What is more, according to the SBA, "Business plans can help you get funding or bring on new business partners. Investors want to feel confident they'll see a return on their investment. Your business plan is the tool you'll use to convince people that working with you — or investing in your company — is a smart choice."
Some entrepreneurs feel a business plan is unnecessary. "It's too hard" is what I hear most often when I ask why a plan has not been prepared. Launching a new venture and following its "Path to Success" (transitioning from idea/concept to demo to revenue to profitability to sustainable profitability) is stressful with little room for error. In other words, business is hard.
And as discussed in previous posts on this blog, most new businesses will fail within the first few years of existence. If preparing a business plan is too hard, then how will you handle the difficulties most founders encounter almost daily in trying to grow their business?
Although some investors wrongly advise founders not to prepare the formal business plan, I refuse to consider financially supporting any enterprise that does not have one. A comprehensive business plan is essential to providing investors, advisors, and employees with the opportunity to comprehend the company's mission, vision, goals and financial targets as well as its product, sales and marketing strategy, management team, risk factors, key performance indicators and financial data.
I recognize, however, that creating a roadmap for your business can be an intimidating process. While there are thousands of books, webinars, and websites that provide information about drafting a business plan, I find the SBA to be a useful resource for entrepreneurs.
The quotation above comes from a website the SBA created to help entrepreneurs through the process of launching their business. The four sections of the business guide are listed below with links to other pages containing additional information that is essential to building a successful (profitable) business:
Plan your business ("You've got a great idea. Now, make a plan to turn it into a great business.")
- Market research and competitive analysis
- Write your business plan
- Calculate your startup costs
- Fund your business
- Buy an existing business or franchise
Launch your business ("Turn your business into a reality. Register, file, and start doing business.")
- Pick your business location
- Choose a business structure
- Choose your business name
- Register your business
- Get federal and state tax ID numbers
- Apply for licenses and permits
- Open a business bank account
- Get business insurance
Manage your business ("Run your business like a boss. Master day-to-day operations and prepare for success.")
- Manage your finances
- Hire and manage employees
- Pay taxes
- Stay legally compliant
- Buy assets and equipment
- Marketing and sales
- Small Business Cybersecurity
- Prepare for emergencies
Grow your business ("When business is good, it's time to expand. Find new funding, locations, and customers.")
- Get more funding
- Expand to new locations
- Merge and acquire businesses
- Become a federal contractor
- Export products
- Women-owned businesses
- Native American-owned businesses
- Veteran-owned businesses
The SBA also provides a website presenting "10 steps to start your business":
- Conduct market research: "Market research will tell you if there's an opportunity to turn your idea into a successful business. It's a way to gather information about potential customers and businesses already operating in your area. Use that information to find a competitive advantage for your business."
- Write your business plan: "Your business plan is the foundation of your business. It's a roadmap for how to structure, run, and grow your new business. You'll use it to convince people that working with you — or investing in your company — is a smart choice."
- Fund your business: "Your business plan will help you figure out how much money you'll need to start your business. If you don't have that amount on hand, you'll need to either raise or borrow the capital. Fortunately, there are more ways than ever to find the capital you need."
- Pick your business location: "Your business location is one of the most important decisions you'll make. Whether you're setting up a brick-and-mortar business or launching an online store, the choices you make could affect your taxes, legal requirements, and revenue."
- Choose a business structure: "The legal structure you choose for your business will impact your business registration requirements, how much you pay in taxes, and your personal liability."
- Choose your business name: "It's not easy to pick the perfect name. You'll want one that reflects your brand and captures your spirit. You'll also want to make sure your business name isn't already being used by someone else."
- Register your business: "Once you've picked the perfect business name, it's time to make it legal and protect your brand. If you're doing business under a name different than your own, you'll need to register with the federal government, and maybe your state government, too."
- Get federal and state tax IDs: "You'll use your employer identification number (EIN) for important steps to start and grow your business, like opening a bank account and paying taxes. It's like a social security number for your business. Some — but not all — states require you to get a tax ID as well."
- Apply for licenses and permits: "Keep your business running smoothly by staying legally compliant. The licenses and permits you need for your business will vary by industry, state, location, and other factors."
- Open a business bank account: "A small business checking account can help you handle legal, tax, and day-to-day issues. The good news is it's easy to set one up if you have the right registrations and paperwork ready."
While I recommend retaining the services of a professional accountant who has experience working with small businesses, there is value to becoming familiar with the tax regulations of the Internal Revenue Service (IRS). Through its Small Business and Self-Employed Tax Center, the IRS provides a comprehensive list of helpful publications for small businesses.
If you are planning to launch your business in the state of Washington, the "Small Business Guidance" website provides a plethora of information including "8 Steps to forming a business in Washington State" and the Small Business Guide.
Similar to hiring an experienced accountant and becoming familiar with the rules and regulations of the IRS, you should retain the services of an attorney who is familiar with the specific state and local laws of where you plan to launch your business.
And if you anticipate launching your business in Washington State, I recommend becoming familiar with the state's statutes as they apply to corporations or limited liability companies through the Washington business corporation act or Washington limited liability company act, respectively.
Lastly, I created a document that presents questions on a variety of topics founders should consider when drafting their business plan.
What are your recommendations for preparing a business plan?
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.