Mapping your path with a business plan

The importance of a comprehensive, thoughtful business plan cannot be overemphasized. A business plan precisely defines your business, identifies your goals and serves as your firm’s resume.

by Bruce Hodgman — 

You would not start out on a cross-country trek without a map, so why would you try to start a business without a business plan?

The importance of a comprehensive, thoughtful business plan cannot be overemphasized. A business plan precisely defines your business, identifies your goals and serves as your firm’s resume. It helps you allocate resources properly, handle unforeseen complications and make good business decisions. One of the greatest benefits is that putting a plan together forces you to sit down and map out exactly how you expect to make your idea successful.

A business plan helps lay out the structure of a new company. Many of the external components the business needs to get off the ground hinge on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, and achievement of your goals and objectives. Because it provides specific, organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Most, if not all, business lenders require an all-inclusive business plan before they will consider any loan application. Additionally, a well-written business plan informs sales personnel, suppliers and others about your operations and goals.

Despite the critical importance of a business plan, many entrepreneurs drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don’t have enough time. But, just as a builder won’t begin construction without a blueprint, eager business owners shouldn’t rush into new ventures without a business plan.

There are four core questions to answer before you begin writing your business plan.

1. What service or product does your business provide and what needs does it fill?
2. Who are the potential customers for your product or service and why will they purchase it from you?
3. How will you reach your potential customers?
4. Where will you get the financial resources to start your business?

Although there is no single formula for developing a business plan, some elements are common to all business plans. Start with a cover sheet, a statement of your business purpose and a table of contents. Then, include a section about your business idea: describe your business, tell how you plan to market it, review your competition, describe your planned operating procedures, discuss your plans for employees, how you plan to hire and train them, and describe your approach to insuring the business.

Next, you will want to provide detailed financial data, including the loan applications you will file, an itemized list of necessary equipment and supplies, a balance sheet showing your assets and liabilities, an analysis of what it will take for you to break even, and a projection of your business’ income, including anticipated profits and losses.

Your financial data should also be organized into a three-year summary, with detailed projections of cash flow, costs and income, organized month-by-month for the first year, and quarter-by-quarter for the second and third years. Be sure to include a discussion of the assumptions on which your projections are based.

You should also have an executive summary in which you summarize the plan and to which you attach supporting documents and financial projections. The supporting documents should include resumes and tax returns of the principal owners for the previous three years, a copy of a franchise agreement if your business is a franchise, copies of proposed leases or purchase agreements for business space, copies of licenses and other legal documents, and copies of letters of intent from suppliers and known customers.

The Small Business Administration offers a detailed guide to producing and writing a business plan at www.sba.gov/library/pubs.html#mp-32 or www.sba.gov/library/pubs.html. The SBA also offers a comprehensive guide to starting a business on its Web site at www.sba.gov/starting_business/index.html.

They also offer free training and counseling to future entrepreneurs. For further information, call 602-745-7200.

Bruce Hodgman is the deputy district director of the Small Business Administration in Arizona. bruce.hodgman@sba.gov.

Reprinted from AzNetNews, Volume 24, Number 5, October/November 2005.