First, a written Business Plan is a must! Do not overlook, skip or just not do this.
You must be honest with yourself and recognize that everything you've done up to this point is impassioned thinking. Remember, right now you only have a concept.
Going into business for your self can be invigorating and rewarding. But it involves risk. The latest figures show, “80% of new businesses fail within the first five years” and of the remaining 20% of businesses that don’t fail within the first 5 years, 80% of those fail within the next 5 years. So that puts us down to only 4% that last 10+ years. That means that the cards are stacked against you before you even open your doors. This doesn't mean you should give up your dreams. But it does demand that before you risk everything, you'd better be as absolutely sure that your business will have a chance of being one of the 4% that do survive.
Why do so many fail? Studies conclude that several are undercapitalized and many others did not have a legitimate market niche and should have never been started in the first place. The remainder had enough capital to make success possible, but didn’t know how to manage their cash properly. They simply did not foresee the flow of their cash far enough in advance to avoid the pitfalls. Look at it this way, without a solid foundation first, the house may look good from the outside, but it will collapse.
So what does all of this have to do with a written business plan? Simply stated, “If you can’t make it work on paper, how can you make it work in the real market?"
Remember, anyone can make any plan say anything. You can play with numbers to get the results that look good. But if you do, you’re fooling yourself and wasting your time. You can bet you will join the ranks of the 80% who fail within the next 5 years. If you play that kind of game with your figures in your plan, you won't have to wait five years to fail. You'll be gone long before that.
Businesses do fail, even the ones well thought-out and well planned. Marketing changes, customers needs change, someone else comes along with a better idea. But a well thought-out business plan anticipates as many of these pitfalls as possible and plans for them.
Let’s assume that since you are still reading this, we have succeeded in convincing you of the need for planning your business before you commit your life savings to your idea. You will soon find that a business plan is also much more than a document which helps you anticipate how you are going to operate your business. A business plan is also a key fund raising tool.
Financial institutions or investors are certainly going to want to know why you need the money you’re requesting, how you are going to use it and, most importantly how are you going to pay them back. All of these points are covered in the business plan. A written business plan increases your possibility of obtaining funding. It shows that you've studied the various possibilities and will overcome the anticipated obstacles. Basically, it will give your banker or investor the feeling that you really know what you are talking about.
More importantly, a written business plan will help you stay on track. There is the constant temptation in new business to go off in different directions when a new idea or potentially profitable situation comes along. These possibilities may indeed fit right in with your business and may be very wise to pursue. However, the opposite is often more likely true.
If you have a solid, written plan you can use it to weigh these new situations and help you decide if this new direction is really a wise move.
A written business plan is intended to be used, adapted and updated as unforeseen situations arise. Make it a living document. Your written plan will help keep you on track.
There is only one real rule about writing a business plan. It must be written so that not only you understand what it says, but anyone who reads it will not misunderstand what being communicated. When possible, keep it as simple as you can. When necessary, elaborate. But what ever you do, make it as clearly understandable as you can.
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