Once you decided to start your own business, and after you have considered the Things to Consider before Starting a Business, the necessary next step is to write a business plan.

Why Should I Write a Business Plan?

Quite simple: you plan to dedicate a significant amount of your life time (and probably of your money) to this idea. Better make sure that you have a solid base for doing this.

I'm not saying that a business plan is a guarantee for success. I've seen too many brilliant business plans which turned out to be a business failure. But without a business plan, chances for failure are much higher. And there is just less at stake modeling a pricing strategy in Excel than trying it out in real life...

But that's only one aspect. Another one which can't be rated high enough is communication. Especially if you plan to start a business as a team, a written business plan is essential. Written means: in plain, complete sentences, as text document. While a presentation is great to get the main points across, you will be surprised about the discussions taking place when trying to convert a presentation into a full document. All of a sudden, it turns out that bullets points are interpreted differently between team members or that everybody has a different mental model of the future company.

- Write down the details.

- Write down your assumptions.

- Write down what you know about the market, your potential customers, your competitors, your revenue streams.

This helps you to identify blind spots, and get everybody in your team aligned.

Do I Need to Do the Numbers?

Short answer: Yes.

Long answer: Of course.

Why? Because you need to understand whether you can make a profit on your business model or not. To come to such a conclusion, it's not sufficient (in my opinion) just to have a top line with revenue estimates, a bunch of monthly expense items and at the bottom line, you calculate the assumed profit or loss. What's wrong with it? It's hiding the business drivers which can make or break your business.

I highly recommend to go through the exercise and try to model your business, at least for main business drivers. Try to identify the relevant parameters, and build them as parameters to play with into your spreadsheet:

Just to give you an example: Assume you plan to sell your product to business customers. What do you think is the average deal size you can strike with a customer? What is the sales cycle (some industries have sales cycles well over a year, while other products you can sell at the very first contact). Do you need to visit your customer? How many visits do you think are required to close a deal? How many customers can you handle within a month? How many can a sales rep handle? Do you need to pay sales commissions? etc.

If your revenue estimation sound like "I plan to acquire one new customers a month with a sales cycle of three months, requiring 20% of my time during the acquisitin period. Additionally, I assume that every second customer becomes a repeat customer with a sales cycle of just one month, requiring 10% of my time in this period. My travel costs are about 300$ per visit, and the avarage deal is 20k", then you are moving in the right direction.

This is just a small part of the questions you should ask yourself. Play with the parameters to judge the impact on your business model. Increasing the sales cycle (and therefore cash in) from two month to six month could kill your company if you do not have enough working capital, for example. Two additional on-site visits can severely affect your margins. Perhaps you need to reconsider your pricing? Or your sales strategy?

Get Feedback

Use your written plan to get feedback. Hand it over to people you trust, give them time to read it, and ask for feedback. Do this often. Chances are that you get a lot of questions like "Ok, you plan to do marketing. What exactly do you plan to do?" Use it to ensure that you have no blind spots in your business plan.

When Should I Present My Business Plan to Investors?

Whenever you are ready to bet your own money on it. Remember, you do not write a business plan for investors. You write it for yourself, to get a business off the ground.

Klaus Wiedemann is Founder and Managing Director of Daisho Blacksmith GmbH, a product and consulting company dedicated to support todays professional with software and methodology to sharpen their competitive edge. He blogs regularly at Not For Slaves, focusing on the working environment of the 21st century and its implications and opportunities for the individual.

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