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The importance of a business plan

How to create a plan specific to your business

A business plan precisely defines your business, identifies your goals and serves as your firm's resume. The basic components include a current and pro-forma balance sheet, an income statement and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications and make good business decisions.

Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers and others about your operations and goals. Plan your work

The importance of a comprehensive, thoughtful business plan cannot be overemphasized. Much hinges on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business and achievement of your goals and objectives.

"The business plan is a necessity. If the person who wants to start a small business can't put a business plan together, he or she is in trouble," says Robert Krummer Jr., chairman of First Business Bank in Los Angeles.

Despite the critical importance of a business plan, many entrepreneurs drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don't have enough time. But just as a builder won't begin construction without a blueprint, eager business owners shouldn't rush into new ventures without a business plan.

Before you begin writing your business plan, consider four core questions:

* What service or product does your business provide and what needs does it fill?

* Who are the potential customers for your product or service and why will they purchase it from you?

* How will you reach your potential customers?

* Where will you get the financial resources to start your business?

Writing the plan

What goes in a business plan? The body can be divided into four distinct sections:

1) Description of the business

2) Marketing

3) Finances

4) Management

Addenda should include an executive summary, supporting documents and financial projections.

Although there is no single formula for developing a business plan, some elements are common to all business plans. They are summarized in the following outline.

Elements of a business plan

1) Cover sheet

2) Statement of purpose

3) Table of contents, broken down by the business details (description, marketing, competition, operating procedures, personnel and business insurance), financial data (loan applications, capital equipment and supply list, balance sheet, breakeven analysis and pro-forma income projections), supporting documents, which include: * Tax returns of principals for last three years * Personal financial statement (all banks have these forms) * For franchised businesses, a copy of franchise contract and all supporting documents provided by the franchiser * Copy of proposed lease or purchase agreement for building space * Copy of licenses and other legal documents * Copy of resumes of all principals * Copies of letters of intent from suppliers, etc.

To review sample business plans, visit www.bplans.com/sp/businessplans.cfm.

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