he business plan is a formal document that communicates the details of your company. It describes a planning process that defines who you are, what you do, what your vision is and how you endeavor to reach your goals. The plan also details actions that you will take to reduce uncertainty and to manage risk and change.

As I've discussed in previous columns, businesses fail primarily because of inadequate planning. And many business owners find the process of writing a business plan overwhelming. There are numerous tools available to provide assistance in writing business plans. One in particular that I've found to be very helpful is a book titled "New Venture Creation: Entrepreneurship for the 21st Century," by Dr. Jeffry A. Timmons, Professor of Entrepreneurial Studies at Babson College in Massachusetts.1 I've used Timmons' book as a resource for my own business and in helping my clients with their businesses.

The book is quite thick (it's nearly 800 pages), and it provides excellent information about developing a business plan. For example, according to Timmons, following are key elements to a successful planning process that result in a completed business plan:

1. A commitment to the process. Commitment conveys your motivation to the vital people who work to see the plan through to completion. It also allows the planning participants to establish ownership in the plan.
2. Clear and realistic performance expectations.
3. Specific and measurable time-restricted goals.
4. The ability to anticipate obstacles. Excessive optimism can lead to ignoring reality and allowing advance on a course of action that might prove risky and costly.
5. Milestones and a review process. Milestones and planning reviews are necessary to check on the progress toward achieving goals.
6. Flexibility to revise or change goals or company direction. Every business needs a quality business plan. The plan can be an instrument to guide growth; a device to determine product pricing; a mechanism to refine strategy and facilitate decision making; and a method to clarify financing requirements.

There are many ways to approach the preparation for and writing of a business plan, and no single best way to write one exists. Timmons suggests using the following general outline below as a guide. (You know your business best. Feel free to add or delete sections as appropriate for your specific business venture.):

1. Executive summary, including a description of the business; the target market and sales projections; distinctive competencies and advantages; the ownership/management team; and the economic profitability.
   
   The executive summary should be no longer than two pages and should give a clear synopsis of the business.
   
   Sections two through nine (below) should contain thorough, detailed information, an explanation of the assumptions made, and attributions for all research data utilized.
2. The industry, the company, and its products or services, including concept, vision, mission and purpose statements; products and/or services; and entry and growth strategies.
3. Market research and analysis, including customers; market size and trends; competition and competitive edge; estimated market share and sales; and ongoing market evaluation.
4. Economics of the business including gross and operating margins; profit potential; fixed, variable and semi-variable costs; months to break even; and months to reach positive cash flow.
5. Marketing plan including overall marketing strategy; pricing; sales tactics; service and warranty policies; advertising and promotion; and distribution.
6. Operations plan including operating cycle; geographical location; facilities and improvements; strategy and plans; and regulatory and legal issues.
7. Critical Risks, problems and assumptions.
8. Management team including organizational structure; geographical location; facilities and improvements; strategy and plans; and regulatory and legal issues.
9. Financial plan including actual income statements and balance sheets; pro forma income statements; pro forma balance sheets; pro forma cash flow analysis; break even chart and calculation; cost control; and highlights.
10. Any appendixes

Timmons suggests keeping in mind the following "do's" and "don'ts" when writing your business plan:

Do:

• Involve your ownership/management team in developing the business plan.
• Invest time and money in preparing the plan. It shows that you are committed to the business.
• Convey risks and assumptions, and how and why they are tolerable.
• Be candid and truthful.
• Remember that the plan is not the business, and that "an ounce of can-do implementation is worth two pounds of planning."
• Make the plan logical and comprehensive, and as short as possible. (However, don't sacrifice quality in the pursuit of brevity.)
• Let realistic market and sales projections drive the assumptions underlying the financial spreadsheets, rather than the reverse.

Don't:

• Have unnamed, mysterious people on the management team.
• Make vague or unsubstantiated statements.
• Describe your business using industry buzz words so that the average person cannot understand.
• Spend money on flashy brochures, presentations or other "sizzle"; instead, show the "meat."

If all of this seems intimidating, even with the help of books and Internet resources, there are still many professionals available to assist you with preparing your business plan. Depending on your geographic location and the amount of research you can complete, the cost for preparing a business plan could be as little as $1,500 or as much as $10,000 or more.

The business plan should be a fluid document. Simply creating a plan and never editing, amending or extending it is a wasted exercise. You should review and revise your business plan each year during your strategic planning for the coming year.

Businesses are rarely static, and change is constant. Your plan should reflect those changes in your business, your products and services, and your industry. It's never too late to develop a business plan. Successful, mature businesses can also benefit from writing a business plan, even if they have never completed one before.

For instance, one of my colleagues, who had been in the computer service business for over 10 years without a business plan, determined that his business was decreasing in profitability.

He was unable to explain this decline; he was busy, he was still making a profit, he still had a full load of clients, but he was less and less profitable. So he decided to take the time and spend some money (approximately $5,000) to develop a business plan.

Once he analyzed his products and services, revisited his competition, revised his target market and conducted a detailed analysis of his pricing strategy, he understood his decline in profitability. With the strategies identified in his new business plan, he increased his business profitability by 20% within one year. And he continues to operate a very successful business today.

Whether you are starting a new business venture or looking for ways to increase a mature business's profitability, the business plan is a powerful tool. Now that you understand the what, why and how, I urge you to begin putting together your business plan today.

Vicki M. Daughdrill is the Managing Member of Small Business Resources LLC, a management consulting company. E-mail her at vickid@netdoor.com or call her at 601-310-3594.