When I teach students who are studying apparel design I compare a Business Plan to a sewing pattern. When I teach other groups, I compare a Business Plan to a map. In either case, the Business Plan represents a set of directions to follow in order to arrive at the goal of making a profit. In the same way that we would never expect a sailor to leave port without a map, we should never expect a business to operate without a plan including all of the activities that are necessary to achieve success.
Unfortunately, this is often not the case. Entrepreneurs often have a great product or service idea, but they don’t think through what is required to make their idea into a viable business. The following article helps explain why those in small business should always have a Business Plan. http://www.morebusiness.com/running_your_business/management/v1n5.brc
Larger businesses often are better at planning – perhaps you have worked for a company that does annual “budgets” or “profit plans”. These plans are all basically the same in principle – they try to predict, as accurately or possible, sales for a coming period (usually a year, but can be divided into quarters for the coming year).
To achieve a certain level of sales, it can be determined that certain resources are needed – inventory (it would be hard to achieve sales of $100 if you have only $1 of merchandise on the shelf), personnel (to do lots of sales, you need lots of salespeople or service representatives), and facilities (you need lots of square footage of store if you are going to do lots of sales). Planning, then, becomes as critical as the product or service idea itself.
In a minute I will ask you to go to see how the Small Business Administration recommends developing a Business Plan.
But then how is the plan used?
A Business Plan is used for three purposes:
1. To remind the owners of what they are doing.
· I had a friend who worked for GoToNet.com. He joked that their Business Plan was, essentially, “do cool things on the web”. Has GoToNet.com been successful in the long run? (No.) Did they carefully consider what VALUE they brought customers with what they were doing? (No.)
2. To remind employees of what they are doing.
3. To tell investors what the business is doing, and convince them to invest based on the strength of the plan.
· This is the often the most important purpose of the Business Plan – to secure the necessary financing to achieve the goals laid out in the plan.
Some of the elements of the Business Plan will not be familiar to you yet – especially the financial statements and the marketing plan. We will be going into these areas in more detail in the coming weeks.
What is important is to understand that there must be a structure to a Business Plan, and that the structure must be understandable to the reader.
Bring it out later, too.
And the usefulness of the Business Plan does not end once the business is underway. As I mentioned above with larger businesses, there is an ongoing process of reviewing goals and establishing budgets in order to effectively plan for upcoming activity. (Accountants call this ongoing planning “budgeting”.)
Every business, however, should take the plan out often and review it to make sure the assumptions, projections, and structure are still in sync with actual results. The following link explains more of the ongoing importance of the Business Plan as a model for the success of the business.
Please now go to http://www.sba.gov/starting_business/planning/basic.html to see the structure of the Business Plan recommended by the Small Business Administration.
Read Business Plan Basics, then on the left click on Writing the Plan, read that, and then click on Using the Plan.
Here is another good reference site that you may want to come back to as you dig deeper into the Business Plan: http://www.bplans.com/