Small Business Planning

Small business planning – no excuses, you need to write it
down! Before you condemn me and say “he’s dead wrong”, let me
share what I have seen. There are two schools of though about
starting a business – one is “Jump In” and the other is “What
If”. Both sides have strong reasons to uphold their opinions but
in the end they want the same thing - success - they just take
different paths to get there.

Two Schools of Thought

The “Jump In” crowd say that one of the simplest things that
prevents getting started is ‘paralysis by analysis’. This
concept is that you can dwell over your idea and the details
behind it for such a long time that by the time you tell
yourself you’re ready, you’re actually too late because the
market has changed, and you have spent so much time and money
trying to get to that point. The idea to prevent this paralysis
is to just do it – just start the business, start acquiring
customers, start delivering your product or service, deal with
the problems and you will learn the your business by doing.

The entrepreneurs whom I’ve dubbed the “What If” are the people
who understand that mistakes are costly. Some mistakes are
burdensome when you’re bootstrapping the entire operation,
others can be so detrimental to the business that they could
break it. To prevent these errors, these people want to know
what they are getting into and they take the time to look at the
market, to look at the future customers, make sure that the
basic financial equation [ Revenue (-) Costs = Hey, I can make
money off of this(!) ] still holds.

Why You Need One

So you have an awesome idea, right? Great, now all you have to
do is go out and do it! Well, that’s the same thing as being 14
and saying that you have an awesome idea to start driving and
you’re going to do it. You can get behind the wheel of the car,
you can get the engine running, you know about the gas pedal – I
mean you’ve seen everyone else do it, so you pull out on the
street and 2 minutes later you’re looking at a wrecked car.
Sure, you’re still alive and the car cost $10k, but don’t you
think you should at least ask about the rules of the road?

Here is why I say you NEED a business plan. No matter how well
you think you know what you’re doing, you just haven’t thought
it all the way through. A business plan does not have to be
elaborate, does not have to be a 40 page color document, it
doesn’t even have to be a quick 10 pager, I’m saying that if you
can “write” it in your head then even that is great. A business
plan is taking the time to ask yourself the basic questions
about your new operation and coming up with the answers. The
answers make up the plan:

1.Executive Summary – what is the nature of your business

2.Product/Service Description – what are you selling

3.Market Analysis – who is buying

4.Management Team – who is helping you

5.Operations Strategy – how will you deliver

6.Financial Plan and Projections – how much money can you make

Different Types

So, why is there so much talk about putting a business plan
together and one being better than another? Well a business plan
not only allows you to gather your thoughts about your new
business, it also serves as a resume to partners and investors.
Different levels of investors require different levels of
analysis and insight. A financial institution such as a bank may
want to see some specifics about sound financial operations; do
you know what they want to see? Looking at thousands of business
plans is the job of Angel Investors and Venture Capitalist and
they may want to know the precise assessment of your customer
base; do you know how to calculate it?

There are several ways you can put a plan together and each
type of solution comes with its own price tag and those range
from free to $10,000. You can look online and see a similar
six-part summary that I wrote above (free), you can buy software
that walks you through the different parts (about $400), or you
can hire an expert or a consultant to write the plan for you..

It costs How Much?

Here is what you should know about the typical three types of
business plans that a business plan professional can create
charging per page or per hour. A Level 1 Business plan is about
10 pages, costs between $700 and $1,500 and is used to secure a
bank loan. A Level 2 plan is from 20 to 30 pages, costs from
$2,500 to $5,000 and is intended to capture an angel investor
for an investment of up to $1M. The third level of business plan
is intended to secure venture capital in the multi-million
dollar range and can be from $7,000 to $10,000. If you think
that $10,000 is a lot, you’re correct, but keep in mind that
some plans have been written for up to $100,000…but they were
used to secure tens of millions of dollars.

There should be no doubt in your head about whether you should
have a business plan – if you are staring a new business you
need one! Make the right decision of how you will write your
business plan, who will write it, how much time and money you
will spend on the process and for what outcome you are writing
it.