Why Write a Business Plan? Business Planning Offers a Way to Peek into the Future

Al Polfer 's business is business planning. And the most common question Polfer hears from retailers is: "Why do I need a business plan?"

Polfer offers a ready answer. "One in three businesses fail and they fail within the first three years of operation. In addition, most are barely marginal from the beginning. Among venture capitalists, we call these people the living dead."

As director of the University of Central Florida 's Small Business Development Center, Polfer said up to 98 percent of all new businesses never develop a written strategic plan.

And planning is just as important a process for established businesses as it is for new ones, Polfer said.

"It 's an opportunity to pull together in a written format what you want do with your business; where you want to go and how you intend to get there," he said.

"Most people, if they do a business plan, put it in a drawer when they 're done because they don 't know how to work with one. You have to think of it as a living, ongoing process," he said.

There are three reasons why every retailer should go through the process of preparing a plan.

Discipline.
Writing a plan forces retailers to honestly assess their future plans for their business.

Feasibility.
A plan examines basic questions such as: "Will I make enough money to earn a living?" or "Will I get an adequate return on my investment?"

Comparison.
A plan requires retailers to compare what they want to do, or are already doing, with current industry standards and nearby competitors. For example, how well is your store doing when compared against the annual National Bicycle Dealers Association 's Cost of Doing Business Survey?
Polfer wants retailers to think SMART when writing business plans. In this case, SMART is an acronym and each letter signifies a business planning rule.

S-Simple. Keep it simple, whether writing the plan for yourself or a lender. Avoid jargon.
M-Measurable. Specify a list of measurable criteria to judge future performance.
A-Accountability. Specify who is accountable for key tasks within the business and how their performance is to be assessed.
R-Realistic. Determine whether the business has a realistic chance of making money in the local marketplace.
T-Time. Specify when key goals will be met. This avoids a tendency to set forth poorly time-defined goals.

Writing a business plan is a personal exercise, Polfer said, recounting how once a client brought him a plan prepared by someone else. "It was apparent when I began asking him questions, he 'd never read it," he said.
"You can 't have someone do it for you. You have to be intimately involved in the process. You just can 't hire a consultant and then pass it off as your own," Polfer said

Follow the Five C 's of Credit
Al Polfer calls them the Five C 's of Credit. Every retailer writing a business plan for the bank or for investors should provide sufficient information for each category.

Character: This the heart of the business management team. So answer these questions. Who are the principles? What are their backgrounds? Are they effective money managers? Do they have good credit histories?

Capacity: Can the store generate sufficient cash flow to repay a loan? Banks are interested in cash flow, investors less so. Include cash flow and financial projections, but make certain they are grounded in a solid marketing plan. Reflect the seasonality of the business.

Capital: This is the money you have in the business, including cash flow. Banks and private investors want to see an adequate investment level.

Collateral: Banks are risk-averse, therefore they will offset their risk by taking a collateral position in the business. That frequently means pledging the equity in your home or other tangible property.

Conditions: Outline how local, regional and national economic conditions affect the business. Describe your position in the community and how you will identify new niches for your products. Outline how you will price your products, whether at the low-, mid- or high-end. Discuss location, traffic and parking.