Paul Horton: Write a Business Plan Before You Start a Business

Before you start your business, you should plan on starting a business plan. Even if you don’t finish it right away, the process itself will help you get organized. A business plan is the foundation for the success of your business and without a solid plan in place, businesses are much more likely to fail. Just as you wouldn’t build a home without a solid foundation or a car without a blueprint, you will not want to build your business without first starting a business plan.

A Business Plan is Important

A business plan is the blueprint of your business. It maps out where you wish the business to go, how you’ll get there, and how you plan to build it from big picture goals, such as objectives and the nature of the business, to specific details like market research results and financial forecasts. A business plan not only will give you a sense of where the business is going and how to get there, but also will tell you, as an initial matter, whether it is even feasible. Knowing this information before you’ve spent a good deal of time and money on the project is itself worth investing the time in writing a business plan.

Starting a business plan doesn’t necessarily have to be a long, time consuming process. In fact, most business plans aren’t very complicated. But they do require serious contemplation and honest evaluations of you and your resources. Simply cobbling together a few numbers and thoughts on a napkin is worth about as much as not doing a business plan at all. Business plans are meant to force you to think logically about the odds of success and whether you have the capability to create a solid business.

Writing a business plan can help prospective business owners to:

Define their business
Determine if the business is likely to make a profit
Estimate start up costs (including how much you’ll need to invest or how much financing you’ll need to get)
Find financing by having a solid business proposal to show investors
Devise a marketing strategy
Compete in the marketplace by doing research on your competition
Anticipate problems before they arise (e.g., perhaps you sense a labor shortage for your type of business it would be wise to keep your employees happy before they look for other work)
Help explain the business’ objectives and methods to employees and assist in the hiring of new employees

If you can churn out a quality three to five page document that focuses on crucial factors specific to your business, you’re on the right track. Business plans make you focus on the topic and think critically and creatively with respect to the challenges and expectations of the business. There are many different reasons to write a business plan (as evidenced above), and depending on the main objective for writing the plan (finding financing, keeping yourself on track, etc.), you should focus on attaining that goal.

Only Get Investors If You Comply with Securities Laws

If you need capital from investors to help fund your business, a business plan is absolutely essential. Just as you wouldn’t give money to a person selling stocks for his company on the street corner, no serious investor will give your company their money without a solid business plan that outlines the company’s future financial health. Without it, the investor might as well play the lottery.

When seeking investment capital, business owners will have to put much more effort into researching and presenting a professional business plan. This means doing a great deal of research and analysis of the marketplace (i.e., consumers and competition) and even more number-crunching to determine specifics such as revenue, breakeven points, and potential for profit.

In addition to accurate analysis and breakdown of numbers, the presentation of the business plan will be just as important. You should have the plan bound in binders or folders, with charts and graphs for ease of reference, and at the very least have another person read it over for typos or grammatical errors.

Determining Whether It’s Worth It Financially

Whether or not one of your objectives is to find financing to fund your business, you’ll need accurate analysis of financial figures for the success of your business. Many businesses fail because their owners fail to objectively and critically assess financial projections for future performance. All business is a calculated risk, and the best way to minimize the risk is to emphasize the calculations of financial figures.

When writing a business plan, be completely honest with yourself. The planning stage is no time to fudge numbers or be overly optimistic about financial projections. Rather, it is the time to determine whether it’s fiscally feasible to embark on the endeavor in the first place. You’ll need a breakdown of startup costs, profit and loss forecast and cash flow projection (at a bare minimum) to make such a determination. From a financial perspective, you should enter into business planning with a skeptical eye, and your business plan should be able to convince you to enter into the business.

No matter how you use your business plan, the simple act of starting a business plan acts as insurance against the risk that the business will fail.

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