The Importance of Developing a Business Plan

Developing A Business Plan

Overview

The importance of planning should never be overlooked. For a business to be successful and profitable, the owners and the managing directors must have a clear understanding of the firm's customers, strengths and competition. They must also have the foresight to plan for future expansion. Whether yours is a new business or an existing business in the process of expanding, money is often an issue. Taking time to create an extensive business plan provides you with insight into your business. This document can serve as a powerful financing proposal.

This article will take you through the step-by-step process of developing a business plan. A business plan is very specific to each particular business. However, while each business needs a unique plan, the basic elements are the same in all business plans. To complete an effective business plan you must dedicate time to complete the plan. It requires you to be objective, critical and focused. The finished project is an operating tool to help manage your business and enable you to achieve greater success. The plan also serves as an effective communication tool for financing proposals.

At the completion of this exercise, you should be able to:

Describe the importance of a business plan

Identify the elements of an effective business plan

Write a business plan

Outline:

Why Write a Business Plan?

Who Should Write the Business Plan?

Business Plan Components

Executive Summary

The Product/Service

The Market

The Marketing Plan

The Competition

Operations

The Management Team

Personnel

Financial Data

Supporting Documentation

Summary

Resources

I. Why Write a Business Plan?

Why should a business go through the trouble of constructing a business plan? There are five major reasons:

The process of putting a business plan together forces the person preparing the plan to look at the business in an objective and critical manner.

It helps to focus ideas and serves as a feasibility study of the business's chances for success and growth.

The finished report serves as an operational tool to define the company's present status and future possibilities.

It can help you manage the business and prepare you for success.

It is a strong communication tool for your business. It defines your purpose, your competition, your management and personnel. The process of constructing a business plan can be a strong reality check.

The finished business plan provides the basis for your financing proposal.

Planning is very important if a business is to survive. By taking an objective look at your business you can identify areas of weakness and strength. You will realize needs that may have been overlooked, spot problems and nip them before they escalate, and establish plans to meet your business goals.

The business plan is only useful if you use it. Ninety percent of new businesses fail in the first two years. Failure is often attributed to a lack of planning. To enhance your success, use your plan! A comprehensive, well constructed business plan can prevent a business from a downward spiral.

Finally, your business plan provides the information needed to communicate with others. This is especially true if you are seeking financing. A thorough business plan will have the information to serve as a financial proposal and should be accepted by most lenders.

Back to Outline

II. Who Should Write the Business Plan?

You, the owner of the business, should write the plan. It doesn't matter if you are using the business plan to seek financial resources or to evaluate future growth, define a mission, or provide guidance for running your business -- you are the one that knows the most about the business.

There are a number of software packages in addition to this article that can assist you in the formatting process: Business Plan Pro, Palo Alto Software, $89.99 and Small Business Advantage, Encore Software, $39.99 are only two of many available.

Consultants can be hired to assist you in the process of formulating a business plan, but in reality you must do a majority of the work. Only you can come up with the financial data, the purpose of your business, the key employees, and management styles to mention a few items. You may still choose to use a consultant, but realize that you will still need to do most of the work, so why not tackle the plan yourself? If you need further help in one area, then seek the assistance of the consultant.

Back to Outline

III. Business Plan Components

The Executive Summary

The first page of your business plan should be a persuasive summary that will entice a reader to take the plan seriously and read on. The Executive Summary should follow the cover page, and not exceed two pages in length.

The summary should include:

A brief description of the company's history

The company's objectives

A brief description of the company's products or services

The market the business will compete in

A persuasive statement