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Every Business Needs a Business Plan

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Post Every Business Needs a Business Plan   Sat Aug 13, 2011 12:54 pm

Most business owners think that a business plan is needed only if they are going to apply for a loan or will be seeking money from investors. But that is a mistake. A business plan is a living document that should be used by all business owners, not only to position the business in case they need financing, but also to stay the course and/or grow the business the right way.

The main use of a business plan is to help the owner(s) with the three important points below, of which at least one is bound to happen during the life of the business, unless it fails.

1. Staying The Course and Keeping The Business Stable

A business plan is a valuable document that business owners and managers should use to ensure that the business stays competitive and continues to advance forward. Remember that in business, if you are not moving forward, you are most likely moving backward, even if you can't tell yet. Large companies do that kind of planning daily (they have to, otherwise they loose control of so many moving parts), and small businesses should do it too.

A business plan is not a document that you create with made-up numbers to impress your funding source. It is a living document which, when prepared correctly, gives the business its direction and helps it stay the course.

The document should have a detailed marketing agenda that the owner (for a one-person business) and all supporting staff (when there are employees) should be completely familiar with. There should be scheduled sales targets which need to be compared with actual numbers. There must be a marketing budget to allow for sales growth. And such marketing budget should not be made up of random numbers. Rather, it should be based on industry research and best practice (i.e. expense ratios) of companies in the same line of business.

There should be a marketing calendar that anyone involved in selling the business' products or services, should carry at all times. This calendar details the actual selling activities that need to be adhered to on daily or weekly basis. When it comes selling and marketing, the lifeblood of a business nothing is to be left to chance.

2. Growth Financing

If you decide to grow the business, either by buying another business or simply expanding from within, having a business plan and reaching your sales goals as planned, makes you stronger when you go for financing. The bank (or your investors) will see that you had a plan, executed it and reached specific milestones. They will trust that you will execute your new plan with the same zeal. Otherwise, they won't trust you with their investors' money.

Therefore, it is very important to start with a plan (a template of your vision) and to use that plan as your roadmap for daily, monthly and yearly targets. Nothing helps you stay on track better. It also makes it a lot easier to secure the funding you may need to expand your company.

3. Selling The Business

Unless the business fails, is dissolved (e.g. a professional practice with one member), or is passed on to heirs, at one point, it will have to be sold. A business plan simplifies the sale process greatly.

Selling a business is similar to looking for financing. One difference is that the funding source will operate the business. Another major point in this case is that the funding source is probably putting all her/his life saving in the seller's business. Because of that, selling a business is even more difficult than getting a bank loan or institutional investment.

A business plan can show a track record in meeting and/or exceeding planned sales and profit targets. Also, a business plan's financial section has a lot of the documents that a buyer will need to review to do a due diligence. Usually, handing over a finished business plan will supply a major part of what a buyer needs to do a transaction.

Conclusion

Most business owners do not have a business plan. A lot of very small businesses (1-5 people) believe that they are too small and don't need to have a business plan. They simply take it one day at a time, until they are in trouble or in need of money. However, experience has taught us that a business plan is a must from the beginning and should be used by anyone starting a business, alone or otherwise. How else can one know where the business is going and how is progress to be measured?
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