The Importance of a Business Plan

A business plan is a very important component of a start-up business. It can and should be used as a tool for understanding how your business is put together. It can be used to monitor progress and hold yourself accountable. It can also be used as a sales and recruiting tool for courting key employees and future investors. It conveys your business goals, the strategies you will use to meet them, potential problems and ways you may solve the problems, organizational structure and amount of capital required.

In addition to lenders and investors looking at business plans in connection with evaluating funding decisions, it allows you to think through your business and proposed strategy that just talking about it and not putting it on paper never really can do. The value lies in the process of researching and thinking about your business in a systematic way. It lets you look at your ideas critically, and it forces you to review everything all at once, including your marketing assumptions, financial plan, operating plan and staffing plan.

It’s generally advisable to keep the business plan somewhat “simple” so you can get your point across quickly and easily to the reader. It is also generally recommended to keep it short and to the point, say no more than 15-25 pages plus appendices.

As mentioned above, a well written plan will also assist you in recruiting staff. It will allow you to hand a prospective employee a plan that gives them an entire overview on your business.

A business plan is generally comprised of the following components:

• Table of Contents.
• Executive Summary (which you usually prepare last) - This basically summarizes everything else in the plan.
• General Company Description – This typically includes what your business will do, includes a brief mission statement, lists your company goals and objectives, describes your industry and describes the form of entity you are.
• Products or Services – This typically provides an in depth analysis of your products or services being offered.
• Marketing Plan/Strategies – This would include market research, identify your customers, identify competition and an outline of your marketing strategy, including distribution channels and sales forecasts.
• Operational Plan – This would explain the daily operation of the business, including describing production, location, personnel, inventory, supplies and credit policies.
• Management and Organization – This would include explaining who would manage the day to day operations and laying out who your board of directors and key professionals are.
• Start-up Expenses and Capitalization – This would set forth the initial expenses as well as how much initial capital you will need and where you plan to obtain it from.
• Financial Plan – This would include profit and loss projections, projected cash flow, a balance sheet and a break even analysis.

Of course, once you prepare your business plan, you should thereafter constantly update the plan, as your business plan is a long-term planning process.