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Better business through planning
By Jenny
C. McCune • Bankrate.com
 Just
as a pilot needs a flight plan to arrive at his destination safe
and sound, an entrepreneur needs a business plan that outlines how
his fledgling company will go from being a startup to a successful
concern.
For example, Cynthia McKay, founder and CEO
of Le
Gourmet Gift Basket Inc., only started her gift basket company
after she drew up a blueprint. Eight years later, Le Gourmet Gift
Basket is a $1.4 million operation.
"Every small business needs some kind of plan,"
McKay says. "Without one, you won't be able to reflect on your success.
I did mine on the back of a cocktail napkin ... but I still use
it."
Don't go into business without
one
There are several compelling reasons why someone starting a business
needs a plan:
- Attract investors and lenders. It
identifies how much money you need and why your company would
make a good investment.
- Identify customers, your market area and
pricing. Knowledge of where you will sell your product and
to whom can make the difference between success or failure.
- Get your head on straight. Just committing
your plan to paper will help you fine-tune and enhance your business
idea. Perhaps your original idea called for using retailers to
distribute your product or service. Writing a plan out may show
you that selling direct through a Web site makes more sense.
- Perform a reality check. A good business
plan will help you gauge whether your idea makes commercial sense.
That is, whether you'll end up with a profitable entity, not a
money-losing proposition.
Components of a good plan
Although business plans can take on many different shapes and forms,
the basic components are as follows:
- Executive summary, which gives the
highlights of your plan and your company. Its function: to entice
lenders, distributors and investors to continue reading. It includes
contact information on your company, a description of its business
and other highlights.
- Sections on business concept, your
company's industry and potential markets. These sections describe
your idea and places it in the context of your industry, how large
it is, who the major players are, what the business risks are
associated with your venture, etc.
- Description of the company, include
products, target market, why it will succeed and brief history
of the company's principals.
- Marketing plan and sales forecast.
The marketing plan describes how your company will market its
product, including sales strategy, distribution, pricing and promotion.
Based on the marketing plan, the sales forecast attempts to estimate
sales for your product or service.
- Financials and more financials. One
chapter of a business plan spells out financing needs -- how much
capital is needed to start the business. In addition, a business
plan also includes financial forecasts that project income and
expenses as well as a monthly cash flow forecast (what money your
company's taking in or expending over time and when it expects
to reach profitability; that is, taking in more money than it
is spending).
Jenny C. McCune is a contributing
editor based in Montana
To comment on this story, please e-mail
the Bankrate.com
editors
-- Posted: July 17, 2000
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