Monday, August 4, 2014

Entrepreneurship 101: The Importance of a Business Plan

Here’s a sobering fact: More than half of small businesses fail within 18 months. Only about 10-20 percent will be in operation after five years. Entrepreneurs who successfully navigate the startup phase will credit their success to varied reasons—including passion, long hours, or superior customer service. However, detailed planning is one of the most commonly cited reasons for small business success.

A well-written comprehensive business plan is simply a must for any reasonable chance of success. In developing the plan, the entrepreneur must discipline herself to consider (and mathematically prove in the financial forecast section) the assumptions underlying the business model. Too many small businesses have a great idea but allow themselves to grow too quickly, thus draining themselves of necessary operating cash. Others do not properly plan for contingencies. Still others may not fully consider the impact of competition or governmental regulation. Writing an in-depth business plan forces the entrepreneur to consider the proposed operation from every possible perspective, discovering weaknesses, contingencies and strengths in the most improbable places.

Business plans may be organized in several ways, but they commonly begin with an Executive Summary (which is the final part written). The second section could contain a narrative showing how the entrepreneur is especially suited to operating this company. That second section might also contain short biographies of other principals or advisers (for example, the CPA or an outside consultant). One early section will include a narrative about the business itself—the legal structure, where the business will be conducted, what the business will sell,  and, perhaps, the amount of investment the entrepreneur has made into the business.

The core of the narrative will be a detailed market analysis, preferably illustrated with charts, tables and graphs proving the demand and projecting sales of the product or service being offered. The Analysis of Competition, usually given its own section of the plan, follows the market analysis.


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