By Cynthia K. McCahon, MBA

This article may be freely reprinted with the following title: 

Many people find it difficult to start writing -- and then actually complete -- a business plan. Sometimes, the best approach is to have a plan for writing your plan. This article offers an easy-to-follow approach for writing a simple, basic business plan that ballparks the company's net revenue. After all, if there's no net revenue, there's no business.

Entrepreneurs and business owners have the best of intentions when they set out to develop a business plan. They quickly find that the process can be a daunting challenge. Many would-be entrepreneurs don’t complete the plan for one reason: they become entangled in a kind of analysis paralysis. So in this article, we'll simply focus on answering the most basic question: will you make make money?

Launching A Business? Don't Rush and Don't Assume

Launching a business, particularly a first business, is filled with passion, adrenaline, and raw energy. The thought of becoming a successful entrepreneur shines like a bright light for many of us. It’s easy to rush into the process of launching a business without stopping to consider whether there is actually a business into which we should rush. All too often, we become like moths to a flame when we haven't done our homework.

Start With A Simple Business Plan

First, start simply. Don’t try to write an entire business plan in the first pass. Rather, just come up with simple financial projections that reveal whether or not your business idea is a sound business idea. The very thought of creating financial projections strikes fear into the hearts of many people. Sound familiar? Read on.

Try This First

Here's a good, simple, reliable approach that I often advise small-business owners to start with when they need to develop a basic business plan. This breaks the task-at-hand down into three simple steps.

• Figure Out Your Your Net Revenue Per Product

• Figure Out Your Expenses

• Figure Out Your Net Profit

Your basic objective is to come up with a ballpark estimate that gives you an idea of how much the business will generate in net revenue. After you’ve thought through this exercise, then you can tackle a more comprehensive plan – should your projections reveal that there’s a business worth pursuing.

Follow these three steps as a way to get going. You don’t even need to use a spreadsheet:

1. Figure Out Your Your Net Revenue Per Product 

Start by simply writing a paragraph that describes each product or service that you plan to sell. Describe the product or service in terms of why that product/service would be something that consumers would purchase. (The following indented text represents a simple example of what your layout should look like for one product/service. Repeat the entire sequence for each product/service):

Then state the sales price for the product/service. Make sure your sales price is realistic, based on your competitor’s pricing. Also state how much the product or service will cost you to buy, manufacture, or provide. Make sure your cost for that product is realistic, based on quotes from suppliers. Then, subtract the sales price from the cost. That amount is the net revenue. 

Next, estimate how many units of that product or service you expect to sell in the first twelve months. Think about how and why sales might increase (or decrease) over the first twelve months. Be conservative, because it’s far better to under-project rather than over-project.

Then you can project the net revenue for twelve months.

Do this for each product or service and then total each product’s net revenue together to come up with a 12-month net revenue forecast for all of your products or services. Let’s say, for our example, that we come up with a total net revenue of $150,000 for all of our products for the first twelve months.

2.  Figure Out Your Expenses

Make a list of all your expenses, excluding the cost of the product. We’ve already included the cost of the product in our net revenue projection. To add it as an expense would be redundant.

Think of everything that you'll be writing a check for each month:  rent, payroll, utilities, insurance, accounting, legal, supplies, etc.  Come up with a monthly amount for each expense. Your list will look something like this:

And so on, until you’ve named everything and have come up with a 12-month total for each expense. Then add up each line’s 12-month total to come up with a total 12-Month expense for all of your expenses. Let’s say, for our example, that we come up with $130,000 in expenses for our first twelve months.

3.  Figure Out Your Net Profit

Finally, subtract your 12-month expenses from your 12-month net revenue. That amount is your 12-month net profit. The net profit is what you’re left with after you’ve paid your bills:

Hey, we’re in business! We have $20,000 left over.

If your net profit is negative, the negative amount is how much money you would need to finance the company, typically in the form of a small business loan. You’ll then need to come up with financial projections for the next two years and include repayment of that loan. The goal is to show at what point in time the company will likely break even.

This is a very simplistic way to look at basic forecasts for a small business. It doesn’t take into account a lot of variables, such as taxes, dividends, or loan interest rates. But if the numbers look good at this simple stage, then proceed to creating a more comprehensive plan. If the numbers are not panning out, take a good look at what’s not adding up and decide whether it’s fixable. The business may not be worth pursuing. That’s the question at hand.

It’s simple, but it’s a way to get your business plan rolling. That moth-to-the-flame thing can be awfully painful.

The best way to manage the business plan process is to look at sample business plans and use a good off-the-shelf software that leads you through the entire process. We always recommend Business Plan Pro for writing a business plan for small businesses.

If you need additional help with your business plan, contact our business plan development service at DirectPlan.