A business plan is a critical tool to building and establishing a long-term business. It’s also a tool for promoting a business to potential investors, partners, suppliers and even employees.
A comprehensive business plan includes many different components – a competitive analysis, a promotion and marketing plan, pricing strategy and a SWOT analysis of the business’s strengths, weaknesses, opportunities and threats, for example. It explains to investors why a business is a good idea, how the entrepreneur will make it happen and why the particular entrepreneur will succeed. It also identifies competitors and shows how the entrepreneur intends to differentiate by clearly defining their competitive business advantage.
Entrepreneurs should know exactly how much money they need to start their business and exactly how they’ll spend it. They should also demonstrate exactly how they intend to compensate an investor for taking a risk on their business.
To this end, a good business plan should provide a realistic prediction of the company's performance, based on financial information projected over three years. The information should include a projected balance sheet, statement of earnings and retained earnings and statement of changes in financial position.
Finally, the plan should demonstrate the entrepreneur’s understanding of profitability and positive cash flow. Just because a company is bringing in cash does not mean it is making a profit and alternatively, even if a company is making a profit, it can still run out of cash. Planning has to happen around both scenarios.
Understanding cash flow also helps entrepreneurs to make better decisions about growth, purchasing equipment or even when best to obtain a line of credit. And for potential investors, cash flow helps them to assess the long-term viability of the entrepreneur’s business model.
Just as a road map keeps a traveler on course, a good business plan keeps an entrepreneur focused from start-up phase through to succession or sale. As Dragon Jim Treliving observes, the plan also reassures investors that they will be compensated for taking a risk on the entrepreneur. Listen to Dialogue in the Den
where along with David Kennedy from KPMG Enterprise and Dragon Jim Treliving, we review the basics to having a business plan and why it is important.
Brought to you by KPMG EnterpriseTM
By Dennis Fortnum, National Leader, KPMG Enterprise
KPMG Enterprise. Trusted business advisers to the Dragons.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
Posted on Oct 19, 2009 1:00:00 PM