The Importance of Having a Good Business Plan

Like many would-be entrepreneurs, I didn't have a clue about business plans when I first started seriously considering starting my own venture. At best, I threw together a rough plan on a few sheets of paper, outlining costs and projected revenues. I wouldn't call it a plan, however, since it really didn't have any flow to it and was probably not decipherable by anyone except myself. At best, it was a bunch of random thoughts scribbled down on paper. Amazingly enough, I thought that this flimsy plan would be enough to secure a bank loan. I assumed that most of the questions they would ask, I could simply answer off the top of my head. Needless to say, I didn't get the loan.

Years later, I was fortunate enough to be able to really appreciate the value of a well-thought-out business plan. A good business plan lays things out systematically and forces you to look at serious questions such as startup costs, operating revenues, projected sales, and future growth. You definitely don't want to guess at this. By having your costs written down in a solid plan, you can confidently decide on what you're going to charge for your product or services.

Here's a quick business plan that also contains information about your major competitors. It would be a huge mistake to forget about who you're competing against. They should be part of your business plan and you should definitely know everything you can about them.

Remember, most businesses fail through lack of a solid business plan. Yes, it's time-consuming to draw one up, but it's an absolute necessity. Even if you've been in business for some time and are experiencing a little success, don't think that a good business plan can't help you. In fact, it should be revisited on an ongoing basis even once the initial startup phase is over.

Here's the plan:

1. Describe your business in one or two sentences. If you can't do this, you need to revisit and rethink your entire focus and ultimate goal.

2. Is there a demand for your product or services? Why do you believe this is so?

3. In one year, where do you think your business will be? How about three years? How about five years? Be as detailed as possible.

4. What will you use for startup capital? Will you tap into your savings? Use your credit line or credit cards? Will you rely on a bank loan?

5. How about your expenses? What big-ticket items are you going to need? Where will your money be needed the most? What will the cost be?

6. Will you need memberships in any trade organizations or publications? What will the cost be?

7. Can you describe your target customer? Who is he/she, what do they need, and why should they buy from you?

8. Who are your competitors? What advantages do they have – what advantages do you have?

9. How well are you differentiating yourself from your competitors? Be specific and include things like price, services, and quality.

10. Where will you set up shop? Will you designate an area of your home, or will you opt for a commercial location? How much will each cost?

11. How about non-direct costs such as daycare?

12. How much money do you need to survive? This includes all the money you're going to need to pay your bills and survive.

While this is only a partial list of questions you need to ask yourself when creating your business plan, it should be enough to get you thinking about the detail involved and the hard questions you need to ask yourself before committing to your new venture.