The Importance of Business Planning Rated:

For some entrepreneurs, the phrase "business planning" may conjure up a feeling of dread. How are you supposed to know what is going to happen to your business when you haven't even made a sale, much less invested in financial management software? However, experienced small business owners will attest to the power of putting strategy to paper in order to make your ideas a reality.

Planning for success

Business planning may be arduous, but skipping this step can leave you uninformed about your firm's place in the market. The type of information gathered during the planning process can help you foresee potential risks and develop strategies for dealing with them before they occur. Many owners return to their business plan even after their firm is up and running to help them refocus and chart a path for the future.

In addition, a business plan is a tool of communication. Banks and investors will look to your plan for evidence that your company can succeed. Your partners and employees will look at it as a blueprint for the future, bringing together disparate elements such as marketing, sales and operations into one document.

What type of plan?

The amount of detail included in your business plan is largely dependent on its intended audience. If you are a one-person start-up with limited capital needs, you may simply want to describe your business goals, the market conditions and a basic strategy for the future.

If you are seeking capital, in addition to the elements included above, be prepared to give your financial management software a workout. If you want to lure investors, provide information on how you will give them a return on their money, as well as how you plan to grow using their funds. And a bank will likely be interested in factors such as risk assessment, profit and loss statements, and loan amounts.

Planning the plan

Before you start writing, do some preparation. Here are some of the main questions to focus on in the initial non-financial sections of your plan:

What is the purpose behind your company? Creating a mission statement will help you focus on why your business exists in the first place. Some statements lean towards the inspirational, but others simply describe the product or service that is being offered.

Who are your potential customers? Your marketing strategy will answer the question of who will buy your product or service. As much as possible, categorize your customers within separate market segments and analyze their particular behavior. What motivates them to buy what they do? How much money do they want to spend? How do they respond to different types of marketing?

Who are your competitors? Gather as much information as you can about other companies in your sector to prepare your competitive analysis. These are the folks that you will be studying to see how your business can do what they do - better than they do it, of course! Make sure you list both direct and indirect competitors, describe their strengths and weaknesses, and detail their pricing plans. Think about how you will differentiate yourself within this group.

How will you run your business? In your description of operations, be prepared to set out exactly how you plan to manage your company on a day-to-day basis, as well as the physical necessities involved. Information included in this section relates to issues such as manufacturing, equipment, and business location. Who are your suppliers? How will you manage inventory? Will you employ staff?

What Show us the money

The final part of your business plan is where your financial management software can really come in handy. The financial section describes how much it will cost to run your company, as well as predicting when you will become profitable.

Here are some factors to consider when planning this part of your business plan:

Start-up expenses. How much will it cost you to start your business? Think about expenses such as rent, down payments on equipment, any licensing and registration fees, and initial inventory.

Operating expenses. Once you're up and running, how much will you require on a regular basis to keep going each month? Consider costs such employee salaries, loan payments, materials purchase, storage fees, utilities and maintenance.

Cash flow. This section will help show you how much cash you will have access to on a regular basis - and determine whether you should seek additional financing. Included in a cash-flow projection for a given month are estimated sales figures, cash expenditures - and a reconciliation of the two figures.

Future profitability. By comparing how much money you expect to take in with how much you expect to pay out, you can come up with a prediction for when your business will break even and when it will become profitable.

Some entrepreneurs find the final section of a business plan intimidating and seek help from a professional who is proficient with financial management software and understands the needs of a small business. There are numerous resources available that can help you write and hone your plan. Just remember - don't let uncertainty keep you from completing this all-important step.

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