Why You Should Write a Business Plan Before You Need It

Why You Should Write a Business Plan Before You Need ItMany small business owners don't write a business plan until they need one. They may be losing money with their business and believe they have no way to raise capital. When these types of situations arise, a business plan can be an important tool in getting things back on track. If you start preparing one early enough, you will have time to work with your creditors to develop a strategy that works for both of you.It is important to understand how a plan is supposed to work. The basic outline for a plan is fairly simple. In it, you provide information about your business and its operations and how you expect to turn a profit within the next year.The document should also clearly outline how you plan to pay back the creditors. This usually happens when you decide to offer them a reasonable plan. One good example is offering to pay all debts, interest and fees over a period of several years. Then, when your debts are paid off, the bu siness should pay the creditors a lump sum for the outstanding balance. This means that if your business is very successful and has a great profit margin, it can make monthly payments instead of making separate checks.Once you have worked through the planning phase, you can then move on to the next phase, which is actually writing the plan. To get started, you need to put together a timeline of when you plan to raise the funds.What time frame do you base this on? Will it be after you complete the new project? Or, will it be during the first three months of operation, or in the first two months of operations?The best way to figure out when to raise the capital is to break down your overall cash flow into the three categories. For example, if you take into account only cash that you spend, you'll see that raising the capital immediately will help improve your cash flow situation, but your income will not be affected, while paying off the debt over time will increase your bottom line.T he process of writing a plan begins with creating a spreadsheet. After you've made a list of what you need to raise money for, you'll want to make sure that each column is completed. There are several financial models that you can use, including those based on CAPM (cost of capital) and CAPEX (cost of equity).When you have all the information ready, it is a good idea to split the spreadsheet up into more than just columns. You can do this by grouping the columns according to whether the project will be financed through the use of the business' own resources or from external sources. For example, if you're raising capital for an internet marketing company, you might want to include the different types of funds that might be used: debt, equity or venture capital.