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Create a Business Plan? Here's Why You Should

Aug 18, 2007
There are several reasons why you should create a business plan and each requires the plan to be written somewhat differently.

You Need To Decide Whether To Start A Business Or Buy A Business.

This plan will help you improve your chances for success and avoid making serious mistakes. You may be the only one who reads this plan, although you should have input from a number of other people with business experience. You need to ask yourself the following questions and incorporate the answers in your business plan:

* What does it take to succeed in this type of company?

* Do you have the skills and background necessary?

* Can you afford to take the risk? What effect would the business' failure have on you?

* What is the growth potential for the business? Can it meet your financial expectations and requirements?

* Is there a large enough market for your products/services?

* Will you enjoy owning and managing the business?

You Want To Better Organize Your Company or Improve Its Operations.

This is a time and task oriented plan for use internally. It suggests actions that need to be taken and assigns responsibility. Questions that need to be answered:

* How does our company compare to leaders in its industry?

* What are our management weaknesses? How can we make improvements?

* How can we increase sales, serve the customer better, improve manufacturing efficiency, increase the gross margin?

You Are Seeking A Bank Loan.
This plan is used to inspire confidence in your banker and convince her/him that your business is a good credit risk. It is written very logically, with an emphasis on the financial projections and presentation of historical financial results. Bankers who make bad loans get fired, so they like to err on the side of caution. A banker is looking for safety and a demonstration that the company can generate sufficient cash flow to pay the interest and the principal. You'll need answers to these questions:

* Will the company's cash flow be stable enough to make the payments on the loan?

* Are the long term prospects of the business favorable?

* Does the company have a reasonably good track record?

You Want To Sell Your Business
You must prove to a potential buyer that your company is worth paying a premium for. Sometimes this can be called a marketing presentation, offering memorandum, or valuation. It is not strictly a valuation, as you are trying to establish your sales price for the business, not determine a value. Usually a valuation is completed by an objective third party. You're likely to be asked:

* Is there untapped potential for the business that a new owner could take advantage of?

* If the new owner had more capital, could the business grow more rapidly?

* Are there new markets that could be entered?

* Could costs be reduced and therefore profits increased?

You Need An Investor/Partner.
The plan must demonstrate considerable upside potential for the business. The banker was content to get his money back plus 10% interest. The investor may want a return of 30% to 50% or more. This plan must be written in an interesting manner and keep the reader's attention. Your business plan is competing with all the other plans submitted to the investor. Make sure you address the following questions:

* Can the company grow rapidly?

* Are the margins attractive?

* Have you succeeded in other business ventures?

* Is this a market that is emerging, with a large and bright future?

* How much of the company are you willing to give up, both in equity and management control?

When you create a business plan keep focused on the reason why you're doing so.
About the Author
Get a complimentary business plan template. Email businessplan@(nospam)businessplan-basics.com remove the (nospam). You will receive our newsletter at no charge. Dee Power has written several books including Business Plan Basics and the novel, Over Time. Contact her through Capital Connection
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