IN THIS CHAPTER

Understanding the purpose of a business plan

Organizing the pieces of your dreams into tangible goals

Determining when you need help and what to expect

Getting long-term value from the plan you make today

One big complaint from entrepreneurs, especially those running small companies, is “Why do I have to write a business plan?” Quite honestly, you don’t. Some entrepreneurs who choose to forgo a business plan do just fine, but others struggle.

In this chapter, we tell you why having a business plan is a good idea and show you the benefits you can reap from not only having one but also reviewing and updating it regularly.

Understanding the Value of a Plan

Starting and managing a business without a business plan is, like it or not, the same as searching for a buried treasure without a map: Although you know that the gold is in the ground somewhere, you’re wasting an awful lot of time by randomly digging holes in the hope of eventually hitting the jackpot. Without a plan, the odds of success aren’t in your favor.

Why, then, do people resist using this tool? They resist it for two reasons:

• Having a plan involves a great deal of work. Don’t despair: You can minimize the amount of work involved, which we get to momentarily.
• They don’t understand the importance of having a plan.

To help you overcome your business plan angst, we provide these reasons for having a plan — you can decide whether to take another step without one:

• You can more easily secure money. This goal is probably the most common reason for the creation of a business plan. If you decide to ask strangers to lend you money, whether those strangers are bankers or private investors, they want to see a plan. Lenders have a better chance of protecting (and recouping) their investments when a formal strategy documents your projected income and profits. Even if you’re counting on family members for a loan or are using your own funds, having a business plan confirms that you have thought about how to use the money wisely.
• A plan creates a vision that gives you a well-defined goal. Coming up with a great idea and transitioning it into a viable business opportunity can be challenging. Having a written plan forces you to fully develop the long-term vision for your product or service. With those clearly defined goals in place, you stand a much better chance of accomplishing your vision.
• A plan can provide timeless guidance. Done correctly, this document provides a concrete plan of operation for your business — not only during your start-up phase but also for three to five years down the road. Keep in mind that the plan might need occasional tweaking (as discussed at the end of this chapter). However, investing the time now to create a strong foundation ensures that you have a barometer to help you make decisions for managing your company.

Chances are that at least two of the three reasons on this list are valuable to you. Even if you don’t plan to attract investors, you’re already forming a picture about what your company looks like, and you’re setting goals to make sure that you get there. The only remaining step is to make your thoughts more permanent by writing them down in a business plan.

Recognizing That the Parts of the Plan Make a Whole

A traditional business plan is sectioned into seven or eight major parts. At first, that number of parts might seem a bit overwhelming. Consider, however, that most experts recommend keeping a finished business plan to fewer than 20 pages. (You can usually get by with many fewer pages.) When you break down that recommendation, each section becomes only 2 or 3 pages long, which translates to 5 or 6 paragraphs per page. It’s not so much after all.

Each part plays a critical role in your overall plan. Although each section can almost stand alone, the sections work together to present a complete picture, or vision, of your business. Don’t even think about omitting one of them.

Depending on your main purpose for having a business plan, you can develop sections with more diligence. For example, if you’re seeking outside funding, make sure that the financials section is as thorough and accurate as possible.

Before you start writing, get a sense of the scope of your plan by reading these brief descriptions of the basic parts you need to cover:

• Executive summary: Although this part comes first in your plan, you typically write it last. This brief page does just what it says: It highlights the major points from each of the other parts of the plan. This page is usually the first one that investors and other advisors read, and how well it’s written can determine whether they turn the page or show you the door.
• Business or product description: This section provides a detailed description of your overall business and your product or service. You should include a vision statement (or mission statement), which summarizes your goals for the business. When you describe your product or service, don’t forget to pinpoint what makes it a unique and viable contender in the marketplace.
• Market analysis: Provide a thorough description of your target market. In this case, discuss both the overall industry in which you’re competing and the specific customers to whom you’re marketing. Don’t forget to include a description of any market research you conducted.

• Competitive analysis: In much the same way as you describe your target market in the market analysis, in this section you provide an in-depth view of your competitors in that market. The more detail you can provide, the better, to show exactly how well you understand (and are prepared for dealing with) your competition. Address your competitors’ weaknesses and also state how you can counter their strengths.

  Don’t double up on your work. Use information you gather during your SWOT analysis and feasibility study (see Chapter 2 of this minibook). Adapt the research and results of both to include in the market analysis and competitive analysis sections of your business plan.

• Management team: Whether you’re flying solo on this operation or working with a team, highlight the expertise that you and your executives bring to the table. Include summaries of your key professional experience, educational and military background, additional certifications and completed training programs, and all other relevant accomplishments. Remember to include a copy of your full résumé.
• Operations: Here’s where the “rubber meets the road.” Use this section to describe your marketing and operations strategies. Then detail how you plan to implement these strategies in your business. Think of the operations section as your chance to prove that you know how to convert innovative ideas into a successful business.

• Financials: Start talking money. In this section, you include projections (or estimates) of how much money the business will earn and your expenses, or costs of doing business. This combination is typically referred to as a profit-and-loss (P&L) statement. For the first year, break down this information for each month. (This listing demonstrates how far you must proceed into your first year before you start making money and indicates where seasonal slow points might occur, with smaller amounts of income coming in.) After the first year, show your projections annually. (See Book 2 for complete descriptions of legal and accounting requirements.)

  When you’re pursuing outside funding, try to be optimistic about your financial projections. Don’t be unrealistic, but don’t be too conservative, either. If you’re using the plan only internally, you can play it safe and estimate your future profits toward the lower end.

