WHY YOU NEED SMALL BUSINESS PLANS!

Good, small business plans, prepared well in advance of starting your business can help ensure that your business succeeds.

The extent of your planning and the thought put into your business plans will often make the difference between a business succeeding or failing.

I cannot stress too much the need to do a business plan for your business, no matter the size of the business.

The need for good small business plans can be illustrated by quoting some of the Small Business Administration (SBA) statistics.

Of all the new businesses started each year in the USA, only 40% of them will still be in business by the end of year six! 70% of the remaining 40% all state that their small business plans contributed to their success.

It is therefore an almost foregone conclusion that if you want to succeed in business you need a business plan.

Writing business plans

Before you get down to the actual plan itself, we need to set ourselves a few ground rules. Here they are:-

• One needs small business plans not only to borrow money, but as a guide to your business goals. A good business plan, which includes your business mission statement, will keep you and your business on track and acts as a road map to your future.

  Be ruthless with yourself when planning. Prove to yourself that your potential business can succeed. Write the plan for yourself, not your banker. If you can prove and show that the business has merit, you will convince your potential investor as well.

• When drawing up your plan, look out for any possible setbacks that are likely to happen.

  If your market surveys show you that you have insufficient market to justify going into business, then don’t.

  If you calculate that you will need more money than you estimated, say so, better to be turned down before discovering, when you are already in business, that you are under capitalized.

  Be honest and truthful with yourself, that is the least you owe yourself.

• Agree that if you find a weak spot in your business idea, you will investigate it fully and not gloss it over
• You must market survey thoroughly because if you don’t you will never know if the business is a viable proposition. Without potential customers you are dead.
• Don’t pad the plan, go for quality not quantity.

Now that we have agreed to be honest with our planning, let’s get to the how of small business plans.

Putting a plan together

All small business plans are standard to a greater or lesser extent. However they also all vary to some extent, depending on the type of business that they are written for.

Here is a standard plan layout that will cover most businesses.

• The cover, title page and table of contents.

  You are putting a lot of work into your business plan so present it well.

• Executive Summery

  Here is where you summarize your whole plan, give an overview of everything that you cover in depth elsewhere in the plan.

  You will cover here your company’s mission, potential market, the structure of your business, strategies, fund requirements and profits

  Don’t repeat your small business plans details here; keep it short and sweet, one to two pages at most. Write it last, after you have completed all the other sections of the plan. This allows you to mention only the crucial points of the plan, points that will be read first by possible

investors.
• Business description

  What will your business be doing? Start with the industry that you will be trading in, be it manufacturing, wholesale, retail, or a service industry. How will you fit in and what will be your market niche? What is the demand for your product?

  What type of legal business will you be operating? Sole proprietorship, partnership, corporation or limited liability company, all have their pros and cons.

  When you are wanting money, explain how this will increase the business. What are your plans for success?

• Competition

  Who is the competition and where are they? Can you do better than them and outsell them? Give a list of your competitors and say who and what they do that is good or bad for you.

  How will you be better than them? Have you a better product, price, location, quality than them and how will you get their customers to change over to you?

  Have you and how have you, done your market research?

  Show in your plan how you can deal with and overcome competition.

• Marketing plans and strategies

  This is all about customers so you want to show the who, what, where, when and why of your potential customers. Depending on what your research finds here, you can devise plans to sell, distribute and fix prices to meet their needs.

  Start with the product/s and or services you are going to sell; is there a market for them? Do you anticipate increasing demand for your product?

  Are you going to be employing people to sell your product or services, how are you going to set goals for them?

  In other words, lay out what you will sell, who your customers are going to be and then give reasons why you think that they will buy from you.

• Your Management team

  Here you sell the people who will make it all come true.

  The more you need small business plans to help raise funding, the more quality and experience you need to show in the management team. No one is going to be keen to lend money to you, or a bunch of you, if you can’t lay out what you all have that will make the business a success.

  Lay out all your and your peoples education, skills, any work history and how all this is ideal experience for your new business.

  If you are determined to go into a business that you have no experience of, then make sure that you can list some advisors who do have the experience.

  Under this section in any small business plans, you could also list the personnel you think you will be needing at startup and in the future. Where will you get them, what will they be needed for, and how much will they cost?

