The Business Plan
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The Business Plan
Birds do it, bees do it, even educated fleas do it. This is the first line from a 1928 Cole Porter song. And yes banks want it, creditors, want it, even equity investors want it. It’s a business plan. And in the opinion of the author of this article, for most start-up businesses and small established businesses, it’s a complete waste of time, effort and energy. I know that this is a controversial statement, but here is my thinking.
The formal business plan requires that you project out over a number of years the prospective financial results of the business you are starting or buying. This may be an interesting academic exercise, but in the “real world,” it is almost always a waste of time. And yet banks, the SBA, and equity investors almost always demand it. Long term projections for a small business are almost always a waste of time since there are too many unknown variables; getting or losing a big customer, the general economy, changes in laws and regulations, or changes in the competitive environment will almost always make the forecast useless.
What most small businesses need is more business. They need a larger and more profitable customer base. They do not need a 60-page document entitled The Business Plan.
Unfortunately, however, if you are seeking debt or equity capital, the business plan is a rite of passage. You are going to have to prepare one. In preparing one, try to keep it as brief as possible. If acceptable to your prospective creditor or investor, try not to make projections of more than two years. Sophisticated investors know that beyond this time frame, any forecast is useless. Your business and professional background are extremely important, to emphasize this in the text. Do you have managerial experience in the business you plan to start or buy? This is critical. At this point, investors are investing in YOU. You do need to show that you have analyzed the competition, but try to keep it brief. Emphasize how you plan on beating them without making it sound easy because it is not easy, and successful business people and investors know this. Making it sound easy is a dead giveaway that you are an amateur.
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