The importance of a well constructed and researched business plan is reiterated over and over to entrepreneurs, whether they are just starting out or are a million dollar business.  Preparing a business plan is an exercise in evaluating the ramifications of decisions before they are undertaken.  It is an exercise in formulating a marketing plan and budget.  It provides a means of evaluating future results against goals.

There are two significant parts to a business plan: the marketing plan and the financial plan.  See the article, “The P’s of Marketing” for information on a marketing plan.  A financial plan helps clarify business goals and is an important document to offer when seeking outside financing.

There are several major components of a financial plan.  A sales forecast will identify your business cycle and the inflow of revenue and cash.  A profitability forecast will highlight your cost of sales and indirect costs.  A cash flow analysis will pull together the sales and costs and indicate shortfalls in cash and their timing.  This will aid in determining borrowing needs and ability to repay loans.  It will help determine how feasible the plan is, assuming it is realistic.           

A well formulated financial plan will measure the true condition of your business and reveal its strengths and weaknesses.