  If this is a large part of your business, then probably cover it in a separate section.

  Be accurate, but sell the idea that you and your people are fit and capable of running your business and making money.

• Financial Analysis

  Now to that part of your plan that most lenders go to first, the business financial plan.

  Spend some time on getting this right; you need accurate figures not only for your lender but also for yourself. These figures will show you if the business is likely to be viable and how long it will take to become viable.

  Depending on the size of your potential business, I would suggest that the financials could be the first section of any small business plans completed. However you may need input from your other sections first in order to complete your financial section so play it by ear.

  If the initial financials show that your idea is a no go, then either adapt your concept to be profitable or give up and look elsewhere.

  Showing business profitability is a must in any plan.

  Another problem that many potential business people have with the financials is fitting in the concept of showing something for a business that has not even started yet! How can you forecast your sales for year three when you have not sold anything for month one yet?

  Not easy, but everyone has to do it and if you give it your best, you will be surprised how accurate you can be.

  A quick aside here, get yourself a good accountant. Let me explain here what I mean by good.

  To me an accountant, for any new business, should be chosen in the planning stages of your business, before you have even drawn up a business plan.

  Your pick of accountant must obviously depend on the type and the size of the proposed business. If you can find an accountant that has or is dealing with similar businesses elsewhere, so much the better. Always look for someone who has dealt with many other businesses of the same size as your proposed business.

  The experience of your accountant is worth a huge amount when putting together your small business plans, so choose well.

  Who not to choose? Your friend or relative's sister or cousin who does books! You don’t need a bookkeeper now, you need an accountant. Bookkeepers come later.
  

  Now onto the actual financial analysis of your proposed business.

What finances?

There is only one purpose to any financial analysis and that is to show you and the world how your business can make money. To do this you need to prepare the following pro forma statements:-

• Income Statement. Also called the profit and loss statement shows how the business generates cash over a period of time.

  It will show your projected revenues or income and expenses over a period of time. Normally prepare monthly statements for the 1st year of business, quarterly for the second year and annually for the next two to three years.

• Cash flow projections Probably the most important statement for you to get right.

  Here you will show when the cash goes out and when it will come into the business.

  Cash flow is vital to any business, so you need to show that you will have enough to cover the cash expenses of the business in a timely manner.

  Showing that you have good cash flow can often mean the difference between getting a loan or not. Again, should be shown monthly, quarterly and yearly into the future.

• The balance sheet In here you will show to the world what you are made of at the end of each month, quarterly or annually. The balance sheet simply lists the company’s assets, liabilities and equity or net worth at that point in time.

All small business plans must contain, at a minimum, these three statements, because, based on them, you can now put together the amount of funding the business is likely to need, over the period before break even and profit.

Show the funding needed, where and when you will spend it and finally how you intend to repay it.

Always show that you are putting some of your own cash into the business.

If you are borrowing, lenders like to know that you are prepared to put your home, life savings or other assets on the line, so tell them in your small business plans what and how much is coming out of your own pocket.

A good and helpful site for small business advice and training, and a resource partner with the U.S. Small Business Administration (SBA) is SCORE.

• Other matters

  All of the above statements apply to all types of businesses; however, don’t forget to include in your small business plans any other information that might apply to your unique or very different business.

  Attach a list of the ratios that apply to your business, such as return on investment, break even analysis and return on assets.

  If your business needs equipment, include a capital equipment list. This list will show the equipment that you will need to produce, manufacture or sell your product or service. Also include your delivery vehicles, office furniture, machinery and computers.

  If you can obtain them, include any personal references from any people of note that you might know. Do the same with any business references, such as former employers.

  List contact details of your accountant, attorney and bank manager.

  Finally, before printing any small business plans, if you have not been using your accountant all along, do so now for any final suggestions and checks. Your plan needs to be complete, to show that you understand the business and how you will grow your business. This final check before completion, by an outsider, can often give a polished end result.

  Right, you are now finished with your business plan and you are prepared to go out and raise the funding you need.

  Well, a word of advice here!

  Never, never ever think that that is the end use of your business plan. Your plan will be needed to help you raise money, but after that, you neglect it at your peril.

  Check your plan often when in business, update it annually, at least, and use it to help when setting business goals as well as to guide your business to success. Good small business plans, that are used, will help you succeed.

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