2. Helps You Decide to Proceed or Stop

One major theme of the book may surprise you. Its as simple as it is important. You, as the prospective business owner, are the most important person you must convince of the soundness of your proposal. Therefore, much of the work you are asked to do here serves a dual purpose.

It is designed to provide answers to all the questions that prospective lenders and investors will ask. But it will also teach you how money flows through your business, what the strengths and weaknesses in your business concept are and what your realistic chances of success are.

The detailed planning process described in this book is not infallible-nothing is in a small business-but it should help you uncover and correct flaws in your business concept. If this analysis demonstrates that your idea wont work, youll be able to avoid starting or expanding your business. This is extremely important. It should go without saying that a great many businesspeople owe their ultimate success to an earlier decision not to start a business with built- in problems.

3. Lets You Improve Your Business Concept

Writing a plan allows you to see how changing parts of the plan increases profits or accomplishes other goals. You can tinker with individual parts of your business with no cash outlay. If youre using a computer spreadsheet to make financial projections, you can try out different alternatives even more quickly. This ability to fine tune your plans and business design increases your chances of success.

For example, lets say that your idea is to start a business importing Korean leather jackets. Everything looks great on the first pass through your plan. Then you read an article about the declining exchange ratio of U.S. dollars to Korean currency. After doing some homework about exchange rate fluctuations, you decide to increase your profit margin on the jackets to cover anticipated declines in dollar purchasing power. This change shows you that your prices are still competitive with other jackets and that your average profits will increase. And you are now covered for any likely decline in exchange rates.

4. Improves Your Odds of Success

One way of looking at business is that its a gamble. You open or expand a business and gamble your and the banks or investors money. If youre right, you make a profit and pay back the loans and everyones happy. But if your estimate is wrong, you and the bank or investors can lose money and experience the discomfort that comes from failure. (Of course, a bank probably is protected because it has title to the collateral you put up to get the loan. See Chapter 4 for a complete discussion.)

Writing a business plan helps beat the odds. Most new, small businesses dont last very long. And, most small businesses dont have a business plan. Is that only a coincidence, or is there a connection between these two seemingly unconnected facts? My suggestion is this: Let someone else prove the connection wrong. Why not be prudent and improve your odds by writing a plan?

5. Helps You Keep on Track

Many business owners spend countless hours handling emergencies, simply because they havent learned how to plan ahead. This book helps you anticipate problems and solve them before they become disasters.