As a small business owner, your business plan is one of the most important documents you’ll ever create. Like a rudder, it is a simple but necessary tool that can direct your company to the destinations you aim to reach.
Few people understand this better than Cynthia Flanders, a retired commercial banking executive turned entrepreneur, who has evaluated hundreds of business plans in her career. As one of the founders of Kensington, Md.-based ManageFearlessly.com, an online consulting resource for business owners and managers, Flanders works with small business owners to develop thorough, efficient plans.
She explains that no matter the industry or size of your small business, there are three tenets every business plan must have: financial projections, competitive analysis and management biographies.
Every business plan should start with the question, “How will the business make money?” All other aspects of your plan are secondary to a solid understanding of how your business model will lead to profits and long-term viability. Developing thorough financial projections can provide an accurate sense of operating costs, viable revenue streams and how your product will make money.
“[Plans] will be tweaked along the way, but if you've captured the major revenue streams and expenses, it provides a good roadmap for where you may need to course-correct down the road,” Flanders says.
A competitive analysis is a breakdown of how your product or service meets a currently unmet need in the marketplace. It is also a summary of how you see your offering fitting into the market’s current landscape. Being diligent is key.
“Too often an entrepreneur will say, ‘We're unique, there is no competition for our product,’” Flanders says. “If I were an investor or banker, I would immediately see they haven't done their homework.”
After you’ve identified your competitors, take note of their financial ratios, size, products and market niche. The Risk Management Association and competitor websites are good resources for this analysis. You also can call the competitor directly—you’d be surprised what you can find out over the phone.
Early in your business plan, you’ll also want to include short biographies of the people in management positions to establish credibility among the management team, Flanders says. Each write-up is like a small resume and includes work experience, education, association ties and if they have started other companies.
This information is not only valuable to a potential business partner, but it also helps you discover weaknesses in the management lineup.
“For example, if I'm going to open a flower shop and have zero retail experience, it would make sense to bring in a partner or minority shareholder who does have that experience,” Flanders says.
Format the plan into a presentation that includes the three tenets above. You should also include an executive summary, a marketing plan and any other materials you feel briefly showcase your business and its goals. The summary should include a high-level description of the product or service being sold, as well as how it fits in with the marketing plan.
This roadmap also can delve into specifics related to how you run your business, including plans for hiring employees and obtaining access to capital, managing cash flow and implementing accounting practices—including the implementation of systems for payables and receivables.
“Often, entrepreneurs include pages and pages of why they’re going to succeed, why they have the better [product] or why they’ve timed the market,” Flanders says. “But [they] forget to include two or three of these critical areas.”
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