Editor's note: This article was excerpted from Business Plans Made Easy, a guide to creating a high-impact business plan.
The process of writing a business plan helps you take a thorough, careful and comprehensive look at the most important facets of your business, including the contexts in which it operates. Just raising questions can sometimes lead to a solution, or at least ensure that if conditions change you won't be forced to make decisions hastily. The ongoing "what if this or that happens?" inherent in the planning process keeps you alert. In other words, the planning process itself makes you a far more capable manager than you would be without it. For many, this is a more valuable result than securing funding.
In many ways, writing a business plan is an end in itself. The process will teach you a lot about your business that you are unlikely to learn by any other process. You'll spot future trouble areas, identify opportunities, and help your organization run smoothly, simply through the act of writing a plan.
Evaluating a New Venture
Lisa Angowski Rogak is an entrepreneur who started several newsletters in much the same way. She devised a plan focusing on marketing strategy and cash flow projections to see if she could come up with a way to sell the newsletters while keeping her bills paid. She then prepared a sample issue to be used in a direct mail and publicity campaign. "Planning is the key to the success of your newsletter," says Rogak, whose latest venture is Williams Hill Publishing. "It's the single most important thing you can do to ensure the success of your newsletter."
That's the kind of encouragement that helps entrepreneurs persevere, whether they have an existing concern that's hitting a rough spot or a startup concept that nobody else seems to believe in. Numbers can lie, of course, and nobody can create a spreadsheet that really tells the future. But evaluating financial data is to entrepreneurship what evaluating lab results is to a medical doctor. If your vital signs are good, odds are your future will be as well
But what if the odds don't look so favorable? What if the first pass through your cash flow projection or income pro formas contains more red than a fire station paint locker? Sure, you can go back and look for an error or an overly pessimistic or conservative assumption. You can even try altering a few of the inevitable numbers that you really have no way of estimating accurately to see where the pressure points are, if nothing else.
But what if you do that, even pushing your alterations past the point of credibility, and your plan still doesn't make sense? Well, in that case, you've probably done yourself the really big favor of finding out something isn't going to work before you sink your money into it. Nobody knows exactly how often this happens, but it's safe to say that a lot of businesses are never attempted because the plan convincingly says that they shouldn't be.
Is that bad? Well, it may feel bad. But think how much worse you would feel if you went ahead with the venture, and things turned out as the plan forecast. Business planning is a powerful tool for evaluating the feasibility of business ventures. Use it.
It would be a shame to keep the benefits of a well-done plan to yourself. And you shouldn't. You can use your plan to find funding. But a good plan can also help sell your products, services, and your whole company to prospects and suppliers. Furthermore, a plan is a valuable tool for communicating your visions, goals and objectives to other managers and key employees in your firm.
Selling with Your Plan
As a rule, your business plan is only likely to be required in the later stages of being selected as a supplier. Let the customer's process decide when or if you'll present your plan. As an added benefit, working your way through the early stages of vendor selection will give you a chance to rework your plan, if necessary, to stress the areas you've learned are more important to your potential customer.
Informing Suppliers and Customers
Increasingly, companies large and small have been trying to trim the number of suppliers and customers they deal with and develop deeper and stronger relationships with the ones they keep. An essential part of this is getting to know more about existing and prospective vendors and clients. So don't be surprised if one day, when you're trying to set up a new supplier relationship or pitch a deal to a big company, the person you're negotiating with asks to see your business plan.
Why do suppliers care about business plans? Suppliers only want to sell to people who can pay, which is one important reason a new supplier is likely to want to see your business plan before taking a big order. Remember, if a supplier is selling to you on credit--letting you take delivery of goods and pay for them later--that supplier is, in effect, your creditor. Suppliers who sell for other than cash on delivery have the same legitimate interest in your business's strategy and soundness as does a banker.
Say a supplier's analysis of customer records shows it has a knack for developing long-term profitable relationships with moderate-sized companies that emphasize excellent service, price at a premium level, and provide only the best merchandise. Business plans provide all the information such a company will need to find and clone its best customers. So if a supplier asks to see your plan, be willing to share it. It could be the start of a long and mutually beneficial relationship.
Customers are likely to be concerned about how well your respective strategies fit with theirs. For instance, say your mission statement says that you intend to produce the best-in-the-world example of your product no matter what the cost. Your customer, meanwhile, is a high-volume, low-price reseller of the type of products you make. Even if your offering fits the customer's need this time, odds are good that the relationship won't work out over the long haul. If, on the other hand, a look at your business plan reveals that your companies share the same kind of strategies and have similar objectives in type if not scope, it's an encouraging sign.