Why Write a Business Plan

Posted: April 24, 2000 by Sutton Landry in Planning, Startup

Classic Cincinnati Post column from 1999

In today’s new economy, where business is conducted “at the speed of light” and all the rules of the old economy have been called into question, do you still need a business plan?  The answer is yes, you do, regardless of whether your business is new or old economy based, or whether you are looking for venture capital or a bank loan.  One thing that hasn’t changed is that a business plan is still essential for raising capital.

Increasingly, it is also required for establishing other types of business relationships.  In the past few years we have had clients at the NKU Small Business Development Center who have needed business plans in order to lease real estate, to secure trade credit, and even to be considered as a supplier for a Fortune 100 company.  Unfortunately, none of those clients had a plan prepared prior to receiving the request for it.  As a result, critical business decisions were delayed, usually for several months, until the client completed the plan.  A business plan is an absolute necessity in today’s business world.  You may never have needed one before, but if you plan to start a business or even stay in business, you will surely need one in the very near future.

Since you will need to write a business plan sooner or later, I recommend that you start on it now.  Writing a good plan, one that will help you achieve your particular goal, is a time-consuming process.  Even if you are a good writer, have good information about your business and customers, and have up-to-date financials, you can expect to spend between 50 and 100 hours writing a plan.  If you are writing a plan for a brand new business, you can expect to spend between 100 and 150 hours.  While the process is certainly time-consuming, remember why you are doing it:  to sell yourself, to demonstrate your knowledge of your business and industry, and to convince the reader of your ability to operate a successful enterprise.

The good news is that you don’t have to write the plan all in one sitting or as one giant essay.  You can write your plan in relatively short sections as you have the time to work on it.  Virtually all business plan guides, whether software or paper, follow a similar format that breaks down the essential information  into sections and subheadings for easy review.  This format makes it much simpler for you to write your plan in increments.  Here are the sections that you need to include in your plan:

Cover Letter:  Start with a cover letter addressed to the person you are meeting with.  Briefly summarize the history and financial performance of your company and then explain why you are there, i.e., to secure financing for a start-up, expansion, acquisition, etc.

Business Name and Address:  State the full legal name of the business, its address, and all communica- tions connections (phone, fax, e-mail, web site).

Ownership and Structure:  State the firm’s legal structure ( S Corp, LLC, etc.) and give the names of all the owners and the percentage of ownership that each of them has.

Business Description and History:  Begin with an overview of your operations:  what you do, where you do, and how you do it.  Be descriptive.  Assume that the reader knows nothing about your industry.  Educate him/her about what you do.  Give a brief history of the business emphasizing growth in sales and customer base.  Do not be bashful.  Describe the products that you sell.  Comment on quality, price, special features.  Explain who your customers are, where they are, and how you sell to them.

Management and Personnel:  Briefly describe the backgrounds of key management personnel in you business.  Include their resumes in an appendix.  Explain how many employees you have now and project to have in the future.  Describe their skill levels, the types of jobs they will be doing, and how readily they can be replaced.

Location:  Describe your facility and explain why it is appropriate for your business and for how long it will continue to be useful.

Inventory/Suppliers:  State who your key suppliers are and describe your relationship with them.

Economics and Accounting:  Explain how you make money in your business, i.e., what your gross and net profit margins are.  Explain how prices are determined and how you control your cost of sales.  Explain your internal accounting procedures, state who your CPA is, and explain what work s/he does for you.

Market Analysis:  Quantify the market you currently sell in or plan to sell in and describe your share of the market.  Describe each segment you sell to in detail.  Explain why customers need your products.

Current Marketing Strategies:  Explain your overall strategic concept and the combination of specific tactics that you use (sales reps, direct mail, targeted ads, etc.).

Growth Strategies:  Explain the strategies that you plan to use to continue growing.

Financials:  Include income statements, balance sheets, and tax returns for the last 3 years and projections for the next 3 years.

Appendices:  Include any pertinent information such as leases, current loan documents, customer lists, etc. as separate appendices.

Before you take your plan to a banker, landlord, etc., be sure to have it reviewed and critiqued by a knowledgeable individual who can point out any shortcomings or deficiencies.  CPAs, SCORE volunteers, or SBDC consultants make good reviewers.

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