Why You Need to Write a Business Plan

Just as a builder uses a blueprint to ensure that a building will be structurally sound, the process of creating and writing a blueprint for your business -- called a business plan -- will help you determine whether your business will be strong from the start. Without a business plan, you leave far too many things to chance.

A business plan contains a description of your business, including details about how it will operate, a section on market research and marketing strategies, an evaluation of your main competitors, and several financial forecasts.

Reasons to Create a Business Plan

Writing a well thought-out and organized business plan dramatically increases your odds of succeeding as an entrepreneur. A good business plan can help:

• determine whether your business has a chance of making a good profit
• provide an estimate of your start-up costs, and how much you'll need to invest or finance
• convince investors and lenders to fund your business
• provide a revenue estimate (by defining your market -- who your customers will be -- and the percentage of the market you can expect to reach)
• make money from the start by devising an effective marketing strategy
• compete in the marketplace (through an analysis of what your competition lacks), and
• anticipate potential problems so you can solve them before they become disasters.

If You Need to Raise Money

If you need to raise funds for your venture, it goes without saying that you'll have to write a solid, formal business plan. Business owners who want to borrow money or attract investors will be successful only if they have well-written, well-researched business plans. All of your potential lenders or investors will want to understand as much as possible about how your business will work before deciding whether to back it financially.

The Importance of Financial Forecasts

Predicting and planning your business finances can show potential investors that your business idea will fly. But preparing financial forecasts is a good idea even if you don't need to raise start-up money.

The discipline of developing financial projections for your business plan, including an estimate of start-up costs, a break-even analysis, a profit-and-loss forecast, and a cash flow projection, will help you decide if your business is worth starting, or if you need to rethink some of your key assumptions.

In other words, a good business plan will convince you that you're doing the right thing -- or not. As any experienced businessperson will tell you, the business you decide not to start because a financial projection doesn't pencil out can be more important to your long-term success than the one you bet your economic future on. To learn how to perform a break-even analysis -- the first step in projecting your business finances -- read Will My Business Make Money? For information on creating a business plan, see Business Plan Basics, or get How to Write a Business Plan , by Mike McKeever (Nolo).