• Appendix: Consider this area a catchall for important documents that support portions of your business plan. Place copies of your loan terms, patent or copyright documentation, employee agreements, and any other contracts or legal documents pertaining to your business.

You might wonder whether you can use an easier, or shorter, business plan format with an online business instead of the traditional format. No, not really. As you can see from the descriptions in the preceding list, each part or section of the plan is generic. You can use almost any business plan template, tailor it slightly to your specific type of business, and achieve the same results.

Having a sample plan written for an organization similar to your online business is helpful. Check out one of the business-planning resource centers on the web, such as Bplans (www.bplans.com), to locate a sample plan specifically for online businesses to use as a guide. (See Figure 3-1.) Free resources and tips are available to help create your plan, or you can pay for additional tools and software.

Getting Help to Write the Plan

Even though you will probably feel better about writing a business plan after you read the rest of this chapter, more options can help make writing one easier. When creating a plan feels like more than you can handle alone, the solution is to hire a professional to write it for you or purchase business plan software that walks you through the process.

Don’t think that a business plan template or other software package is cheating. Your goal is to get your business off the ground — don’t close any doors or turn away any help. The money you spend on your business plan is an investment that has the potential to pay back many times. The time you spend on your business plan can likewise shorten the time you must spend later in preparing your business for success.

Several good options for business plan software exist, including buying an off-the-shelf version, such as Business PlanMaker Professional or BusinessPlan Pro from Palo Alto Software. You can also use LivePlan (www.liveplan.com), an online version of Palo Alto Software’s business plan software. If you need limited guidance on developing a plan, check out the free business plan builder from LawDepot (www.lawdepot.com/contracts/business-plan) and from the U.S. Small Business Administration (SBA) (www.sba.gov/tools/business-plan).

Knowing what to expect from a business plan consultant

After you decide to seek assistance with your plan, you might be surprised to find that you’re still expected to contribute information. Business plan writers are often referred to as consultants, and for good reason: You consult these folks to get advice and guidance on how to make the most of your plan.

A consultant translates your thoughts into the final written document. Consultants aren’t mind readers, though: You’re still responsible for providing all the initial information, often in written form.

You might be wondering how much this service costs. After you realize that you’re still doing a good bit of the work, your expectations on price might change. Regardless of the amount of work you must contribute, however, writing the plan still takes a great deal of time, and you’re paying for the consultant’s expertise. Expect to pay the minimum national average of $1,500 to $5,000 for a business plan written by a professional, with consultants’ fees ranging from $50 to $150 per hour, on average.

Keep in mind that wide variations might still exist, on both ends of the price scale, for this service. Much of the final price depends on

• Your requirements for the plan
• What you can contribute (to save the consultant time)
• The consultant’s experience level
• The complexity of the business concept
• The amount of research required to substantiate the plan

Although more knowledgeable consultants might charge a higher hourly fee, they could complete the project much sooner because of their experience. A consultant who lowballs the price of the project might not fully understand the amount of time involved and might try to increase the quoted price later.

When you’re working with a professional, the length of time to complete your plan depends on several factors. Here are some examples:

• How much information you can provide
• How quickly you can provide the information
• How extensive a plan you need
• The availability and accessibility of the facts about your business

If you decide to hire a professional, check first with experienced advisors who offer free assistance. Your local Chamber of Commerce or SCORE, an organization that offers guidance to new and established businesses, might provide enough to support writing the plan yourself. In addition, the SBA offers an online video tutorial for writing a business plan called “How To Write a Business Plan.” You access it at www.sba.gov/tools/sba-learning-center/training/how-to-write-business-plan, as shown in Figure 3-2.

When you’re ready to hire a professional, keep these points in mind:

• Look for someone with experience in your product or service industry.
• Find a consultant who’s comfortable with, and knowledgeable of, online businesses.
• Review samples of other business plans the consultant has written.
• Ask for written testimonials and references you can contact.
• Get a firm price quote.
• Agree on a reasonable timeline for completing the plan.
• Put your final terms into a written contract, including specifics of what you’re responsible for providing.

Using a Business Plan Today, Tomorrow, and Always

Ignoring your business plan or forgetting to maintain it is the same as failing to plan. To ensure that your business plan passes the test of time, consider these suggestions for ways to use it:

• As reference material: Refer to your plan often. Rereading your original plan is a good way to make sure that you’re staying on track.
• As a decision-making tool: When major operational issues occur or expansion opportunities arise, turn to your business plan. Decide whether the issue at hand fits your original goals and timeline before taking action.
• As a troubleshooter: When problems surface, minimize your frustrations. Use your own words of wisdom to resolve your problems. Take a look at your plan to see where the hiccup is. More than likely, you addressed potential problems in the operations section of your business plan.
• As a hiring tool: When you’re ready to expand your executive team, or add any other key staff positions, a business plan can show prospective employees that the company’s course has been carefully charted. Having proof of a game plan for growth and showing you have been sticking to it is particularly important when trying to hire executives or recruit advisors and a board of directors.
• As a vision guide: After your business is running, you can easily lose sight of the big picture. Concentrating on daily tasks and problems can derail your overall progress. Check your plan frequently and refocus your vision.

Every January, schedule at least two business plan preview sessions for the coming year. If necessary, pencil in a date and time on your calendar. (Block out 3 or 4 hours.) Do this task semiannually or quarterly, depending on whether you made, or will make, significant changes to your business.