How to Write a Business Plan

ChApter 1 | BENEFITS OF WRITING A BUSINESS PLAN | 7

here serves a dual purpose. It is designed
to provide answers to all the questions that
prospective lenders and investors will ask.
But it will also teach you how money flows
through your business, what the strengths
and weaknesses in your business concept
are, and what your realistic chances of
success are.
The detailed planning process described
in this book is not infallible—nothing is
in a small business—but it should help you
uncover and correct flaws in your business
concept. If this analysis demonstrates that
your idea won’t work, you’ll be able to avoid
starting or expanding your business. This is
extremely important. It should go without
saying that a great many businesspeople
owe their ultimate success to an earlier
decision not to start a business with built-in
problems.

Lets You Improve Your Business Concept

Writing a plan allows you to see how
changing parts of the plan increases profits
or accomplishes other goals. You can tinker
with individual parts of your business with
no cash outlay. If you’re using a computer
spreadsheet to make financial projections,
you can try out different alternatives even
more quickly. This ability to fine-tune your
plans and business design increases your
chances of success.
For example, let’s say that your idea is to
start a business importing Korean leather
jackets. Everything looks great on the first

pass through your plan. Then you read an

article about the declining exchange ratio

of U.S. dollars to Korean currency. After

doing some homework about exchange

rate fluctuations, you decide to increase

your profit margin on the jackets to cover

anticipated declines in dollar purchasing

power. This change shows you that your

prices are still competitive with other

jackets and that your average profits will

increase. And you are now covered for any

likely decline in exchange rates.

Improves Your Odds of Success

One way of looking at business is that

it’s a gamble. You open or expand a

business and gamble your and the bank’s

or investor’s money. If you’re right, you

make a profit and pay back the loans and

everyone’s happy. But if your estimate is

wrong, you and the bank or investors can

lose money and experience the discomfort

that comes from failure. (Of course, a bank

probably is protected because it has title

to the collateral you put up to get the loan.

See Chapter 4 for a complete discussion.)

Writing a business plan helps beat the

odds. Most new, small businesses don’t

last very long. And, most small businesses

don’t have a business plan. Is that only

a coincidence, or is there a connection

between these two seemingly unconnected

facts? My suggestion is this: Let someone

else prove the connection wrong. Why

not be prudent and improve your odds by

writing a plan?