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Preparing Your Business Plan by Jaxworks To establish a solid financial base when starting a business, most entrepreneurs must look to lenders and investors for external funds. However, it is not always easy to convince people to invest their money in another’s business. The entrepreneur first must convince potential lenders and investors that her business idea is promising, the market accessible, the firm’s management capable, and the return on investment attractive.
  Preparing Your Business Plan by Jaxworks To establish a solid financial base when starting a business, most entrepreneurs must look to lenders andinvestors for external funds. However, it is not always easy to convince people to invest their money inanother’s business. The entrepreneur first must convince potential lenders and investors that her business idea is promising, the market accessible, the firm’s management capable, and the return oninvestment attractive. To accomplish these objectives, the entrepreneur should develop an attractivebusiness plan. Often, the presence or absence of such a plan is the critical factor in a lender’s or investor’s decision to invest or not to invest in a small business.n addition, a business plan is a valuable managerial tool, helping the entrepreneur focus on developing acourse for the business in the future. n fact, the primary purpose of building a business plan is to improvemanagerial control over the company and to avoid the pitfalls commonly leading to business failure.!nfortunately, most small business owners never create business plans, and the result often is failure.  ccording to one business consultant, #One of the reasons we feel business failure is as great as it is, isbusinesses are so concerned with meeting a payroll each week, they never take the time to make abusiness plan. $This lack of planning starts a vicious cycle that is extremely difficult for owners to break%&ailure to plan leads to business crises, which drive planning out of the owner’s schedule, which leads tomore crises, which  see a direct relationship between the absence of a business plan and the failure of abusiness,$ says one consultant.'uilding a plan forces management to consider the long(term aspects of the company in a comprehensivefashion) using it to raise money is secondary. One business development consultant emphasi*es, #+hen speak of business plans, raising money is the last thing  talk about.$ +hen prepared properly thebusiness planning process helps managers establish checkpoints for key activities and view the bigpicture. reating a plan forces the entrepreneur to evaluate every segment of her company -proposed or existing and to develop a series of strategies for coping with an uncertain environment. n addition to thewhat(if scenarios the plan forces the entrepreneur to consider, there are other benefits./ a systematic, realistic evaluation of the company’s chances for success in the market0 a way to determine the primary risks confronting the business1 a game plan for managing the business successfully2 a tool for comparing actual results against targeted performance3 a primary tool for attracting money in the challenging hunt for capitalThis chapter focuses on preparing and using this vital business document) it will build a business plan onthe foundation laid in the first ten chapters of this book. I. THE BUSINESS PLAN The business plan is a written summary of the entrepreneur’s proposed venture, its operational andfinancial details, its marketing opportunities and strategy, and its managers’ skills and abilities. There is nosubstitute for a well(prepared business plan, and there are no shortcuts to creating it. #4our business planis like a road map,$ says one small business consultant. #t describes the direction the company is goingin, what its goals are, where it wants to be, and how it’s going to get there.$ Tile plan is written proof thatthe entrepreneur has performed the necessary research and has studied the business opportunityade5uately. n short, it is the entrepreneur’s best insurance against launching a business destined to failor mismanaging a potentially successful company.The business 6lan serves two essential functions. irs! 7and most important7it guides the operation of the company by charting its future course and devising a strategy for following it. t provides a battery of  © Copyright, 2009, Jaxworks, All Rights Reserved.  tools7a mission, goals, objectives, budgets, financial forecasts, target markets, strategies, and others7that managers can draw on to lead the company successfully. business plan gives managers andemployees a sense of direction, but only if everyone is involved in creating, updating, or altering it. smore team members become committed to making the plan work, it takes on special meaning. t giveseveryone targets to shoot for) and it is an effective tool for measuring actual performance, especially inthe startup phase. chairman of a highly successful family business that is international in scope, reliesheavily on business plans to manage his company’s diverse holdings. He points to an extraordinarynumber of computer(generated spreadsheets lining the walls of his bedroom and explains, #This is what issupposed to happen.