Staying Focused With a Business Plan

It takes a lot of drive and dedication to start a business, as well as successfully operating and growing it. A business plan is an indispensable tool to get you started and keep you on track. Write a business plan first, and then spend the money necessary to start your business. Following a good business plan is the ticket for turning your dream into reality.

Writing the Plan

We won’t concentrate on the details, but want to mention the important points you need to include in your business plan. First, make sure you do extensive research about markets, small business financing, projected costs and revenues. You will need this information in order to raise funding for your business. Use realistic assumptions and numbers — fooling yourself is a waste of everyone’s time, especially yours. Write the different plan sections using the details of your business — how you will organize and operate, cash flows, small business funding, marketing and selling, staffing, equipment, etc. Write clearly, in easy-to-understand terms. If necessary, have it professionally edited so that it has no grammatical errors — those can undermine your credibility.

Using the Plan

The primary use of the plan is to serve as guide to running your business. But also consider the additional ways a business plan can keep you focused:

  1. All Details Are Considered
    As work out your plan, you will doubtlessly be confronted by issues that you have never considered before. The business plan forces you to go beyond general concepts and anticipate problems before they cost you money, time and distress. You can usually correct problems after they occur, but at greater cost and at the risk that the problem may overwhelm your ability to respond. The detailed contingency plans you build into your business plan may make the difference between survival and failure.
  2. Using the Plan for Funding
    Lenders and investors want to see the cold, hard numbers before funding your venture. They will not provide small business funding without a written business plan that lays out all the numbers in a plausible way. Knowing this, you are forced to focus on the numbers to make sure they will support your presentations to lenders and investors. Nothing concentrates the mind like the challenge of making your numbers work, as your business’ future hinges on how well you meet your projections. If you are just launching your business, take care to include all startup costs, because you’ll be on the hook for omitted, unfunded costs.
  3. Manage According to Plan
    Your business will include others, such as vendors, customers and perhaps contract workers, management staff and employees. The business plan is a tool to align all stakeholders to the same goals, policies and practices. The plan also helps you focus on the important issues and not waste time on secondary concerns. Let your plan serve as the structure that guides operations and decision-making.

As you can see, the time you spend on writing a business plan will pay dividends for years to come. Remember that the plan is just that — a plan, not a bible. This means you can adapt it to new information as it becomes available, while maintaining your overall mission. Think of the plan as a living entity that must evolve along with your business. Review your actual results every day and compare them to your business plan projections. You’ll quickly become aware of divergences, and this will allow you to take corrective action as early as possible. Make sure your share changes in the plan with your stakeholders, especially your lenders and investors.



Focus on your business

Understanding When Your Business Needs Funding

Just about every business, big or small, needs financing. You have to remember that you can have profits without having much money in your bank account. If you run short of cash, it will negatively affect the entire business, including paying for:

  • Startup costs
  • Inventory purchases
  • Payables
  • Uncollected receivables
  • Other uses for working capital
  • Capital expenditures

Funding Facts

Small business funding is available in the form of debt and equity. If you are a small business, you may not have a way to raise equity, and/or you may not want to be selling partial ownership to someone else.  Selling equity in a rush to the wrong person, can put you in a place where you feel like your hands are tied in decisions that should have been completely yours to make. Thus, you are more likely to use debt as a means of raising funds. You use the small business funding to pay your bills and to grow your business. While it’s possible that you have enough cash in the bank to finance all your needs, the great majority of businesses rely on at least some outside money to start operations, undergo an expansion program and/or replenish their working capital (current assets minus current liabilities).

Roadblocks to Success

If you are a well-prepared business owner, you’ve assembled a business plan that includes your estimated cash flows. Whenever you project negative cash flows, you will need additional funding through equity or debt. In other words, it’s time to take out a small business loan when you are depleting your cash.

The most notorious cash flow culprit is accounts receivable (A/R). Simply stated, if you extend credit to customers, you will always run up against a few bad apples who take forever to pay their bills. If you make cash inflow estimates of $10K a month and even have sales figures that meet this target, slow collections can result in a cash shortfall. Eventually, you hope to collect at least 95 percent of your A/R, but the longer it takes, the more you will need funding.

As you are waiting for your credit customers to cough up the cash, you still must pay bills to vendors, lenders, the IRS, employees, etc. These folks are not interested in your collection problems –they want to be paid on time. That’s when timely commercial small business loans, such as the ones available from IOU Financial, are just the ticket to get you over the rough patches.

Startup Costs

Another common use for external funding is to pay for the costs of starting your business. To earn money, you have to spend money, and during the startup phase, you are spending aplenty but earning nary a nickel. A startup loan will allow you to purchase the equipment, space, merchandise, recruitment, insurance and dozens of the other things you need in order to open the business.

Going back to your business plan, a startup should have a pretty good idea of how much funding it will need before it can begin selling products or services. The plan will show the necessary borrowing, including a realistic assessment of the interest costs and the payback period. It’s a complete red flag if you can’t secure the funding you need to start your business — better rethink the whole thing. Perhaps you can modify your plans to make them more modest. One strategy is to start very small and then use profits to bootstrap your growth. If even a modest plan can’t scare up enough small business funding, you might have to abandon the whole idea. That’s how capitalism works — allocating resources where they will do the most good (i.e. bring the highest returns on investment).

The bottom line is not to be surprised that you will need financing from time to time. Even healthy established businesses need to take out working capital loans in order to continue to grow.  The solution is to identify reliable lenders, such as IOU Financial, who will have the cash ready for you when you need it. By carefully husbanding your money, you can grow your company and enjoy the fruits of your labor.