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Thinking through what your business is about and finding a factual basis for your idea is a necessity if you are seeking any kind of financing. If an entrepreneur starts a business, even with a good idea, but doesn’t really have a clear idea where to go with it, the business is likely to flounder, jolting this way and that like someone lost at a fork in the road. Without a plan, or using only a cookie cutter template plan that is really not what the entrepreneur believes in, the business is likely to be haphazard and reactive. Well-planned businesses are steady, aimed at a well-understood goal with a path clearly specified.
Envisioning and Planning:
- A business plan is vital to help you manage the business, even without the funding application.
- A business plan commits your business thoughts to paper, taking your intentions out of the realm of imagination and making them explicit.
- A business plan enables you to see and chart specific courses of action to improve your business.
- You can detail specific scenarios, set specific objectives, and detail alternative courses of action.
- Financial institutions will always evaluate a business plan before awarding any funding or loans.
- They estimate the likely success or failure of your business based on the detailed and realistic planning outline and the realism of your market estimates.
- They gauge your competence as a business owner based on their analysis of the quality of your plan.
- Investors will want to know why they should put their money into your business rather than leaving it in financial investments or in other businesses.
- Investors will want to know what unique selling proposition (USP) differentiates your business from possible competitors.
- They’ll want to know the potential customer pain points your products or services will meet.
- They’ll want to know the real size of your target market.
Managing Cash Flow:
Many businesses fail not because they are not profitable, but because they don’t control costs and they have cash flow and invoicing problems, which render them unable to pay their bills.
- A business plan should outline how the money is going to be managed, with a plan for controlling the rate of inflow and outflow of cash.
- What is your business’s source of income?
- Is it cash-based or credit-based?
- How much credit leeway do you offer customers?
- What are the credit-granting practices of other businesses in your industry?
- What are the purchase habits of potential customers?
Supporting a Potential Exit Plan:
It is unrealistic not to consider the possibility that your company may decide it’s time to exit. The business plan should include potential exit strategies. Each potential exit strategy has ramifications for the way the business is managed to pave the way for change.
- Could you publically offer stock in your company to spread risk?
- Could you plan for a time when your business will be acquired by another business?
- Could you envision a merger?
- Would family acquisition of your business be a possible exit strategy?
- Would management buy-outs be a way of cashing out your business?
Business Plan Essentials:
There are many tools that serve as outlines for a business plan. The plan itself has to be more than a formatted collection of words. It has to have the substance of real work and research.
- Describe what it is you are selling. Indicate how this product or service meets existing needs as you see them.
- Describe how your business differs or adds value compared to competitors.
- Do a real market research study to determine the potential size of your target customer pool. Use good statistical and analytic techniques in the study so the results are realistic. A lot hangs on the marketing research.
- Describe how your company will be organized, the roles of various officers and employees if any.
- Outline a budget showing amounts needed to run the viable company.
- Outline the cash flow, and the way credit and payments are to be handled.