$ The sheets are filled with forecasted cash flow statements, income statements,balance sheets, price analyses, and other information. #'elow,$ he says pointing to empty charts waitingto be filled in with actual results #is what will happen.$ Then, he jokingly adds, #This is the only potentialproblem in my life.$   'elow are /8 pitfalls that offer advice on how the business owner can put the plan towork for the company. TEN PLANNIN PITALLS AN# H$% T$ A&$I# THE' t’s true% The process of preparing a business plan is itself valuable. 'ut, it doesn’t make sense to developsuch a comprehensive document and then to forget about it. The following is a list of the ten mostcommon mistakes business owners make in using their plans7and the remedies for them./. 9ingle(purpose use. :ntrepreneurs typically prepare a plan to raise money and seldom give thought toactually using it.;emedy% 9tress implementation. The plan must include specific objectives for keymanagers and a plan to accomplish them.0. One(person commitment. f one person writes the entire plan -e.g., the company president, keymanagers are unlikely to be committed fully to it.;emedy% nvolve all members of the management team in preparing the plan. Have eachmember write a section of the plan.1. 'enign neglect. Once completed, the business plan sits on the shelf and collects dust. Out of sight, outof mind.;emedy% <ake following up the plan easy. 9chedule regular meetings to discuss the planand the progress made in accomplishing the goals and objectives established.2. !nworkable document. <anagers create a plan that is so huge and complex that it discourageseveryone from actually using it.;emedy% =ive the plan life by developing one(page action summaries for eachdepartment. sk managers to update progress on their responsibilities at periodicmeetings.3. !nbalanced application. 9ometimes, managers give a disproportionate amount of attention to oneportion of the plan7marketing or finance, for example.;emedy% =et balanced participation from key managers and employees in all areas of the company. 6lus, focus >8 percent of management attention within the next year.?. @isillusionment. <anagers get disillusioned when the scenario laid out in the plan fails to develop.;emedy% @evelop contingency plans7both positive and negative. +hat happens if.A. Too action(oriented. ction(oriented managers tend to forget about the plan once it is completed. Theywant to get back to the real world of business. © Copyright, 2009, Jaxworks, All Rights Reserved.  ;emedy% !se their action(orientation to encourage these managers to develop plans for their areas of responsibility.B. Co performance standard. Too often, managers fail to establish measurable standards in the plan.;emedy% :ncourage managers to establish specific, measurable objectives in their respective areas.>. 6oor progress control. mplementing the plan is without control because progress reports are lost in the jumble of everyday business.;emedy% Hold regular meetings to discuss progress on the plan and nothing else./8. :arly consumption. The plan becomes outdated because no one bothers to update it.;emedy% !pdate the plan every six months. That way you never run out of plans.The se(on)  vital function of the business plan is to attract lenders and investors. Too often smallbusiness owners approach potential lenders and investors unprepared to sell themselves and their business concept. 9imply scribbling a few rough figures on a note pad to support a loan application is notenough. pplying for loans or attempting to attract investors without a business plan rarely produces thedesired results. The best way to secure the necessary capital is to prepare a sound business plan. Theentrepreneur must develop it with great attention to detail because it is a key factor in her salespresentation to potential lenders and investors. n most cases, the 5uality of the firm’s business plan willweigh heavily in the decision to lend or to invest funds. The 5uality of the plan determines the firstimpression the potential lenders and investors have of the company and its managers. Therefore, thefinished product should be highly polished and professional in both form and content.  plan is a reflection of its creator. t should demonstrate that the entrepreneur has thought seriouslyabout the venture and what will make it succeed. 6reparing a solid plan demonstrates that theentrepreneur has taken the time to commit her idea to paper. 9usan =arber, a 9mall 'usiness@evelopment enter -9'@ director, advises, #To take the step of starting a business without thinking itthrough is a big mistake.$ 9till, too many entrepreneurs do just that. =arber claims that, of the clients shesees, #only one in a hundred has a reasonable business plan.D The main reason is impatience. nother business adviser says, #They want to get on with building the business) they don’t have time to write abusiness plan.’'uilding a plan also forces the entrepreneur to consider both the positive and the negative aspects of thebusiness. :xplains one venture capital manager, The first thing venture capitalists react to is the businessplan because it shows that the individuals have done the necessary spade work to show that they areserious.  