Business Plan as a Tool to More Effectively Manage Your Business

You might ask "Why would I need to prepare a business plan if I'm already in business?" One reason is to be able to effectively assess your success compared with your expectations. Another is to be able to quickly make adjustments based on variations between expected and actual results. If you get in the habit of regularly updating your business plan, it's not such a daunting task when you need to prepare one for a bank or a potential investor. After you're comfortable with the process, you'll be able to make better predictions about how changes in your operations will affect your profitability.

Generally, a business plan includes a narrative section that:

• Discusses the qualifications and strengths of the management team
• Describes in detail the business concept (ex. dance club, sports bar, wine boutique, etc.)
• Provides an analysis of the market in which the company operates. Identifies direct competitors and explains how the business differentiates itself from it's competition, and how it's similar. (Note: Competition changes constantly. It's a good idea to update this section at least quarterly to be sure you're remaining competitive.)
• Demographic information for customers (both current and desired). This will help you to focus marketing efforts and make necessary adjustments to attract your desired clientele.

It also includes detailed financial information including:

• Forecasted balance sheets
• Forecasted income statements
• Forecasted statements of cash flows
• Financial statement assumptions

Since you are already in business, starting to develop the financial component of a business plan is easy. Simply start with your actual financial statements from the previous year. It is best to break the financial statements down into monthly columns. By doing this, you can predict cash flows at various points during the year by taking into account seasonal variations.

Once you have gathered historical information, you can adjust those figures for changes that you anticipate for the coming year. For example, if you know that you will be raising prices in July, you can apply the percentage increase to the historic numbers to project the future results. If you will be increasing or reducing staffing levels, you can adjust your compensation-related expenses accordingly.

If you are considering a new marketing campaign, adjust your financial plan to include the anticipated costs and expected results. Then, you can compare actual results with these projections to very quickly determine if your expected results were achieved and either continue the campaign, make adjustments to it, or suspend it.

Make sure to document your assumptions and how each item of income or expense was affected by these assumptions. By doing so, if you need to modify an assumption due to new information, it's easier for you to reverse or modify your financial projections to accurately reflect this change.

This doesn't have to be a manual process. Several of the accounting software packages have a "budgeting" feature that allows you to export historic account balances to spreadsheets to make adjustments. In addition, there are several software packages available which are designed to produce business plans.

It's always a good exercise to reiterate how you envision your operations. By reviewing your business on an ongoing basis, you will be able to make changes that keep you on your desired course in a much more timely manner.