Basic financial statements for your business plan
Here are the four most important financial statements you need to understand to plan and run your business:
- Income statement: Your bottom line ― subtracting costs from revenue to come up with net profit
- Balance sheet: A financial snapshot that shows what you own, what you owe, and what your company is worth
- Cash flow statement: A cash monitor that follows the flow of cash in and out of your company
- Budget: Your financial forecast that indicates where you plan to make and spend money
How to write a business plan: Customers, competitors, and you
Look at the following three sets of questions and insights; they give you a shortcut to what’s most important to know about you and your business plan.
Consider the following three customer questions:
- Who is my real customer — who is the buyer?
- Why do they buy?
- How do they buy?
Think about the following three competitor questions:
- Who are my real competitors — others my customers consider before buying from me (or not)?
- What is different about these real competitors when compared to me?
- What are these competitors trying to do and do to me?
Keep the following three ways to win in mind:
- Constantly innovate.
- Offer something unique.
- Focus on your key customer segment and build an iron clad relationship with it.
What makes a business plan work?
The following is a list of the key components that you need to master to make your business plan work:
- Plans: Company mission, vision, goals, and objectives that all work together in alignment
- Organization: A structure for your company that makes sense
- Procedures: Efficient and effective ways of doing things
- Leadership: An ability to influence and encourage others around you
- Skills: The talents and expertise your people need to succeed
- Culture: Beliefs and attitudes that lead to doing the right thing, no matter what
The major pieces of a business plan
When you’re putting together a business plan, divide the plan into these basic sections — which every quality business plan should have:
- Executive summary: This section is a very brief overview of what your business plan is all about; it should entice the reader to see more.
- Company overview: This is a description of what your organization wants to do — the business in which it will compete, your vision and mission, the main products/services it will offer, and the principal actors who will be involved.
- Business environment: This section describes the market(s) you will enter, the current trends driving the market(s), and the competition you will face there.
- Company description: Here you present your strengths and weaknesses, using a SWOT analysis chart.
- Company strategy: In this section you tell the reader just how you’re going to succeed in accomplishing your goals and objectives.
- Financial review: Here you provide financial statements, including a profit-and-loss statement (P&L), balance sheet, and cash-flow statement; these should be historical as well as projections for future periods.
- Action plan: Finally, you present a time-phased road map for going forward to achieve the goals and objectives of your business plan — specific steps you will take to make the plan work.
A checklist of business planning essentials
You have a number of essential tasks to complete before you write your business plan. Having a clear picture of your goals and how to attain them is at the core, but consider the other factors on this list of business-planning essentials:
- Get everyone involved in setting goals and objectives — and give them incentives.
- Learn all you can about your customers.
- Understand who your competitors are.
- Identify your strengths and weaknesses relative to opportunities and threats.
- Determine which capabilities you absolutely need to succeed.
- Know the things that add value to your organization.
- Do your financial homework.
- Identify the worst possible thing that could happen to your organization — and what you will do if it occurs (your Plan B).
Reasons why new and established businesses fail
You are not going to fail with your business plan if you look closely at each of the following reasons and avoid the mistakes (the first set for start-ups, the second for established firms).
A start-up business may fail for the following reasons:
- Runs out of money and has no backup funding source
- Fails to establish clear goals and objectives
- Misunderstands what customers want
- Underestimates the competition
- Has difficulty managing people
- Has ineffective procedures and systems
- Doesn’t have critical business skills
- Founder/owner won’t let go and overcontrols everything
- Founders can’t pivot quickly when initial business plan fails
An established business may fail for the following reasons:
- Unable to change — leaders get fat, dumb, and happy (FDH syndrome)
- Top leadership lives in the past and can’t attract fresh new talent
- Can’t transform rapidly because of too many fixed costs that are no longer useful
- Management engages in too much short-term thinking and acting
- Ignores threats from disruptive new industry entrants
- Doesn’t do serious long-term strategic planning, only does annual budgeting
- Doesn’t do succession planning
