Getting started in a new business requires a lot of work, not the least of which is planning. Although many business owners claim to little or no formal planning, even the most intuitive of them have some idea of what they’re trying to accomplish and how they hope to do it. However, all successful entrepreneurs know that planning is essential to success.
No amount of hard work can turn a bad idea into a profitable one: The health food store in the meat and potatoes neighborhood and the child care center in a retirement community are probably doomed from the beginning.
Planning forces you to think ahead. Before you rush in to supply a product, you need to be sure that a market exists. You must also try to foresee some problems that might arise and figure out how you will deal with them.
One of the first steps you should take toward starting a new business is to develop a business plan, a written document that summarizes and entrepreneur’s proposed business venture, communicates the company’s goals, highlights how they plan to achieve those goals and shows how consumers will benefit from the company’s products or services.
Preparing a business plan serves two important functions: First, it guides the company operations and outlines a strategy for turning an idea into a reality. And second, it helps persuade lenders and investors to finance your business.
Although a business plan has a simple and straightforward purpose, it still requires a great deal of thought. For example, before you open your doors, you have to make important decisions about personnel, marketing, facilities, suppliers, and distribution. A written business plan forces you to think about those issues and develop programs that will help you succeed.
If you are starting out on a small scale and using your own money, your business plan may be relatively informal. But at a minimum, you should describe the basic concept of the business and outline its specific goals, objectives, and resource requirements.
A formal plan, suitable for use with banks or investors, should cover these points:
— Summary
In one or two pages, summarize your business concept. Describe your product or service and its market potential. Highlight some things about your company and its owners that will distinguish it from its competition. Summarize your financial projections and the amount of money investors can expect to make on their investment. Be sure to indicate how much money you will need and for what purpose.
— Mission and Objectives
Explain the purpose of your business and what you hope to accomplish.
— Company and Industry
Give full background information on the origins and structure of your venture and the characteristics of its industry
— Products or Services
Give a complete but concise description of your product or service, focusing on its unique attributes. Explain how customers will benefit from using your product or service, instead of those of your competitors.
— Market and Competition
Provide data that will persuade the investor that you understand your target market and can achieve your sales goals. Be sure to identify the strengths and weaknesses of your competitors.
— Management
Summarize the background and qualifications of the principle, directors, and key management personnel in your company. Include resumes in the appendix.
— Marketing Strategy
Provide projections of sales and marketing share and outline a strategy for identifying and contacting customers, setting prices, providing customer services, advertising, and so forth. Whenever possible, include evidence of customer acceptance, such as advance product orders.
— Design and Development Plans
If your product requires design or development, describe the nature and extent of what needs to be done, including costs and possible problems.
— Operations Plan
Provide information on the facilities, equipment, and labor needed.
— Overall Schedule
Forecast development of the company in terms of completion dates for major aspects of the business plan.
— Critical Risks and Problems
Identify all negative factors and discuss them honestly.
— Financial Projections and Requirements
Include a detailed budget of start-up and operating costs, as well as projections for income, expenses, and cash flow for the first 3 years of business. Identify the company’s financial needs and potential sources.
— Exit Strategy
Explain how investors will be able to cash out or sell their investment, such as through a public stock offering, sale of the company, or a buyback of the investor’s interest. When covering these points, keep in mind that your audience wants short, concise information — not lengthy volumes — and realistic projections for growth.
Keep in mind that sometimes the greatest service a business plan can provide an entrepreneur is the realization that the concept just won’t work. Discovering this on paper can save you tons of time and money.
