At first glance a business plan can be scary. Market analysis, financial projections, competitive pricing
models, growth strategy; it all seems too much to comprehend when starting a business. A lot of
research, analysis, and some optimistic guesswork are a good place to start. Any expert will tell you that
a business plan is essential for any entrepreneur; you wouldn’t embark on a cross-country road trip
without a roadmap, why would you ever consider starting a business without a plan? And that is
basically what a business plan is: a roadmap for your success as a business owner.
A business plan can be broken down into three major parts: the narrative, the financials, and the
supporting documents. The narrative describes your company. Who you are, the products and services
you offer, the market you are in, and the customers you seek. The narrative relates the strengths,
opportunities, risks, and threats your business faces. It is a chance to show why you want to be in
business and why your business will be successful. The narrative demonstrates that you have “done your
homework” so to speak about the industry you are entering: your suppliers, your customers, your
competitors, and the expertise of your management team.
The financials are equally important. This is where your potential lenders will look when deciding
whether to invest in your business. For a business plan, the income statement, balance sheet, and cash
flow for the first three years of operations must be calculated. The assumptions used to develop these
calculations are crucial and must be realistic for your plan to be successful; banks and lenders will
heavily scrutinize them.
The assumptions need to include the sources and uses of funds for starting your business. Contrary to
what some believe: there is NO free money from the government or anyone else for starting businesses!
Business owners are expected to contribute 20-25% of the startup costs in cash and have collateral for
the amount borrowed.
With this in mind, a business is expected to have sufficient sales growth to cover both operational
expenses and loan payments. A break-even analysis can shed light on what amount of sales is necessary
to achieve his goal. The projected numbers used in the financial section of your business plan should be
a reflection of the market research, pricing models, and competitive advantage explained in the
narrative section. The supporting documents give credibility to the statements and assumptions
presented in your business plan.
When beginning your business plan it helps to break it into manageable chunks. Start with the basics:
who, what, where, when, and why (the how will be addressed when you get to financing). Take the time
to research your market and see what opportunities are there. Be creative in the business you envision
but remember to be realistic as well. And finally, don’t get discouraged. The more work you put into
your business plan, the better prepared you will be for the challenges ahead as an entrepreneur.