Do You Really Need a Business Plan?
DO YOU REALLY NEED A BUSINESS PLAN?
The business world has debated the value of a written business plan since the words were first coined. I believe it is absolutely essential for a new venture or an established company that is undergoing a major change in direction, products or personnel. So let’s examine some of the benefits that make a business plan a viable entrepreneur’s tool.
First of all, developing a good business plan forces the business owner(s) to evaluate the risk to be faced and go through the thought process of risk analysis. In other words, do the potential benefits outweigh the risks? A thorough business plan is the pre-assessment tool to insure that all the constraints and pitfalls have been considered. A business plan that is complete will focus attention on the target market leading to a better understanding of the ideal client or customer for the products or services of the company. A good marketing component of the business plan will be more effective if the target customer is defined in detail. This step will also identify the strengths and weaknesses of the competition.
Every business plan should incorporate financial projections that identify, not only the startup expenses that will be incurred, but also the day to day operating expenses and cost of making or purchasing the product of service. Without this thorough projection of cost and expected revenue, the unexpected lack of cash flow often spells the death of a new business. The business plan is the roadmap to success and profitability.
One reason for a well thought out business plan often neglected is that it is required for any business loan or investment. Every bank loan officer has tales of applicants being sent packing because they were not able to produce a business plan. Any serious investor will also start the conversation with a business plan discussion.
So what does a good business plan need to include?
- Executive Summary: This is for the loan officer or investor and most reviewers will start and end with this. If the summary does not get interest, the game ends here.
- Description of the Company: A brief story of the venture/company and how the decision came about to go into this business, should also describe the principal’s background and why they are a good fit to run this company.
- The Industry: Describe the industry and how and why it is growing, desirable and how this company fits into the overall picture.
- The Competition: Research who else sells the same or similar products the company will offer. What is their market and pricing structure, what are their strengths and vulnerabilities?
- Added Value: What sets this company apart from the competitors? Why would someone purchase the company’s products or services versus a competitor’s?
- Key Purchase Criteria: What are the criteria that a customer uses to make buying decisions for products or services like the company intends to offer?
- Prospect identification: What marketing resources and techniques will be used to find the suspects to buy the products or services?
- Promotional Programs: Describe the tools that will be used to get your message, email, brochure or sales person in contact with the identified prospects.
- Pricing: What formula or procedure is used to determine breakeven and pricing for the product or service?
- Financial Projections or Analysis: Provide detailed projections of revenue, COGS and operating expenses for the next 12 months and summary for year 2 and 3.
· Define the Target Market: Define the demographics of a typical customer such as geographic location, age, income bracket, and ethnic background. If B2B, define the industry, number of employees, size of company and location.
Keep the business plan simple. This is not a business plan competition so there is no need for expensive software solutions to writing a business plan. Document any sources and explain the assumptions. There are many sources of good business plan templates and outlines. A simple, but complete template with instructions can be downloaded from the LaunchPadft web site document library here. SCORE also provides business plan templates for established businesses, startups and non-profits located here. The Small Business Development Center has a counselor office at the Edmond Chamber and, as with SCORE, provides no charge counseling to small businesses.
Every established business should update their business plan on an annual basis. This enhanced plan now becomes a strategic plan. The original business plan helps to establish the viability of the idea or product by analyzing the strengths and weakness of the venture, the marketplace and initial marketing activities. The business plan creates the financial projections and metrics on which to base success.
The strategic plan is more specific on tasks, actions and measuring results. It becomes the guide for achieving desired results which are regularly reviewed and modified. A strategic plan is the natural outcome of a good understanding of where the business is headed and the actions to accomplish the goals of the business. By definition, the strategic plan includes:
- A thorough evaluation of the state of the business including a review of the products and services, financial performance, operations, competitive advantage and the current business environment
- Explanation of the current goals for the business
- Specific Strategies for reaching the goals of the business
- Action or tactical plans to develop the strategies
- Implement milestones for the plan with specific tasks, timeframes and assigned responsibilities
- Regular, scheduled reviews of the progress on reaching the goals of the business
Failure to plan is in the top 10 reasons for why most businesses fail. Without a formal plan, the management and employees of a business do not have clear direction and focus on the actions needed to attain the goals.
Fred Green is the Director of the Launch Pad @ Francis Tuttle, a business incubator located at the Business Innovation Center in Edmond, OK. The Incubator is one of 38 incubators certified by the State of Oklahoma.