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Creating a Small Business Plan

Written by Renee C. Quinn
B.S. Pennsylvania State University
M.B.A. University of Phoenix
Posted: February 18, 2008 @ 10:39 am
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There are many reasons why you will need a Business Plan, some of which include the following; to develop and communicate a course of action, to create a set of “blue prints” for your business where you will outline each area of your business and set long term and short term goals, to interest and secure potential investors, to secure additional funding such as bank loans, to prepare for foreseeable problems, and to prepare an exit strategy. Writing a business plan gives you the opportunity to make mistakes on paper and will help prevent you from making the same mistakes over and over again in the real world.

But how do you write a business plan? Where do you begin and what exactly should you include in it to make it complete? If you would like to create your business plan yourself, but need some guidance to get you started, the United States Small Business Administration (SBA) provides you with a Step by Step Guide in PDF format on “How to Write a Business Plan.” Another option available to you would be to utilize business plan software to help you get started. There are many different ways to write a business plan depending upon the results you seek. Needless to say, some forms are better than others. The software I see most commonly is Business PlanMaker Professional or Business PlanMaker Deluxe by Individual Software. Business PlanMaker Professional 2007 will help you develop a professional business plan and financial model in order to help you secure funding through banks or investors. It helps you create a plan that supports your financial model including how and when your ideas will be profitable, in a format recommended for Bankers, Investors, and the SBA. Business PlanMaker 2007 Deluxe focuses on the financial components of a plan allowing entrepreneurs and business managers and owners to demonstrate how their business strategy will lead to financial success. In addition, many local colleges or universities have programs to assist small businesses. Some schools offer non credit courses to assist you in creating Business Plans. Others have Small Business Outreach programs that will work with you one on one to create one.

There is no limit to the pages featured within a Business Plan, however according to the Small Business Administration the average business plan is about 30-40 pages in length. A basic business plan should include, but is not limited to an Introduction, a section on Marketing, a Financial Management section and an Operations section. You should also include any supporting documents you may have at the end of your business plan.

Following are my recommendations for creating a basic small business plan. You should start off with an Executive Summary that outlines the goals and objective of your small business and lets your business strategies be known. Here you will include a detailed description of the type of business you have and what the company’s long term and short term goals are. You should outline the ownership structure of your business and briefly describe how your business came to fruition. Feel free to include the names and backgrounds of lead members of your management team. Discuss your expertise to show your audience what skills and experiences you and your team bring to the business and what competitive edge your small business has. You should also discuss your company’s legal structure in this section as well.

The next section to include in your business plan is your Marketing section. Here you will communicate the types of products and services you offer. You will want to describe how your products and services differ from the competition presently on the market. You will need to research the marketability of your products and services. What is the current demand within your geographical marketing area? Who are your target audience, where are they located and how will you reach them? You will need to disclose what your advertising and marketing plans are. What types of advertising will you use; will you use print ads, television and/or radio ads, will you use the online marketing tools such as internet search engines or advertising on other websites, will you network and try to utilize word of mouth advertising? How much do you intend on spending on your advertising campaign? All of this information is necessary to show the business community, potential investors and lending associations how you intend to grow your business. And finally you will need to divulge your pricing strategy, considering pricing methods, pricing objectives and the overall cost of doing business.

The next section, your Financial Management section, is of the utmost importance if you plan on acquiring funding from outside sources such as lending institutions, small business grants or potential investors. Here you will deliberate what your start-up costs are and what source these funds will come from. You need to project what you feel is the expected cash flow for at least the first year. Do not overestimate in this area, instead look to be more modest therefore leaving less room for failure of these goals. You will also want to include a two to four year financial forecast which is comprised of projected income statements, and balance sheets for the entire period and spreadsheets containing the formula with which you used to come up with your projections. Explore how you will compensate yourself and your management team and/or employees and address how you plan to maintain your accounting records and procedures.  And finally, if you have a Dun & Bradstreet number, be sure to include it in this section to prove the legitimacy of your business to investors.

Next you will want to extrapolate your Exit Strategy in the event you decide to close the business. Planning how to exit your business can be just as important as starting it. There are many factors that can cause a business to close; lack of revenue, inability to secure funding, death or disability of key members of the management team, and so on. You need to reach a consensus among the ownership team as to how you will dissolve the business if the need arises. Depending on the size of the business and how long you’ve been operating, you will need to disclose what you will do with assets, inventory and the like. If you have secured outside funding you will need to ascertain how you will handle repayment of these funds. You will want to have this ironed out early on so that all members of the ownership team are in agreement. Obviously, the more owners there are in your business, the more issues that can arise.

Finally, I suggest that you include in and Appendix to your business plan documentation that supports the information you have included within your business plan. If you referred to research or studies within the text of your business plan, a copy of said research should be included at the end of your business plan.

Whether you choose to create your business plan from scratch, utilize software to assist you in formatting one, or plan to contact a local university or Community College for help, a business plan is an essential document to have. Once again, if you plan to secure any kind of outside financing, including individual investors, a business plan is imperative. Lending institutions and investors want to see that your business makes good sense and can be profitable. A business plan will put many of those concerns at ease.