How to Write a Business Plan and What Financial Data You Should Include

There are many things that all small businesses tend to have in common: small business need to have a business license, official business name, identification code (such as an Employer Identification Code or Social Security Number - for sole proprietors), and a business plan.

However, many businesses overlook actually developing a written business plan for different reasons. For example, many small businesses avoid developing business plans because they believe they have all of their necessary strategic planning stored in their heads - or that the direction the business will take is obvious.

Regardless of the size and scope of your business, it is important for you to have a thorough business plan. Here's what you need to know to get started:

What is a business plan?

A business plan is a statement of purpose and direction for a business. In essence, it states the business's mission and goes on to spell out how the business will go about achieving its mission. What's more, the business plan will have clearly defined goals and a plan of action for what to do when those goals are achieved.

Every small business needs a business plan - regardless of the size of the business. Even single-owner, sole proprietors need a business plan. Many business plans are written specifically for investors. However, even if you don't plan to get money from investors, it's important to create a business plan for yourself or your management team.

What is the general business plan format?

There are some general components of every well-composed business plan that you should be sure to include. These business plan components include:

• Executive Summary - describe the company's history, objectives, marketplace, projected growth, funding requirements, and a brief overview of the management team.

• Product or Service Overview - give insight into what product or service the business will be offering. This is where you may discuss patent or copyright issues, as well as any barriers to selling the product or service (such as competition or government regulations).

• The Market - describe the marketplace for your product or service, including the demographic that may be interested in your offerings. Discuss how your product meets the needs of this market.

• The Marketing Plan - discuss how to plan to spread the word about your product or services. Include any promotional materials or plans for advertisements or other marketing avenues.

• The Competition - include information about other businesses that are selling or offering what you plan to sell or offer. Be sure to include information about why your business will be different from the competition.

• Operations - in this section, tell your readers your business strategy. How will you run day-to-day operations? What vendors will you use? What equipment? Facilities? This section lets you show that you have thoroughly thought through the planning for your business and are ready to execute that plan.

• The Management Team - introduce readers to the individual(s) who will be leading your business to success. Give information about their backgrounds, experiences, education, personal information, and personal financial information. Yes - you will want to include a personal financial statement from each member of the management team if you are trying to get investors for your business. Also, include information about what salaries and benefits you will pay to the management team as well as information about resources that will be available to your business.

• Personnel - describe the employees of your business and how you will compensate those employees. Include information about their skills, personal employment needs, and benefits.

• Financial Data - especially if you are trying to get investors for your business, it is important that you include your financial data in your business plan. Your financial data will help investors to determine the risk-level of investing in your business as well as how well the business is currently managed. Financial data should include:

o A balance sheet for the company, including the owner's equity. Balance sheets include liabilities, assets, retainers, and more.

o A break-even analysis, which is determined using your income statement and cash-flow information. The break-even analysis shows how much money you need to make from sales in order to pay for your business expenses.

o The income statement, which is also known as a profit and loss statement. This statement shows investors how well the business manages money by showing the disbursements from the business receipts.

o The cash flow statement, which shows all of the projected receipts and disbursements for a business. This cash flow statement is critical to all businesses.

For more information about what your investors may want to see in a business plan from your company, feel free to ask your investors themselves. Every investor is different and has the liberty to ask for any materials he or she thinks are relevant before giving money to a company.

The business plan is an essential document that helps to ensure the success of businesses. Keep in mind that just because you have a business plan, your business will not automatically succeed. However, if you have a well-developed business plan, your business should be better set to succeed as long as you stick to the business development steps and goals outlined within your business plan. The Small Business Association is always available to answer any questions you may have about developing your business plan as well. Good luck!

Sources:

http://www.va-interactive.com/inbusiness/editorial/bizdev/ibt/business_plan.html

http://www.sba.gov/