When starting out in a new business venture, a plan is essential to the future operation of any business, regardless of industry or market. You wouldnt go on a long trip without knowing where you were going and how to get there, right? Its the same with a business - a well-developed business plan answers 4 basic questions:
1. What product or service will your company provide, and what need does it fill?
2. Why will your target market purchase from you?
3. How will you reach your target market?
4. Where will you get the financial resources for start-up and operations?
A well-developed business plan is more than a road map. It serves to define the business concisely, identifies goals and milestones and a desired timeline in which to reach them, and serves as a resume for selling your business to banks and investors.
The most important component of a business plan is the financial report. A financial report should include at the least 3 components: an income statement, a balance sheet, and a cash flow analysis.
The income statement is a summary of a companys profit and loss over a certain period, usually a year, but for a fledgling company, the time may be shorter. It serves to track all the income and expenses of the operation; where expenses can be or should be reduced, and where weak points in the business may be. For example: is the phone bill excessive
A balance sheet serves as a snapshot of the company at any given point in time and shows the kind of assets, liabilities, and ownership position of the investors within the company.
A cash flow analysis shows how the company generated and used cash for a period of time. The cash flow analysis shows three types of activities, operating activities, investing activities, and financing activities.
When writing your business plan make sure you know your audience. Typically your audience is either going to be directed at what is known as angels; e.g. Mom and Dad or wealthy investors that become personally involved in fledgling business.
If you are directing your business plan to the Bank of Mom and Dad or to a wealthy family friend then your business plan probably doesnt have to be as perfect as if you were submitting your proposal to a formal bank.
The second type of audience that your business plan could be directed at are venture capitalists. This is were you need to make sure all of your is are dotted and ts crossed.
Venture capitalism is all about taking a risk and getting a high return from it, so the only way to attract investors in this market is to persuade them with a top-notch business plan.
Whatever you decide to do for your business, the critical first step of a business plan will set the tone and provide a solid platform from which you can grow and hopefully succeed.
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