What is a business plan? Is it necessary?
By Kerry Woodson
After a potential entrepreneur has performed an adequate feasibility study and determined that the prospects for the new venture look promising, the next step in the process is to prepare a business plan. Although there are many examples of businesses that started and succeeded without a formal business plan in place, a well-researched and thoughtful plan can positively contribute to the overall chance of success and will almost always be required if you are seeking financing from banks or capital from investors. The business plan is the place where you tell your story about who you are, what you want to do, how you’re going to do it and why the project is going to be successful. It serves as a blueprint for your business and forces you to think about and address the many factors that comprise the environment in which you must operate.
First and foremost, a useable plan must be realistic. I’ve seen plans with such outlandish projections that they serve no purpose other than to create a nice fantasy. Be sensible. Maybe you want to create a best case scenario but offset it with a worst case scenario followed by a most likely situation. Improbable forecasts will cause you to lose credibility with outside sources and establish useless data for your internal assessments.
Although there is no single format that all business plans must follow, there are certain categories of information that should be included in most plans. Some of the main items you will need to cover are (1) environmental analysis, (2) company information, (3) marketing strategy, (4) operation plan, (5) management team, and (6) financial plan.
The environmental analysis will include data pertaining to the industry you seek to enter as well as your target market/customer and also discuss the competition you will encounter. The company information is where you detail the information about your specific company. What are you selling? Where? The marketing strategy section is where you outline how you plan to sell your products or services. How do you plan to position your product? What’s your pricing strategy? The operation plan is like the nuts and bolts of your daily activities. What type of facility will you have? What equipment is required? How will you hire and train employees? The management team profile is a very important component in the sense that many investors/bankers will first look to see about the experience and capabilities of the people running the business enterprise. This section is where you present the credentials of the key personnel and why they are qualified to lead this endeavor. The financial plan includes a disclosure of the financial resources needed for the project and the proposal of how those will be raised and spent along with projected financial performance for at least the next three years in the form of pro forma profit and loss statements, cash flow forecasts, and balance sheets.
Even if no one other than yourself ever sees the business plan you create, it is a worthwhile exercise. It requires you to seriously analyze the entire scope of your proposed venture. Is there really a market for your product? Who is your customer? Can you win against the competition? What makes your idea better? How profitable is the business and what are the cash flows, taking everything into consideration like loan repayments, etc.? The knowledge you gain through the process will probably make you adjust your original ideas, which is much better to do it now before you launch rather than finding out after you open your doors and wonder why something isn’t working.
By Kerry Woodson
After a potential entrepreneur has performed an adequate feasibility study and determined that the prospects for the new venture look promising, the next step in the process is to prepare a business plan. Although there are many examples of businesses that started and succeeded without a formal business plan in place, a well-researched and thoughtful plan can positively contribute to the overall chance of success and will almost always be required if you are seeking financing from banks or capital from investors. The business plan is the place where you tell your story about who you are, what you want to do, how you’re going to do it and why the project is going to be successful. It serves as a blueprint for your business and forces you to think about and address the many factors that comprise the environment in which you must operate.
First and foremost, a useable plan must be realistic. I’ve seen plans with such outlandish projections that they serve no purpose other than to create a nice fantasy. Be sensible. Maybe you want to create a best case scenario but offset it with a worst case scenario followed by a most likely situation. Improbable forecasts will cause you to lose credibility with outside sources and establish useless data for your internal assessments.
Although there is no single format that all business plans must follow, there are certain categories of information that should be included in most plans. Some of the main items you will need to cover are (1) environmental analysis, (2) company information, (3) marketing strategy, (4) operation plan, (5) management team, and (6) financial plan.
The environmental analysis will include data pertaining to the industry you seek to enter as well as your target market/customer and also discuss the competition you will encounter. The company information is where you detail the information about your specific company. What are you selling? Where? The marketing strategy section is where you outline how you plan to sell your products or services. How do you plan to position your product? What’s your pricing strategy? The operation plan is like the nuts and bolts of your daily activities. What type of facility will you have? What equipment is required? How will you hire and train employees? The management team profile is a very important component in the sense that many investors/bankers will first look to see about the experience and capabilities of the people running the business enterprise. This section is where you present the credentials of the key personnel and why they are qualified to lead this endeavor. The financial plan includes a disclosure of the financial resources needed for the project and the proposal of how those will be raised and spent along with projected financial performance for at least the next three years in the form of pro forma profit and loss statements, cash flow forecasts, and balance sheets.
Even if no one other than yourself ever sees the business plan you create, it is a worthwhile exercise. It requires you to seriously analyze the entire scope of your proposed venture. Is there really a market for your product? Who is your customer? Can you win against the competition? What makes your idea better? How profitable is the business and what are the cash flows, taking everything into consideration like loan repayments, etc.? The knowledge you gain through the process will probably make you adjust your original ideas, which is much better to do it now before you launch rather than finding out after you open your doors and wonder why something isn’t working.
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