I remember hearing self-development expert Wayne Dyer talk about success. One of his key points that resonated with me was that with all dreams “you must believe it before you see it.” That especially holds true in business. An owner must believe in his company’s success before he can lead others down the road to success.
One way a business owner can “believe it” before he sees it is to put it on paper in the form of a business plan. This then becomes your road map to success. It is a way to take your “vision” for your business and create an action plan to achieve the dream. You may also use the business plan to communicate to your employees, investors or lenders how you will achieve success. It also allows you to see if the ideas work on paper and test the theory.
Many times I have helped business owners put their expansion plans on paper only to find out that their ideas wouldn’t yield the results they were expecting. By putting it on paper first, they could see whether their idea made sense and had the potential to yield a profit as well as cash flow.
The business planning process brings clarity of thought and vision that allows you to spend limited resources more effectively and yield greater results. I have seen many business owners change the way they were planning to execute their expansion after going through this process.
It is easy to be overwhelmed with the task of putting your business operations on paper. The simplest method for most people is to start with a basic outline of a business plan and start filling in what you do know about your business. Then do some research to find out critical information that you don’t already know. Sample business plans available on the Internet offer guidance, but you must be careful not to rely on samples too heavily.
There are three basic components of a business plan or loan proposal: the narrative/descriptive data, the financial data and the supporting documents. The narrative data describe your business’s product or service, the type of business entity, the location of your business and your target market as well as your marketing plan and the business’s management and personnel needs. Everything in the narrative/descriptive section should have a corresponding financial component. If the information does not have direct impact on the numbers, then you don’t need to include it.
You must take all the financial information, whether based on past information or proposed changes in current operations, and relate it to the company’s projected income and expenses for the next two years. This information takes into account the financing needs of the company as well as funds that you have to make available to the company. This information can then be utilized to create projected cash flows for your company. As you work with these documents and understand them, you may have to revise the amount of capital needed to operate your company and retain a positive cash flow.
The supporting documents are any documents available to support your business plan or loan request. This may include lease agreements (unsigned if you are a startup), job descriptions, contracts, quotes for construction and equipment, three years of income tax returns and financial statements for an existing business (or three years of personal tax returns for a startup), an up-to-date personal financial statement and a list of collateral.
Remember, business plans are as varied as the types of businesses that exist. The most important thing to remember is, as you are gathering the financial data, you should be conservative on your revenues and expenses. When given a range, use the highest estimate you receive for your expenses and the lowest of the range for revenues.
If you get outside help putting your business plan together, make sure you “own” the information. Many times small-business owners get the help of a business consultant, accountant or both to help them with putting together their business plan. That’s okay only if you understand everything in the plan, where all the numbers came from, and the financial assumptions used with the projections. If you can’t explain the numbers, then you don’t really “own” the information and you shouldn’t be using the business plan.
In short, a well-thought-out business plan can help you, investors and lenders “believe” in the power of your dream.
Lynn Vos is area director of the University of Georgia’s Small Business Development Center. Contact her at 651-3200.