One of the first steps when formulating a strategy for any new business is composing a business plan. The idea of a business plan is simple: bring together the key elements of your business in one document. These elements include what products or services you will be selling, what they cost to produce, and how much sales revenue you expect during your first months and years in operation. Most importantly, the business plan helps you see how all the disparate elements of your business relate to one another, which will allow for any necessary alterations in order to maximize your business’s potential to turn a profit.
Business owners who want to borrow money or attract investors often write business plans; most lenders or investors want to know as much about your business as possible before deciding to back it financially. However, creating a business plan is a good idea even if you don’t need to raise start-up money. The discipline involved in developing financial projections, such as break-even analysis and a profit and loss forecast, will help you decide if your business is really worth starting, or if you need to rethink some of your key assumptions.
The ABCs of a Business Plan
All business plans need to show two things: first, the business idea is a good one; and second, the numbers show a profit. In addition, all good business plans have two basic goals: to describe the fundamentals of your business idea and to provide financial calculations to show that it will make money. However, depending on how you intend to use it, a business plan can take somewhat different forms.
For example, if your plan is to borrow money or interest investors, it should be carefully written and edited to sell your vision to skeptical people. Typically, this implies a persuasive introduction and a request-for-funds, in-depth market research information, an evaluation of your main competitors, and your key marketing strategies and management plan. Additionally, it should contain detailed financial information, including your best estimates of start-up costs, revenues and expenses. Finally, since your plan will be submitted to people you don’t know well, the writing should be polished, and the format clean and professional.
On the other hand, if your plan will be primarily for your own information and you don’t need to raise money, then it is not as important to make a sales pitch or slick presentation. Excellent writing skills can be a huge help in creating a compelling business plan, but not all businesspeople are great writers. Consider paying a business-savvy freelance writer to help you polish your plan. Similarly, if numbers challenge you, find a bookkeeper or accountant to provide needed help.
In addition to describing the ins and outs of your business, you will need to do some number crunching to show your business will turn a profit. Projecting the finances of your business may seem intimidating or difficult, but in reality, it’s not terribly complex. Basically, it consists of making educated guesses as to how much money you will need to spend and how much you will take in. You then use these estimations to calculate whether your business will be sufficiently profitable.
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