Do I Need a Business Plan?
Not everyone who starts and runs a business begins with a business plan, but it
certainly helps to have one. If you are seeking funding from a venture
capitalist, you will certainly need a comprehensive business plan that is well
thought out and demonstrates sound business reasoning.
If you are approaching a banker for a loan for a start-up business, your loan
officer may suggest a Small Business Administration (SBA) loan, which will
require a business plan. If you have an existing business and are approaching a
bank for capital to expand the business, they often will not require a business
plan, but they may look more favorably on your application if you have one.
Reasons for writing a business plan include:
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Support a loan application
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Raise equity funding
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Define objectives and describe programs to achieve
those objectives
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Create a regular business review and course
correction process
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Define a new business
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Define agreements between partners
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Set a value on a business for sale or legal
purposes
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Evaluate a new product line, promotion, or
expansion
What's in a business plan?
A business plan should prove that your business will generate enough revenue to
cover your expenses, but a business plan may vary depending upon whom your
audience is. If you are writing a plan for your colleagues and partners, for
example, to expand an existing business, then the focus of that plan may be more
operational than financial. Yes, you are going to show your partners how this
expansion will mean more revenues, but they are going to want to know the nuts
and bolts of how this new venture is going to be implemented.
If you are writing a business plan for a bank, your bank manager will want to
see that your ideas are well thought out, but the most important aspect to him
or her will be your financials. Are your assumptions realistic? And will the
cash flow of the business be enough to ensure that you can make the monthly
payments for the loan that you have requested? If your business is making $1,000
a month and your payments are $1,200 a month, the bank is likely to turn you
away.
When considering an investment opportunity, most venture capitalists look at the
obvious trends and market niches. Transcending the business elements, however,
the most important factor in a decision to invest in a company is the quality of
the people. In real estate, the three biggest criteria are "location, location
and location." The venture capital axiom is "people, people and people." VCs
will ask, how experienced are the people that are going to run this business? Do
they have knowledge of the industry? Have they started successful ventures in
the past?
What makes a successful business plan?
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Presents a well thought out idea
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Contains clear and concise writing
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Has a clear and logical structure
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Illustrates management's ability to make the
business a success
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Shows profitability
Bringing it all together...
Your business plan is like your calling card, it will get you in the door where
you'll have to convince investors and loan officers that you can put your plan
into action. You want your calling card to look impressive, so make sure your
business plan is printed out on good quality paper, you have checked the
spelling and grammar and that your numbers add up. Anyone who sees errors while
reading your plan will wonder whether you are going to make similar errors in
running your business.
A great business plan is the best way to show bankers, venture capitalists, and
angel investors that you are worthy of financial support. Make sure that your
plan is clear, focused and realistic. Then show them that you have the tools,
talent and team to make it happen.
This Article Provided by Palo Alto Software, Inc.
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