There are three reasons to create a written business plan:
- The process of creating a business plan forces you to take an objective, critical and unemotional look at your business before and after its inception.
- A current business plan is an operating tool that will help you manage your business and ensure its success.
- A business plan effectively communicates your ideas to others and provides the basis for financing proposals.
The importance of planning cannot be overemphasized. Your business plan will help you identify and evaluate areas of strength and weakness; pinpoint business needs that might otherwise be overlooked; identify important business opportunities; and spot problems before they escalate. These insights and observations will help you achieve your business goals quickly and effectively.
Even more importantly, as our entrepreneurs explain, a concrete, well-written business plan is an essential part of the loan process. Remember, when you walk into a bank, the burden is on you to prove that you are a viable risk. A business plan is your proof.
What Is Included in a Business Plan?
Section No. 1: The Business
- The Business: A description of your business should answer the following questions:
- Is the business a proprietorship, partnership or corporation?
- What is the product or service provided?
- Is this a new business or an expansion?
- What will make this venture profitable?
- Product/service: Explain your product or service.
- What is unique (and, therefore, potentially profitable) about your product or service?
- What are you selling?
- What are the benefits?
- Which products are fast sellers? Declining? Steady?
- Market: Describe your potential customers as completely as possible. Be sure to answer the following questions:
- Who are your customers? What are their segments?
- Are your markets growing or shrinking?
- Are you planning to concentrate on certain markets and shares?
- Location
- Where are you located? Why?
- Do you need more space to grow?
- Is the location important to your business?
- Competition
- Who are your competitors, and where are they?
- Who are your indirect competitors?
- What is your competitive edge?
- What is your market share? Is it growing?
- Management
- What is your background, and what are the skills that make you the right person to run the business?
- Is there a management team? Who are they?
- What are their duties?
- Personnel
- What are your personnel needs and goals?
- Do you need more employees?
- What skills do you need them to have?
Did you have a written business plan when you started the business? If so, did you receive help from anyone or an organization in preparing it? Was it helpful in managing your business? Do you update it?
Camellia R. Jackson has been immersed in the military for her entire life: first as an Army brat, then as an officer in the Navy, and now as a military spouse. After leaving the Navy, she began her own company, Strategi Supply Co., which aims to grow franchise opportunities for minorities, women and veterans.
Camellia: I did not have a business plan when I started, but I did have the benefit of a training course that offered one-on-one guidance to the process of starting a government contracting supply business. I am currently in the process of putting together a formal business plan in order to sharpen our target market focus and to have a better guide in the process of franchising as part of our growth strategy.
Marilyn Harris is an Army veteran of Operation Desert Storm/Shield and has more than 30 years' experience in the medical industry. In 2007, she started Harrland Healthcare Consulting, LLC, a premier management consulting firm in Houston.
Marilyn: Yes! Both Harrland Healthcare Consulting, LLC and the Women Veterans Business Center had business plans at their conception. For Harrland, I worked extensively with my local SBDC (Small Business Development Center) and created a business plan. I am a graduate of the Entrepreneurship Bootcamp for Veterans (EBV) with Disabilities (Florida State University) in 2010. The original business plan for the center was written at EBV, and the center was launched at the two-day grand opening ceremony in Houston, Texas, at City Hall five months later.
Courtney Lynch is a Marine Corps veteran who attributes much of her success to time spent in the military. She currently serves as a partner at Lead Star, a leadership development consulting firm that has assisted leaders in Fortune 500 companies, small and mid-sized businesses, leading nonprofits, government agencies and respected academic institutions.
Courtney: We had a very brief business plan when we started our business. We would build a more robust one when we sought financing at the three-year point. Each year of our business, we update a strategy document. For us, that is most helpful in guiding and managing our business. It's brief (about five pages) but covers the important aspects of our business.
Harvetta Spann, a former U.S. Army field grade logistics operations officer, has more than 25 years of professional experience as a planner and manager. She is president of BLS Group Inc., a full life cycle project management services provider with expertise in all aspects of project management. She is also the co-founder of WAVE: Women as Veteran Entrepreneurs.
Harvetta: I did not have a business plan when I started BLS. However, through free counseling, from my Small Business Administration (SBA) Small Business Development Center (SBDC), I quickly realized the importance of developing one. My SBDC counselor walked me through the process, provided me with a sample business plan template and provided me with valuable feedback as I developed my plan. My business plan now serves as my road map to growing my business. It is a working document. I refer to it on a regular basis. It keeps me focused. I update it, as necessary, to stay current with market technology and trends.
Jill W. Chambers is a retired colonel of the Air Force. After suffering injuries during the 9/11 attack on the Pentagon, Chambers resolved herself to assist transitioning veterans and their families by starting her own business. She is proud to serve returning men and women, and enjoys a wealth of experience.
Jill: I did not have a written business plan. I wasn't even certain this could be a "for-profit" venture.
Section No. 2: Financial Data
As other entrepreneurs will tell you, the heart of any business operation is its accounting system. A competent accountant will set up a system to provide you with the raw data for three essential documents: your balance sheet, your profit and loss statement (income statement) and your cash-flow statement. It should be noted that many excellent and inexpensive computer software accounting packages are on the market.
Did you start out with a decent accounting system? Did/do you use an accountant? Do you use accounting software; if so, which ones? Any comments about the importance of adequate and timely financial statements and whether you experienced problems if you did not have good information?
