The Most Important Thing That's Missing From Your Business Plan
Did you know that most small businesses don't have a business plan? And those owners who do create a plan often forget the most important section of the plan. We'll get to that in a minute, but first, why it's important to create a business plan for your new business startup.
Why Every Small Business Needs a Business Plan
A business plan is an essential tool when you are starting a business. Creating a business plan is a worthwhile activity for new business owners.
A business plan:
- Can help you create the structure of your new business, so you know who is doing what and what you are really producing and selling.
- Can give you a roadmap for the future of your business.
- Can also help you get a startup loan.
What's Missing from Many Business Plans
But many business plans forget one very crucial factor -
How are you going to get the money to run your business?
Everything costs money. And don't forget time is money. When you forget the money part, you not only risk losing the interest of a potential lender, but you risk having your business fail.
This means creating a business budget, in the same way, you create a personal budget. You need the financial spreadsheets to show a lender how you will spend the money on sales, and, more important, how you will get the money. "Getting the money" means having enough cash (not profit) to pay back your lender. Let's look at the typical business plan.
What Does a Business Plan Include?
Every business plan should include several main sections:
- A description of the business. What will be produced and sold?
- A description of the owners and management. Who will be running the business? What expertise do they have?
- A marketing plan, showing how the products and/or services of the business will be marketed, and how the business will get customers.
- A financial plan, showing all the costs and expenses of the new business, including not only cost of goods sold and costs of products or services and paying employees, but also expenses for marketing and promotion activities.
This last part - the financial plan - is often missed or is very briefly explained. But this part is probably the most important because it gives the new business owner the information needed to set up and evaluate sales and marketing activities. Having a great financial plan, including costs of EVERYTHING, also helps the business owner sell the business to lenders and funding sources.
What to Include in a Financial Plan
Several financial statements should be included in your business plan. Income Statement is a projected (future estimated) spreadsheet showing all the income and the expenses of the business over a period of time. This is also called a "P&L (profit and loss) statement. If you are applying for a loan, you will probably also need a "sources and uses of funds" statement that shows how much money you will need and where it will come from, including your own personal funds.
What Expenses to Include in Your Business Plan
To make sure your income statement is as realistic as possible, you should include all possible expenses.
Some expenses business owners forget:
- Expenses for marketing and advertising events. If you are having an event, there is always an expense, even if it's just for food/catering or for rental of a facility.
- Expenses for small items like a coffee machine for the office or decorations. Even if you think you will not need these things, you'd be surprised at how often businesses break their budgets with small things.
- Bank charges, fees, and interest on loans. These add up quickly.
- Miscellaneous costs. Add in a generous amount of unforeseen and unexpected expenses. You will be glad you did.
Finally, remember the axiom: Over-estimate expenses and underestimate income, and you might be about half right.