Newland's Business Notes

Business Plans

Volume 8 Issue 1 -- January/February 2004

What is a business plan and should you do one if you are starting a new business?   Without reservation the answer is, “Yes.”  A business plan is basically a projection of future income and expenses. 

Anyone who has started a business and done a business plan can attest that doing a business plan is a devilish exercise in wishful thinking and practicality.  The wishful thinking is inherent because, if the individuals starting the business did not believe it would succeed, they would not invest the time, effort, and money it takes to start a new business. 

Prunella (“Prun”) has run a large nursery for years and desires to start a retail nursery selling a new type of shade tree engineered by her brother, Les, a noted biologist.  The new type of tree requires little water, needs no insecticides, requires little trimming — hence the name “PrunLess Trees.”  Neither Prun nor Les have substantial amounts of money, but they have collective experiences that  complement each other.

 The desire or “wishing” is the initial motivating force for the new effort.  Without Prun and Les wanting to take on the challenge, nothing would happen.  This is the “sizzle” of a business plan —  the ability to tell bankers or investors, with pride, that the two principals have won awards and sold X dollars worth of plants, or whatever, for so many years.  The sizzle can be great and motivating to the individuals sprouting the business plan.  As with sizzling fajitas, the sizzle will only last for a short time. Then practical considerations have to be addressed.

If PrunLess will borrow money to get started or bring in investors, the providers of the cash will want to know what the business plans are.  This is the tedious part of the business plan.  Someone has to make estimates of the space needed for growing trees, the cost of  an office, advertising, etc. Of course, startup expenses, like salaries and advertising, have to be paid before any trees are sold.

The next question is: paid from what source?  Borrowed funds or Investor dollars?  If the answer to this question is, “payment of initial expenses will come from borrowed funds,” the next question will be for how long?

Hire a Pro?

There are professionals that can help,  sometimes. The reason I generally recommend that a professional not be hired to write a business plan seems obvious.  Who knows the tree business better, Prun and Les or a lawyer or accountant? 

In addition to knowing the PrunLess business better than a professional, there is a more practical reason why Prun and Les should do the plan.  By making cash flow and  expense projections,  Prun and Les will become very familiar with the practical side of their business plan.   In meeting with lenders or investors, the proponents of the business plan will be well acquainted with their projections and how they reached them.

Since lenders and investors are by nature cautious, many basic dollar-type questions will be asked.  How Prun and Les respond to these money oriented questions will probably  determine whether they get the funds from lenders or investors or not.

The allure or sizzle, if you will, of a business will seldom carry the day.  Lenders or investors will want to know that Prun and Les have made practical business projections.  Remember to be careful about bringing in investors. Check our newsletter, “Stumbling into Securities Status,” July/August 2001.

Many business plans are wrong, including some I have done for myself.  Does that mean the effort is worthless because there may be mistakes?  No. 

If a business plan is wide of the mark, that does not mean the business will necessarily fail. Many businesses fail for a variety of reasons, while others adjust to reality and continue on, sometimes in different or reduced mode.  If a business plan is done in the beginning of the effort and income projections are off, with a plan, there is a conceptual platform for reducing expenses and revising modes of operations.

As tough as it is to start a new business, the planning element is essential.  True, there are successful businesses that never did a business plan.  It is equally true that a business plan will not insure success.  The exercise of doing the planning is the key.  Doing the business plan involves making educated guesses that often benefit the business, even if the business plan is wrong.

Copyright 2004

Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.

Return to Newsletter List
Return to Content Index
Home Page