Believe it or not, part of planning your plan is planning what you'll do with it. No, we haven't gone crazy--at least not yet. A business plan can be used for several things, from monitoring your company's progress toward goals to enticing key employees to join your firm. Deciding how you intend to use yours is an important part of preparing to write it.
Do you intend to use your plan to help you raise money? In that case, you'll have to focus very carefully on the executive summary, the management, and marketing and financial aspects. You'll need to have a clearly focused vision of how your company is going to make money. If you're looking for a bank loan, you'll need to stress your ability to generate sufficient cash flow to service loans. Equity investors, especially venture capitalists, must be shown how they can cash out of your company and generate a rate of return they'll find acceptable.
Do you intend to use your plan to attract talented employees? Then you'll want to emphasize such things as stock options and other aspects of compensation as well as location, work environment, corporate culture and opportunities for growth and advancement.
Do you anticipate showing your plan to suppliers to demonstrate that you're a worthy customer? A solid business plan may convince a supplier of some precious commodity to favor you over your rivals. It may also help you arrange supplier credit. You may want to stress your blue-ribbon customer list and spotless record of repaying trade debts in this plan.
Assessing Your Company's Potential
For most of us, unfortunately, our desires about where we would like to go aren't as important as our businesses' ability to take us there. Put another way, if you choose the wrong business, you're going nowhere.
Luckily, one of the most valuable uses of a business plan is to help you decide whether the venture you have your heart set on is really likely to fulfill your dreams. Many, many business ideas never make it past the planning stage because their would-be founders, as part of a logical and coherent planning process, test their assumptions and find them wanting.
Test your idea against at least two variables. First, financial, to make sure this business makes economic sense. Second, lifestyle, because who wants a successful business that they hate?
Answer the following questions to help you outline your company's potential. There are no wrong answers. The objective is simply to help you decide how well your proposed venture is likely to match up with your goals and objectives.
- What initial investment will the business require?
- How much control are you willing to relinquish to investors?
- When will the business turn a profit?
- When can investors, including you, expect a return on their money?
- What are the projected profits of the business over time?
- Will you be able to devote yourself full time to the business, financially?
- What kind of salary or profit distribution can you expect to take home?
- What are the chances the business will fail?
- What will happen if it does?
- Where are you going to live?
- What kind of work are you going to be doing?
- How many hours will you be working?
- Will you be able to take vacations?
- What happens if you get sick?
- Will you earn enough to maintain your lifestyle?
- Does your family understand and agree with the sacrifices you envision?
Sources: The Small Business Encyclopedia, Business Plans Made Easy, Start Your Own Business and Entrepreneur magazine.
Continue on to the next section of our Business Plan How-To >> Elements of a Business Plan