Finance 101: Your Business Plan – A Key Ingredient to Success

Business plans can be an invaluable tool in understanding and controlling your business. What is a business plan and who should do it? It is a thorough formal analysis of your business model. A business plan includes, among other things, the type of business you run or plan to run, what type of products or services the business produces, the customer base by industry and geographical location, the supplier base, your pricing, the experience and skill of you and your staff, how you plan to create demand for your business, how you intend to supply your customers and how you propose to finance the business. There is a trend to outsource business plans – just look at the web where there are many institutions offering to do your business plan. But this defeats the point of the exercise – only you and your staff really understand how the business works or should work if it is a start-up business. So it makes sense that you do the business plan of your business. There may be areas where outside expertise is required such as financial or marketing plans, but as long as they are done under your supervision, you will still have ownership of the business plan. Finally, it is also worth remembering that a potential investor or bank will quiz you on your business plan – if you are unsure of what is in the plan, you will almost certainly lose your investor or a bank loan. Why is it important? A business plan is important for several reasons, such as:

       
  • Investors and bankers will require a business plan if they are going to either invest in or lend money to your business
       
  • Documenting and thinking through your business model gives you key insights into how your business operates. It highlights weaknesses and strengths which you can incorporate into your business model
       
  • It documents a road-map for your business. You can measure how the business has performed by comparing actual results to those envisaged by the business plan. You can isolate areas where the business has fallen short and see if you stuck to your business model or did not. This analysis will enable you to strengthen your business and come up with solutions to counter weaknesses identified.

A business plan can add significant value to your business in addition to being used as a tool to raise finance. © DotNews, 2005-2012. This newsletter is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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