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.

Here is to you making it into the small percentage of successful startups!