Business Planning - Creating Plans
Frequently Asked Business Plan Questions

Frequently Asked Business Plan Questions

Should I hire an expert to prepare the financials?
It's better to prepare them yourself. A potential lender or equity investor wants to see not only that the numbers look good, but also that you understand them inside and out. If you can't answer highly detailed or thorny questions about how you arrived at your numbers, you aren't going to get your funding.

How detailed should budgets be?
Budgets in business plans to raise money should have little detail beyond breaking expenses out by departments or functions. You should, however, have supporting details available on request.

Similarly, when creating annual plans, even for a very small, one-person business, I suggest that you have two levels of detail. One should be a budget summary that has just one entry for projected sales of each major product or service line, and just one entry for projected costs in each functional area such as marketing, cost of goods sold, etc. A budget summary is very important in helping you get a handle on the cost structure of your business and its major trends.

Then have a separate, more detailed budget for each functional area. But don't get buried in detail. I would suggest a maximum of ten to twenty entries for projected expense categories if your business is small.

How can I benchmark costs and profits?
You need to get data for firms in your industry-perhaps from an industry association. Sometimes trade magazines and newsletters publish statistics for their industries. Compare your numbers with firms of similar size in the same industry.

Which pro forma is most important?
Cash flow! It's nice to project a profit, and knowing you have a solid balance sheet can make you feel good-but if you run out of cash, your business will be dead in the water!

Just about all small businesses will feel a cash crunch sooner or later, and for most businesses it will happen sooner, later, and fairly regularly. But if you keep your cash flow projection up to date, you can take steps to avoid cash shortages before the problem becomes acute. Otherwise, you will go merrily along your way until one day you may find you have no money in the bank, your bank credit is exhausted, your payroll is due, your key vendors are howling for payment, the IRS is calling, and customers are still paying their bills slowly. Remember, cash crunches happen all the time in successful, profitable, growing businesses too!

What `tone` should I have in the plan?
Keep the tone of your business plan factual.
Don't use hyperbole or generalizations to describe the potential of your business plan. Investors and lenders don't want to hear phrases like `this business has incredible potential.` They want to use the more factual information you present to reach their own conclusions.

Are long plans better?
Keep your plan succinct.
Whether creating a business plan to raise money or an annual plan to run your business, keep it succinct. People tend to use too much detail when creating plans. If a business plan is too long, it might be skimmed. If an annual plan is too long, focus on what is really important might be lost.