If you fail to plan, you plan to fail. Don't handicap your home business by not taking the steps to create a business plan.
A business plan is a written blueprint for your home business. Business plans are essential for getting a business loan, but even if you don't need outside funding, they are a valuable tool to helping you set goals in your home business, understand what you need to do, and anticipate future growth.
Types of Business Plans
- Formal business plans: These plans are detailed documents, usually prepared for the primary purpose of securing outside funding for the business.
- Informal business plans: These plans are used primarily by the business owner as a road map to success. It might be so informal as to be handwritten notes, or a bit more comprehensive typed out plan.
Whether formal or informal, when properly written and maintained, business plans provide a means to help you stay focused on the tasks that build a profitable home business.
Do you need a business plan?
If you intend to secure outside funding for your business, you'll need a formal business plan.
However, even if you're starting small or have your own resources to fund your business, a business plan isn't required, but it can greatly improve the chances that your home business will succeed.
The U.S. Bureau of Labor Statistics estimates that as many as 30% of all small businesses fail in the first two years. Those statistics can be very frightening. After all, why would you want to spend time and effort, as well as risk your own money, when there is only one chance in ten your business will survive?
There are several reasons why small and home businesses fail, but proper planning can help overcome them all. A business plan can help you:
- Get clear on your goals
- Develop a deep understanding of your market
- Organize the day-to-day activities of your home business
- Understand your current financial situation
- Make important management and financial decisions about your home business
- Set a starting point to measure growth
Writing a Business Plan
The answer to this question depends on two key factors.
Is the Business Plan for Internal Use or External Use?
If you're not using the business plan to get a loan or find investors, you can write it yourself. If you're trying to secure outside funding, professionals who write business plans for a living bring a lot to the table even if you only get outside help to review the plan to make sure your bases are properly covered in the document. Additionally, business plans need to be edited and proofread for grammar and good sentence structure. Well-written business plans increase the chances of securing needed outside funding.
How Are Your Writing Skills?
If you're a good writer you can probably write a business plan yourself, at least with some assistance. Software and samples are available to help prepare business plans. Additionally, the SBA is a terrific resource for guiding you through the process. If you haven't already, you'll want to take their online Develop a Business Plan Workshop to get started. While you can easily learn how to write a business plan yourself, you will still benefit from having someone else read through your plan and you may still need outside assistance, such as a CPA to create your financial documents and/or a market research firm to develop statistics about your markets.
Whether you decide to hire someone who writes business plans, write it yourself, or use software, you still need to take an active role in the process. Whoever writes your plan needs accurate information for each section of the document and a clear understanding of your business.
Gathering the information is also of great benefit to you because it helps you understand your business and what you need to do in order to succeed, and it gives you a clearer picture of your competitors and your market.
Writing a Business Plan
If the business plan's purpose is primarily for your own use you can follow a simple home business plan outline.While general guidelines are available, if the plan is being written primarily to secure outside funding, such as a small business loan, it's not a bad idea to see in advance if the financial institution has any specific requirements it likes to see in its loan applications and business plans. The basic outline of the business plan includes:
- Executive Summary – A high-level overview of the document that is placed first in the finished document but that needs to be written last.
- Company Description - A history and description of your company.
- Products or Services - Information on the products or services you plan to offer and how they compare to your competitors products or services.
- Market Analysis – A description of your market, your niche, and the demand for your product or service (supported by documentation). The percentage of market share you envision and conclusions of any marketing research data.
- Marketing and Sales Strategies – How you will promote your business, how you will get your product or service to your customers, the costs for distribution and promotion, and how you will measure the effectiveness of the methods you plan to use.
- Organization and Management – The legal structure of your business (sole proprietorship, LLC, C corporation, S corporation, etc.), who your key players are, who is responsible for what and how much they will cost your business.
- Financial Data – Your balance sheet, a breakeven analysis, an income statement and a statement of cash flows. You'll want to include both historical financial statements and forward-looking financial statements.
- Funding Request – This is the section when you'll be requesting funding for the business. If you are not seeking outside funds right now, you can leave this section out.
- Appendix – Contains supporting information, such as resumes, details of market research findings, estimates, and all other documentation required to support what's contained in the body of the business plan.
What to do with the business plan once it's done?
Once you've completed the above information, you need to use your business plan as you organize you daily to-dos and make decisions about your business. Note that your business plan isn't a static document carved in stone. As you build your business, you may find that you need to make adjustments or changes depending on the market, your ability to reach your goals, and changing trends in the marketplace. As a result, it doesn't hurt to review and revise, if necessary, your business plan every six months or so.
Keeping your business plan current offers some important benefits, such as:
- If you ever need to apply for additional funding through either SBA loan programs or other sources of private funding, up-to-date information will already be available. When it comes time to submitting updated business plans, you'll save time and money.
- It helps you stay focused the important elements of your business, and avoid getting bogged down in busy work, or shiny objects.
It can help you identify areas you need to improve in or can expand.