The Small Business Administration estimates that over 80% of small businesses fail within the first three years of business. Researchers have proven, however, that companies who take the time to write out an exhaustive business plan tend to have a much higher rate of sustainability and success. In this article, we are going to discuss the Why and the How of writing a business plan.
Why
When most people get a fresh business idea, they immediately begin to fall in love with the idea. Passion and enthusiasm are essential characteristics of business success, but, at the same time, they can also act as an Achilles’ heel of sorts. Oftentimes, when a person falls in love with a business idea, he or she becomes completely convinced of the viability of the idea without any scientific testing or research. This is extremely problematic because a good idea does not necessarily translate into a profitable business. The use of a small card as an introduction evolved in England and by the early 1800s had become a ritualistic and integral aspect of not only introductions but also invitations and visits and these free business cards evolved to be as best marketing and introductory tools for all business modules.
Enter the business plan. A business plan, among other things, details how a company will make money. The business model and revenue streams are clearly explained. When you write a business plan you are exposing your idea to real criticism and testing in order to determine whether it can stand the test and prove to be a potentially profitable business. Many people are afraid to open themselves up to the possibility of failure, and, therefore, shy away from exposing their idea to that type of scrutiny. The scrutiny is essential, though.
How
Business plan templates can be purchased at your local office supply store for a few bucks. You can also find tons of them online for free. Your plan should include each of the following:
Business Model
A business is a business because it makes money. How are you going to make money? This may seem like a straightforward question, but you would be amazed how many new companies can’t answer this question in a simple manner.
The Market
Is there an existing market for your product? Are customers already spending money on the product you will be bringing to market? Or are you bringing a product/service to satisfy a need the market doesn’t know it has? How big of a market is there for your product? Conduct exhaustive market research in order to discover as much information as possible regarding your general market and your target market.
Competitive Advantage
Why will a customer buy your product or service or a competitor? You have to have an edge over the competition, or you will have very little chance of survival? Is your product better? Or is your service that much better than the competition? Do you have a proprietary patent?
Financials
The numbers have to make sense. Projections beyond a year are pretty much worthless because no one can really estimate that far into the future, but you should have a solid plan in place for the first year. What are your expenses each month, and how much revenue will you be bringing in? If you are spending more than you bring in through revenue, which is normal for a new company, how long can you survive based on different revenue projections? If you can only operate 1 or 2 months with no revenue, then your chance of survival is very small. Keep overhead as low as possible. Do not borrow money via a small business loan or other source until absolutely necessary.
Raising Capital
How will you get the money to bring your product to market? Will you take out a small business loan, approach friends and family, or finance it yourself?
Executive Summary
This is a 1 page introduction to your business. A person should be able to read this page and understand you business model, your competitive advantage, and why your business has the potential to make money.
These are just a few of the essential aspects of your business plan. Remember, the business plan is not something you write one time and never see again. This is your guide and compass, and it should be updated on a consistent basis throughout the life of your business.
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