Before you start a business, devise a plan that defines the business, its goals and whom it will serve. This step will set you on the path to entrepreneurial success.
By J.D. Piland
Developing your business plan should be the first thing you do when you decide to start your own business. The plan lays the foundation for everything that will follow.
But, limiting a business plan to one definition is nearly impossible, says Ryan Hoback, CEO and founder of Motivated Entrepreneur, Inc., Miami. Business plans serve many purposes and are delivered to different people and entities. So it's natural that there are different types of plans.
When government agencies like the U.S. Small Business Administration—or any association or corporation for that matter—make grants and loans available, a business plan is a valuable tool to provide lenders; it shows you are organized, responsible and won't throw away the funds.
But you have to do it right. And this begs the question: What exactly is a business plan? Or rather, what goes into one?
On a basic level, Hoback describes a business plan as "a guideline and a planned outline of goals that need to be executed for success. It is a document that allows interested parties either internally or externally to view the direction and processes of operation for that company and its future."
This is a bit more official than the initial business plan, which Hoback says is intangible. "[Business plans are] derived from motivation and the intellectual thought process." The tangible business plan comes after a realistic business opportunity presents itself and has support.
That said, the initial thought process does not count as a business plan. Hoback says that only about 30 percent of business owners develop realistic business plans at the outset.
Most business plans are devised only because they are forced on business owners. Many business owners don't write one until they need to raise or borrow money, which is not a wise decision, says Diane Tarshis, principal of Springboard Business Plans, LLC in Chicago.
Your business plan functions as a road map or an "operational blueprint" for your business, Tarshis adds. She says there are two parts to a business plan: a narrative section and a financial section. The narrative explains what the business premise is, i.e. what product or service is being sold. It answers many questions, the most important of which is: Why will people pay for this service or product?
One of the traps most entrepreneurs fall into, Tarshis says, is speaking in generalities. When looking for additional funds from a lender or investor, generalities won't do. "You must not only describe the product/service that you're selling, but also explain why people will want to pay for your product/service," she says. And avoid buzzwords.
The financial section, which at the outset is a projection, is meant to support your narrative, Tarshis adds. You want to get as detailed as possible with your business plan.
"Some create number fantasies, where they just jot down some numbers and then say, 'If we sell 10,000 (items), we'll be OK,'" Hoback adds. "This is not the way to start a business, and this is not a true business plan."
A formal, written document is the way to go if you wish to be taken seriously in the marketplace and by potential investors. Without a written plan, your company's policies become difficult for fellow executives, and more importantly, your employees, to grasp. This makes your job of managing them that much harder.