The Critical Reasons You Need to Plan Your Business, then Work Your Plan
A Business Plan is the single most important document you will develop in establishing and growing your business. How your business plan is developed is certainly up to you. Either you can take the time to develop your plan, or you can work with one of many professionals and organizations that provide business plan services from development to review. What is important for you to understand is that a business plan is required by commercial lenders, venture capitalists, individual investors, franchisors, and the Small Business Administration (SBA). So, not only do you need a business plan to map out the roadmap for business success, it is a major requirement for obtaining a business loan.
The SBA reports that:
50 percent of all small business fail after their first year, 33 percent fail after two years, and nearly 60 percent fail after four years.
Reasons for failure cited by the SBA include: over expansion, poor capital structure, over spending, lack of reserve funds or too little free cash flow, failure to adjust to market changes, underestimating competition, poor business execution, poor business location, and an Inadequate business plan.
Fundamentally a business plan should:
- Define your opportunity, product/service including keys to success and risks
- Provide an analysis of your market
- Detail your competition
- Lay out your marketing plan and strategy for acquiring customers/clients
- Identify key management, and what their roles will be
- Provide important financial information
A general outline you can follow in developing a business plan follows. While there may be many versions of this outline, if you are seeking or interested in an SBA loan, this is the outline they prefer.
I. Executive Summary
II. The Opportunity
b. The Product
c. Keys to Success
III. Market Analysis
a. The Market
b. Market Differentiation
IV. Competitive Analysis
V. Marketing Plan
VI. Management Team
a. Business Objective and Funding Needs
b. Source and Use of Funds
c. How Loan Is To Be Repaid
d. Financial Assumptions
e. Estimated Financial Statements
1. Income Statement
2. Cash Flow Statement
3. Balance Sheet
4. Key Financial Ratios
i. Current ratio
ii. Total debt ratio
iii. Profit margin
Sandy Graham is Managing Partner at Sequoyah Associates, with over 20 years of progressive senior level experience with some of our Nation’s leading organizations and Fortune 50 companies, as well as new ventures and small business enterprises. His experience includes business strategy, planning and development; new business solution development and delivery; client services delivery; and engagement management. Sandy’s academic credentials include an MBA and an MS in Economics, and is a recipient of the Ewing Marion Kauffman Foundation Internship in Entrepreneurship. In addition, he is a contributing author on Free Cash Flow. Since 2005, Sandy has been driving winning business strategies that have met client needs using consultative, coaching and advising skills to deliver the right business solutions for the small business firm and new venture enterprise.