What is a business plan and why write one?

May 11, 2009

Let me start with an analogy. If you buy a new television or DVD player for your home you would expect that there would be a manual or book of instructions as to explain what the item is, what is it used for and how it is used. Without the instruction manual you would not know how to turn it on, change channels, put the power on etc. The business plan is to the business what the instruction manual is to the television. A business plan is your plan of action for your business. Without a plan you are taking a very dangerous risk; failing to plan is planning to fail. The foundation of a business plan is hard facts. You may not know everything about a business but you should be able to find out a great deal about your competitors, product ranges, best selling lines, suppliers and wholesalers, market trends, seasonal trends in sales etc. Then base other figures and projections on the best information available to you at the time.

It is a constant source of amazement that people set up businesses without knowing what amount they have to sell to breakeven, how much in debt they could be getting into, what their realistic sales should be. Setting up a business is a long term investment in your money, probably other peoples money, your career, your families time and resources. Therefore setting up a business is a long term commitment and should only be taken when you are sure of your facts. A business plan gives you the opportunity to assess the viability of your business idea and it gives you a yardstick by which to assess the businesses actual performance later on.

Who is a business plan wrote for? YOU! This is YOUR plan and it should make sense to you. The figures you put down should be realistic and you should be able to defend them to yourself and others as needs be. If you are writing a business plan which is not accurate the only person you are fooling is YOURSELF.

Why do financial institutions want to see your business plan? Let us be clear! If you go to a financial institution, public body or private investor looking for them to invest either private or public money in your business, then the least they are expecting is an ability to assess the viability of your business. Nobody will just throw money into a business without knowing that it is a safe investment and that loans will be repaid. Ask yourself this; would you invest in something that you are told nothing about. Your business plan should give all the relevant information about your business. BUT, you should not write the business plan to give to another agency. You should write the plan for your information, but be willing to share this information with others who need the information. Incidentally, my experience is that other professionals will read your business plan in the following manner. First, they read the executive summary, then they read the cash flow forecast and thirdly, they read the management plan, or if you prefer, what is it, is it viable and can this person deliver it?


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