THREE KEYS TO AN EFFECTIVE BUSINESS PLAN - Part 1 of 5

by: Cary Christian

So you need a business plan! And you probably need it fast. It seems like everything in business these days is required yesterday, if not earlier!

Perhaps you need it to obtain financing from your bank or maybe to help you attract new investment capital for your business. It's also possible you have vendor relationships that require one.

Whatever the reason it is needed, there are three key requirements that must be met if your business plan is to add value to your efforts. Let's take a quick look at each of these requirements.


IT MUST BE PROFESSIONAL

You've seen advertisements for relatively inexpensive software that you can use to crank out a business plan fast and, admit it, you've thought more than once about whipping out the credit card and purchasing one. While you can produce a business plan with such software, this course of action could be a terrible mistake!

Before we go any further, there is one major caveat to the above statement: If the business plan is presented only to satisfy a contractual requirement that you present one, and no one is going to actually read it, then it may not matter what you use to prepare the business plan.

This occurs sometimes, for example, when bank covenants require you to present a business plan annually. If your loan is current, they're not likely to pay much attention to it. If your loan is not current, or you are expecting problems, you'd better pay more attention to the plan. It could be used against you at some point.

Before you blow off a particular business plan as unimportant, make sure you understand the consequences first.

Getting back to the requirement that a business plan be professional, remember first and foremost that the plan you present is a reflection of your business. In some cases, you have no idea who may eventually see that plan, so you always need to be concerned with what it says about you and your business.

Understand that thousands of small businesses do buy and use software programs to prepare their business plans. As a result, most bankers and venture capitalists will have seen the output of those programs hundreds or thousands of times. If you use such software, your business plan is going to look just like everyone else's. It will have the same layout, similar terminology, and will come across like a mass-produced product rather than something you put a lot of time and effort into.

There are only two ways to get a truly professional quality business plan:

1. Hire a professional to do it for you, or

2. Do it yourself manually after learning how it is done.


IT MUST BE COMPLETE

There are some sections of the business plan that will be very easy for you to complete. Businesses generally have little difficulty putting together financial forecasts, descriptions of their businesses, the markets they compete in and other sections that basically describe how your business is structured and operates on a day-to-day basis. But this is background. None of these items represent the "plan."

The business plan presents your financial forecast information and then EXPLAINS HOW YOU ARE GOING TO GET THERE! This is the part people struggle with. This is also the part where people rely too much on canned software and end up describing their marketing environment and specific marketing tactics using generalizations. Generalizations won't fly! They'll be spotted a mile a way and cause your business plan to lose credibility.

Don't shortcut these important sections. Give them more effort and work than any others if you really want your plan to stand out.


IT MUST BE REASONABLE

This is the more obvious requirement of the three. If your business plan makes wild claims, or presents forecasted financial information that simply is not supported in any way by your historical results of operations, your plan will have no credibility. Strive to be conservative. Lay out goals that you can actually reach and then ACTUALLY USE YOUR BUSINESS PLAN AS A GUIDE TO GET THERE!

And that's the most important part of the process. You are not simply creating a business plan to acquire funding. The exercise of creating the plan gives you an invaluable opportunity to review your business, your goals, and gain a much better understanding of what is possible and what is wishful thinking. Create the plan with the idea in mind that it will be a living, breathing document that represents your game plan for the next few years. Change it and modify it on a current basis when circumstances require it so that it can always function as your guide.

Copyright (c) 2002