want to see that management has had the discipline to put the plan down on paper whichmeans that they have a half(way decent chance of building a business. f they don’t do this exercise, theyprobably won’t have the discipline to build a business. #  n entrepreneur cannot allow others to prepare the business plan for him. Outsiders cannot understandthe business nor envision the proposed company as well as the entrepreneur can. lso, because he willmake the presentation to potential lenders and investors, the owner must understand the details of theentire business plan. f the entrepreneur lacks a complete understanding of the plan, he will receive anegative evaluation, and in most cases, the result will be rejected by the financial institution or investor.  lice <edrich, cofounder of ocolat, a manufacturer of specialty candies and desserts, recalls her firstattempt at raising capital.&irst of all,  went to the bank, and  was so ill(prepared and so insecure about what  was asking about. . . was extremely insecure with a banker.  didn’t know how to describe what  was doing with anyconfidence.  did not know how to present a business plan. nd, he was condescending to me. Eookingback on it,  can understand why%  wasn’t prepared. . . . +e didn’t get the loan. © Copyright, 2009, Jaxworks, All Rights Reserved.  areful, thoughtful preparation can make the difference between success and failure when shopping thecapital market. s one successful applicant who used professional assistance stated, # had never borrowed a lot of money before, hut  felt comfortable talking with bankers because  had a proposition believed in and had the necessary information.$  lthough each company’s business plan should emphasi*e the uni5ue personality of the venture, everyplan should follow certain guidelines. This section highlights the major elements of an effective businessplan. II. THE ELE'ENTS $ A BUSINESS PLAN This section outlines the primary components of a solid business plan, but every small business owner must recogni*e that such a plan should he tailor(made, emphasi*ing the company’s strengths. <anysmall business managers employ the professional assistance of attorneys and accountants in preparingtheir business plans. &or those owners who are unfamiliar or uncomfortable with business planning, hiringsuch professionals to organi*e and polish the plan may be wise. 'ut, the proliferation of standardi*edplanning formats has resulted in a trend toward mass(produced business plans that fail to produceresults. The entrepreneur should beware of this cookie(cutter approach because it neglects to sell theuni5ue strengths of a proposed business venture.;emember% Co one can create your plan for you. Par!s o* !+e Business Plan T+e Exe(u!i,e Su--ary.  To summari*e the presentation to each potential financial institution or investor, the entrepreneur should develop an executive summary. t should he concise7a maximum of two pages7and should summari*e all of the relevant points of the proposed deal. The summary shouldexplain the purpose of the financial re5uest, the dollar amount re5uested, how the funds will be used, andhow any loans will be repaid. t is designed to capture the reader’s attention. f it misses, the chances of the remainder of the plan being read are minimal. well(developed, coherent summary introducing thefinancial proposal will establish a favorable first impression of the owners and the business, and can go along way toward obtaining financing. lthough the executive summary is the first part of the businessplan, it should be the last section written. o-pany His!ory.  The manager of an existing small business should prepare a brief history of tileoperation, highlighting the significant financial and operational events in the company’s life. This sectionshould focus on the successful accomplishment of past objectives and should indicate the firm’s image. Business Pro*ile.  To familiari*e lenders and investors with the nature of the business, the owner shouldincorporate into the business plan a general description of its operation. This section should begin with astatement of the company’s general business goals and a narrower definition of its immediate objectives.Together, they define what the business plans to accomplish, how, when, and who will do it. =oals arelong(range, broad statements of what the company plans to accomplish in the distant future. They areaspirations that guide the overall direction of the company and express the company’s raison d’Ftre. nother words, they answer the 5uestion, #+hy am  in businessG$ nswering such a basic 5uestionappears to be obvious, but many entrepreneurs cannot define the basic purpose of their businesses. Thedirector of an entrepreneurial boot camp says, t’s ama*ing what a tortuous experience defining thebusiness’ purposeI can be. t’s hard for them to distill their ideas . . . <any people don’t know whatbusiness they are in.$The owner of a small chain of baby products stores has clearly defined his company’s mission.To serve best the needs of customers who are retail stores offering an incomparable combination of selection, 5uality, and service at competitive prices.Objectives, on the other hand, are short(term, specific targets that are attainable, measurable, andcontrollable. :very objective should reflect some general business goal and include a techni5ue for  © Copyright, 2009, Jaxworks, All Rights Reserved.
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