Camellia: As of right now, we are using the online bookkeeping system QuickBooks/Intuit. We recognize the importance of maintaining accurate financial records, and with us "bootstrapping" our startup costs, we feel this is adequate for just starting out. We are fortunate in that we have recently been accepted to a program that assists veteran entrepreneurs in starting their businesses with legal and financial advice, as well as in preparing business plans. The relationship with our banker was instrumental as well, because they were able to extend us a line of credit and to assist us in establishing our ability to accept merchant payments. It was good to shop around for banking services, because some offered incentives to veterans, such as waiving monthly fees normally associated with business accounts.
Marilyn: We did not start out with an accountant. We presently have one. Initially, we started out using QuickBooks and were trained by the small business development staff on how to customize it for the company. You must keep good financial records if you are a government contractor. It is wise to use the software accounting system recommended by the government. We are currently seeking an accountant with specific nonprofit accounting expertise for the Women Veterans Business Center.
Courtney: One of our first appointments during the early weeks of forming our company was with the law firm that created our entity (a limited liability company/LLC). As an attorney myself, I knew It was important to dot the i's and cross the t's when getting a business off the ground. Our lawyer immediately referred us to an accounting firm that specialized in working with small businesses. Even though we hadn't earned a dollar yet, I met with the accounting firm (free of charge) to hear their recommendations on accounting systems, tax matters and financial reporting. They were extremely helpful with their insight. And they even made a key introduction for us at our local bank, which extended a line of credit purely based on the recommendation of the accountant who introduced us. We started our business using QuickBooks and still use that system today. It's easy to use. Even someone like me who does not have a head for numbers can use it with ease. Adequate financial statements are vital to the health of your business. Not only do they inform you, but when you need credit, your books must be in order to inform others that your business is viable.
Harvetta: A good accounting system is paramount to maintaining a successful business. Particularly, if your target customer is the federal government, your accounting system must be compliant with the Defense Contract Audit Agency (DCAA) guidelines. I hate accounting; however, I realize the importance of maintaining accurate financial records, so I have a bookkeeper and an accountant to help keep BLS DCAA compliant. We use QuickBooks. Intuit has an online version. We subscribe to that service. It's worth its cost in gold. It allows all key individuals to have access to the same information at all times.
Jill: I started with very simple Excel spreadsheets and a serious commitment to recording everything. You can't affect what you don't measure, right? Big smile! I also was quick to hire an accountant highly recommended by an experienced successful friend. He has really made a huge difference in keeping me up to date with tax laws, procedures and possible tax strategies.
There is absolutely no excuse for even the smallest company not to have up-to-date financial information with which to base management decisions.
Sources and Application of Funding: Explain the financial setup of your business by answering the following questions:
- How is the business being financed? If part of a loan application, how will this loan be used?
- Are you renting or buying space? Leasing or buying equipment?
- How much capital do you have? How will you make your borrowing decisions? Do you have investors?
Capital Equipment List: Provides a list of all business equipment that you own or plan to purchase.
Balance Sheet: Your balance sheet is a record of the liquidity of your business and your personal equity at a given point in time. It is a snapshot of your business that shows what you own and what you owe.
Profit and Loss Statement (Income Statement): This information demonstrates how well your company's operations are being performed over time (usually monthly, quarterly or annually) by subtracting expenses from sales. Based upon your past and current income statements, you can develop income projections. In reality, these projections are based on "best guess" information, but if you've done a thorough job researching your venture, these projections can be surprisingly accurate.
Cash-Flow Statement: This data is designed to show how well a company is managing its cash (liquidity) by subtracting disbursements (actual cash outlays) from cash received. The balance between profitability and liquidity can be hard to maintain, making these figures critical. Fast growth (high sales) can deplete cash, which explains why even profitable companies fail. The role of projected income and cash-flow statements is to help you spot these severe problems in time to forestall them by raising new capital or arranging for appropriate financing.
Projections are an integral part of your business plan. These figures allow you to assess the feasibility of your business and the investment required to achieve a stable level of operation accurately. Your assumptions must be carefully thought out and explained. Be honest. Be pessimistic. Think in terms of what is the best case possible and then the worst case; it generally will be someplace in between, but don't fool yourself into believing unrealistic projections. Take a good look at the cash-flow chapter for an expanded look at this critical component.
Historical Financial Reports for Existing Business: If you own another business or have owned another business, include the same documentation as above. Personal tax returns are essential as well.
Section No. 3: Supporting Documentation
This section should include any additional materials relevant to your business: appraisals, brochures, research findings, support letters, maps, charts, etc.
Use your plan. Then reread it and update it regularly. If your proposed venture is marginal at best, your business plan will show you why and will help you make improvements (or abandon the idea entirely). If your business is up and running, your business plan will provide you, your partner, your banker, your manager and even your employees with guidelines and standards for evaluation and improvement. Whether good or bad, the insights offered by a business plan are things you need to know.
Steve White is the founder and CEO of the Veterans Business Network; he served with the 1st Cavalry Division in Vietnam and is a longtime supporter of veteran entrepreneurship. Besides the Veterans Business Network, White has served on the Veterans Task Force for Entrepreneurship, testified before Congress and assisted in securing the appropriation for Public Law 106-50 (The Veterans Entrepreneurship and Small Business Development Act). He also has served on the SBA's Advisory Committee on Veterans Business Affairs.
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