You could poll a sample of a hundred different employees in a hundred different companies how to start a business, and you’d get ten thousand different business models. Most of the would-be entrepreneurs wouldn’t include the words “business plan” in their response. And that’s a problem.
Having a great idea is easy. Planning and creating a successful startup business from that idea is hard. Staying in business for long enough that the idea takes root, grows and starts to pay you back … that’s harder still.
Every year, tens of thousands of regular people with good ideas start their own business. They’re usually pursuing something that they feel passionate about, addressing a gap in a particular market, or creating something nobody has ever seen before.
And every year, tens of thousands of regular people with good ideas, who’ve been working at making their business successful, close the doors and file bankruptcy paperwork.
I spoke with Joe Knight, author of Financial Intelligence, and he told me, “The reason small businesses fail is not because they’re not profitable, it’s because they’ve run out of cash.”
Wait, what?! Profitable businesses fail because they run out of cash? Take a second to think about that.
What you need to know before you invest a minute of your time or a dollar of anyone’s money, including your own, is how much money your business has on hand, and how long before the cash runs out. In truth, it’s something you need to assess regularly, but your mind will be able to relax a little if you have a business plan to follow, and to measure your success against, before you decide to cash out your 401(k).
Most entrepreneurs aren’t familiar with the finer points of writing a business plan, and a brief scan around Internet shopping sites reveals about a dozen software packages that can help you with that. And this Web site can, too.
If you’re at the point of starting a company and writing a business plan, you should be thinking about:
- What you’re going to sell to generate revenue. That might be a physical product or ad-space on a Web site.
- Forming a corporation, and do you want to:
- register as an LLC
- register as a C Corporation or
- register as an S Corporation.
- Who will invest in your company, and how to find investors if you need more working capital later.
- How much it will cost you to run your business every month, and how much it will cost you to repay any loans you take to start your business.
- Who’ll work for you, and what their role will be.
- How much cash you have on hand right now, and what your credit score is.
Perfect planning prevents poor performance. It’s more than just fun to say, it’s actually the truth. So you should create a business plan.