Dear M & M: Why is so important to have a business plan and what goes in one? – Doug
A good business plan will guide you through every stage of your business from start to shut down. It is a way to think through key elements of your business. Business plans can assist you to obtain funding by showing a lender how you plan to pay back the money or to convince an investor on how they will see a return on their investment. There are thousands of business plan templates out there. Pick one that works for you.
Keep in mind a traditional business plan has these key elements (Executive Summary, Company Description, Market Analysis, Organization and Management, Service or Product Lines, Marketing and Sales, Funding Requests, Financial Projections and Appendix). A traditional business plan is very detailed and is generally required by lenders or investors.
Every business should have a business plan that is updated annually. A business plan is your roadmap or path your business plans to take as it moves forward. In a traditional business plan your goal in the financial section is to convince the reader your business is stable and will be a financial success. One will want an income statement, balance sheet and a cash flow statement. For an established business you will need the last three years of financial statements as well as a forecasted perspective financial outlook for the next five years.
For a new business you should provide a monthly cash flow projection for at least the first year. In years two and three you could project quarterly cash flow statements, quarterly income statements and annual balance sheet projections. A typical traditional business plan can be 30-60 pages. Sometimes we do not need to do a complete or traditional business plan. Looking at the second choice a quick lean plan can take as little as one-two hours to write.
A lean plan contains the following elements (Key Partnerships, Key Activities, Key Resources, Value Proposition, Customer Relationships, Customer Segments, Channels, Cost Structure and Revenue Streams). If you are looking to take on a new product or service line a lean plan might be a good choice. You will want to focus on the Market Analysis section to make certain you understand your industry and target market. Competitive research must be done to show what other businesses are doing and what their strengths and weakness are.
This will allow you to see possible opportunities in your market. What are successful competitors doing? Why is it working? What can you do better? A great example of a lean business plan could be to focus on your Value Proposition. What is it that promise of value you are going to deliver? How does your product or service solves your customer’s problem or improves their lives.
You should be able to know who the ideal customer is and why they should buy from you and not the competition or your unique differentiation. Whether writing a lean or a traditional business plan stick to the key elements that pertain to your situation. Certain sections can be expanded that make sense for your business and your needs. Benjamin Franklin said it first, “If you fail to plan, you are planning to fail.”