Why Plan Your Business?


When you say "business plan" to most people, they think of a dry tome used to raise lots of money that's packed with market statistics and financial data with mysterious terms such as "balance sheet," "cash flow," and "profit and loss statements." That's true in most cases. These are necessary parts of most business plans.

But that's only half the story.

Business plans are not only used to acquire funds from investors or bankers, or even obtain company resources. Yes. If you're seeking a capital investment for your business, a sound business plan is necessary for approaching funding sources. If you're in need of company resources for an in-house project then a business plan is necessary for that too.

But a business plan is also a planning tool and a road map to success. It describes your business, acts as your company's résumé, and sets the goals and objectives of your company. One that can organize your thoughts, formalize your intentions, and help sell your idea.

The real power of a business plan is that it forces you to think about the important aspects of your business, whether it's an ongoing operation or a start-up. So, whatever your situation or whatever your objective, writing a business plan will go a long way in helping you succeed.

Briefly, the reasons for writing a business plan include

  • Defining a new business venture

  • Determining whether your business will make a profit

  • Providing an estimate of your start-up costs

  • Devising an effective marketing strategy

  • Helping you compete in the marketplace

  • Anticipating potential problems

  • Supporting a loan application

  • Raising investment funds

  • Expanding a current business or product line

  • Defining new goals and objectives for an ongoing business

  • Measuring your business performance

  • Tracking your growth

  • Setting a value on a business for sale or for legal purposes

  • Identifying cash flow

  • Identifying the competition

  • Identifying the necessary human resources

  • Identifying the necessary management

  • Identifying other resources, office space, desks, computer equipment, telephones, and more

As you can see there are many reasons why you should write a business plan. But there are even more important reasons.

American Express identified a number of ways to achieve business success that are directly connected to writing a business plan. A business plan will force you to think in creative ways about a business that you haven't before. A business plan also forces you to set goals and provides the tools to control the outcome. In short, it can help you translate the raw idea of your company into an actionable plan.

Caution: Why Write That Plan

The consequences of not writing a business plan are many. Dun & Bradstreet tell us that some of the many reasons why 80% of new businesses fail within 5 years are

  • Running out of money

  • Failure to make accurate financial projections

  • Lack of adequate funding

  • Poor cash flow

A good solid business plan takes these mistakes into consideration and prepares for them with good financial projections and a realistic sales and distribution strategy.


A proper business plan will list your strengths while at the same time prevent you from ignoring your weaknesses. It will make you analyze your competition, build the right team, know your customer, and define your product.

So, why write a business plan? Because a good, well thought out plan reduces the odds of failure and increases the chances of success. Without a business plan, you leave far too many things to chance.

Major Reasons Why Businesses Fail

Writing a solid business plan can help your business idea come into fruition. But it doesn't guarantee your business will be a success. The following are some of the common mistakes business owners make, and should be avoided AFTER the business plan is written.

  • Many companies fail to anticipate the amount of working capital needed to operate a business. Though their financial projections are sound, they run out of money before adequate income from sales hits the bottom line.

  • Don't waste working capital when starting a business on frivolous expenses. All your working capital should go for one thing: making sales!

  • Don't be a target of the IRS. Pay your taxes on time. Pay them first before you pay any other expenses. The last thing you need is a lien against your business revenue. It's very tempting to save your tax payments and employee withholdings for last. Don't do it.

  • Remember that most businesses are seasonal. So plan for your industry's highs and lows. Have enough cash on hand for the slow months or diversify your offering to keep your doors open and your business humming along.

'Tis the Season

Something to keep in mind: If you can, the best time to start an online business is near late summer to early fall so you have time to build your store, work out the details, and build site traffic before the holiday rush. Even though you may not offer holiday items, most products can be used as holiday gifts.


If you do run into trouble, here are some tips on how to overcome setbacks in your business.

First, keep the names of a good accountant and attorney handy. And if you do run into problems, seek help and counsel from someone you trust, preferably someone in an industry like yours. They probably have experienced and overcome a problem like that you are now facing at one time or another. Also, don't hide from the problem. Avoiding meetings or phone calls with vendors or whomever else raises a red flag in their minds, and they may interpret it as a problem even more serious than it is. And always keep an upbeat attitude around your employees, no matter what the problems may be. You don't want your best employees getting anxious and looking for work elsewhere.

Look at the problem. If it has to do with cash flow, look for ways to reduce everyday expenses. Cut back on entertainment and travel expenses. If your cash flow is seriously affected, consider cutting back on non-essential employees. If faced with this decision, start by cutting administrative personnel. Keep those that generate the income for your company.

Most importantly, do everything you can to pay your bills on time. Your credit rating is the lifeblood of your business. If you can't make a payment on time, talk to your vendor and work out a plan to deal with the situation. Be proactive and be prepared to offer a payment plan when you call them. Above all, don't make promises you can't keep.

Finally, take a breather to relax and unwind. Take a walk or go to a movie. Then come back with a clear head to tackle the problem.




Launching Your Yahoo! Business
Launching Your Yahoo! Business
ISBN: 0789735334
EAN: 2147483647
Year: N/A
Pages: 149

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