learn more.

Greg Boettner, St. Paul SCORE
View more posts by Greg Boettner

Filed under: Business Planning,Entrepreneurship,Financial,Marketing,Start-Up

Tags: business plan, Business Planning, entrepreneur, executive summary, financials, market analysis, mission, vision