Beginning today and every Thursday here on the Small Business channel at BlackEnterprise.com, you’ll find Biz Plan Insider, a weekly series of posts providing information, resources and expert advice specifically aimed at small business owners and aspiring entrepreneurs looking for advice on how to create, write and execute effective business plans. Let’s start by debunking some of the myths about writing a good business plan:
Myth 1: You don’t need a business plan.Whenever I hear this one, I’m reminded of the one person everyone knows who is a lifelong smoker and drinker, follows a steady diet of salt-, sugar- and fat-laden foods, and was partying hard with her 29-year-old boyfriend while celebrating her 65th birthday (for the third straight year) at the club last week. That you may know someone like this does not change the fact that cemeteries are filled with millions of people who tried that lifestyle and did not live to tell the tale.
Similarly, while there are businesses which were launched and are in operation without ever having written or followed a business plan, there are million of other enterprises that never got going or died quick deaths because they did not create and follow a business plan. We can’t name them because they did not last long enough to be remembered. If you don’t want to end up in the latter group, commit to working on your business plan now.
Myth 2: It’s easyâ€”all you need is some business plan software. Using business plan software is a relatively low-cost way (usually $200 or less) to put together a professional looking business plan. The best software will walk you step-by-step through the process, while providing you with hundreds of templates to choose from. However, the software won’t actually write the plan for you, and the final result will only be as good as the data, including market research, an operating budget and financial projections, you provide. The software can provide the structure, but you’ll still have to do the planning.
Myth 3: My financials just need to add upâ€”not actually make sense. Over the past decade, as a judge of business plan competitions requiring me to review the financial plans of dozens of entrepreneurs, I am constantly amazed by the number of aspiring moguls, many with excellent ideas, who want to fudge the numbers. Some believe that as long as everything adds up, it’s all good. Others believe that until they are in operation, when they can get actual figures, it’s okay to take their best guesses. And all too often, would-be entrepreneurs have no idea what their financials say, because they’ve abdicated responsibility for understanding them to their accountant or bookkeeperâ€”or worse, a person not remotely qualified for the job.
Understand that your financials have to be rooted in reality, even if your business is not up and running yet. Just because you have not hired a short-order cook for your restaurant, you should give an accurate accounting of what salary that person would command. That number should be in your operating budget even if initially your mother has agreed to fill that position without taking a salary. Everything from your projected cash flow to the cost of equipment to your projected break even point should be based on actual, reality-based research. And while we’re on the subject of financials, hire a real accountant (yes, you need to pay them) with experience working with small businesses to help you put together your projections. Don’t try to do it yourself (unless you have such accounting experience). And please, please, don’t rely on a friend or family member to do it, even if they did get straight As in math in high school. Financial planning for your business is not a job for amateurs.
These are just three of the myths that cause entrepreneurs to do inadequate business planning, or to skip writing a business plan at all. In future installments of Biz Plan Insider, we’ll surely cover and debunk more.
Alfred Edmond Jr. is the editor-in-chief of BlackEnterprise.com