Marketing Ideas

In your hurry to get your new business started, you may wonder if it is really necessary to begin your business venture with a business plan.

Not only is it important for you to have a plan when you begin your business. It’s equally important to have a yearly plan for your business so that you can see what progress you have made, what your needs for capital (read money) will be, and where you anticipate your money will be spent during the coming year. You need to show yourself, and if you borrowed money, your lender how far you have progressed since your original plan was written.

Business Plan

A new business writes a business plan in order to show their lender how they intend to operate, and to provide information to them that supports their need for start up funding for any other operations. In most cases, a bank wants to see a three to five year projections showing how you plan to use the funding. Depending on the scope of the business, they may be willing to only finance the first year, and will want additional evidence that your business is progressing as outlined in the original business plan before they will advance any more funds.

In the beginning, because you are not able to really show much in the way of financial records, a business plan shows potential creditors what you anticipate for the future of your business. At the end of each year they can then compare it to your original projections to verify if you are moving along as you anticipated. No lender wants to be stuck with an uncollectible loan because they advanced funds to a business with no real potential for success. Even if you are a little behind your original projections, they will be able to see if there is the potential for improvement. A lender may even make suggestions for helping you reach your original goals. On the other hand, if your progress is very far off you original projections, it could be a sign that your business is failing. It’s very likely you will receive less or even no more funding until you can prove your business is on its way to profitability.

Normally, any business can to take three to five years to become profitable. However, if you’re showing no improvement, a lender will be legitimately concerned. As you enter your second year of operation, you should be showing less loss and more profit, even if you don’t yet show a net gain in income. Even if you’re not looking for additional funding, you still need to take this as a warning and start making necessary changes so that you can make your business what you originally intended it to be.

Are your prices are too low? Are your expenses to high for the amount of business you are generating? If so, what needs to be cut? For example, if you are selling products from a website, surf the web to determine what others are charging for the same type of products. (I submit that you should have been doing that from the beginning.) See if you are in line with your industry’s standards for pricing. If you sell services, explore what others are charging for the same service and adjust your prices as much as you can. If people are going elsewhere for the same service, they may be doing so because you prices are to high or your quality is to low. In reality, these should have been checked first, but some people in their haste to begin a business forget the most important step of price comparison.

Which ever the case may be, a business plan must be reviewed and renewed every year. It is the business plan that keeps you business moving in the right direction. It also determines where you are going. A very smart businessman, the president of Apple USA when I first started working there, once told me, “If you don’t know where you’re going, it really doesn’t matter what direction you go.” We were both sailors, and I knew exactly what he meant.

Why Write a Yearly Business Plan?