The Importance of a Business Plan

Every business needs a business plan. While many people are intimidated by the thought of writing one, a business plan doesn't have to be complicated. In fact, the basics of a business plan can be broken down into four parts: a description of the business; management, finances, and marketing.

You should start your business plan off with a statement about the purpose of your business. Then, you should describe the business, discuss your marketing plans, who your competition might be, what you plan to have for operating procedures, what kind of personnel you plan to employ, and information about your business insurance.

The next section deals with the financial information about your business: loan applications, equipment and supplies, a balance sheet, breakeven analysis, profit and loss statements, a three-year summary, the first year's detail in a monthly format, the second and third years' details in a quarterly format, assumptions on which you based your projections, and a cash flow sheet.

The final piece of information to include in the plan has to do with copies of paperwork: a personal financial statement for each partner/co-owner; personal income tax returns for each partner/co-owner from the past three years; resumes from each partner/co-owner; any franchise contract and all supporting documents; the lease or purchase agreement for the company location; any licenses or other required legal documents; and letters of intent from suppliers and others.

Assembling this information may appear to be a daunting task. Just remember that it is only as difficult as you make it. Break down the task into small, bite-sized chunks, and it will be finished before you know it. The reason you are doing this in the first place is to evaluate whether the business you are thinking of starting has a good chance of succeeding. And you wouldn't want to put time and money into a business that had no chance of success, would you?

Another reason why a business plan is important is that when you apply for a business loan, or you are seeking investors, the bank and/or your prospective investors will want to see your business plan. They want to make sure that their investment will be returned. The business plan helps them understand what the business is about and whether it will likely be successful. When you write and follow a good business plan, your odds of success increase. Of course, no business plan can guarantee success, but the odds are better than if you flail around without one. Perhaps one of the most important things to consider to protect your investment is business insurance. Don't overlook the importance of this for liability purposes and many other reasons.