Many thriving businesses begin with someone's great idea for a productor service. While that first inspiration is critical to any successful company, it's also necessary to have a solid road map for the future, according to the Minnesota Society of CPAs. That's why every company -- whether a start-up or a long-standing operation -- ought to have a business plan, a document that charts where your business stands today and where you plan to go.
The value to you
There are two important reasons to have a business plan. First, it's a great way for you to organize your thinking about your company and to take a hard look at its strengths and weaknesses. Many owners are so caught up in the day-to-day operation of the business that they never have a chance to do any long-range planning. A business plan offers you the chance to step back and get a big-picture view of your company's situation.
In addition, a business plan is a necessity if you would like to get a bank loan or attract investment. Both lenders and investors will demand the kind of detailed information available in a business plan.
The financial statement
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Your company's financial statements probably are the most important element of your business plan. They provide the information necessary to make key decisions, and they offer lenders or interested investors crucial details about the company's financial health and prospects.
A plan for an existing business would include historical financial statements that illustrate the company's economic situation. Both existing companies and start-ups should include prospective financial statements as well. These documents provide an educated guess about what you expect your income statement, balance sheet, cash flow and expenditures will look like over the next several years.
Key details
Another important element of any business plan is the description of your company. It doesn't have to be lengthy, but it should sum up what the company does or manufactures, what needs it meets in the marketplace and howyour business will be able to produceits product.
You should discuss particular assets that will contribute to your company's success, such as a great location, personnel who are experts in the field, a unique product or service or existing strong relationships with potential customers. In general, you are answering these crucial questions: What kind of company is it? Why will it be a success? Why should you be a potential investor in the business?
The market analysis
Another critical section of any business plan is the market analysis. This is where you describe the industry in which your business will operate, identify the target market for your goods or services, and assess your competition.
The section also should cover anymarket tests you have done, which might include any contact you have had with potential customers, product demonstrations you might have done for them and what kind of response you received. This exercise can clarify your thinking about your company's place in the market and help you become more competitive. It also shows potential investors or lenders whether you can thrive in your target market.
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Every year, tens of thousands ofsmall businesses turn to their local CPAs for help with their financial questions. Your CPA can supply you with thefinancial statements you need to manage your company and can help you createa winning business plan.
Money Management is a series provided by the Minnesota Society of Certified Public Accountants. For personal and small business information, go to www.mncpa.org or call (800) 331-4288.
