Posted: March 18, 2011

[br][br]Today there is much "strum und drang" over whether or not a company should have a written business plan. While, on the surface, there certainly are compelling arguments for the need not to have a plan, these arguments just simply do not stand up to scrutiny, especially in today's rather unsettled business climate.

At the outset, one has to understand just what are the goals of a business plan? It comes down to two key elements - communications and credibility

With regards to communications, let's face it - business is not conducted in a vacuum.

A small business owner will have to communicate with his employees, his investors and banker and the world at large. Being consistent with the contents of your message is critical. A small business owner cannot tell different audiences different goals and strategies. This leads to confusion and, potentially, catastrophic failure.

Included in your message has to be the following:

* Expectations - Just what are the risks and what are the expected returns; are both believable and achievable?

* Milestones - These can be quantitative, financial or chronological. What sales targets have been established? What expenses and revenues can be expected? And what is the business's timeline of major events? What will happen if they are not achieved?

* Opportunities - Just what kind of market exists? Is it already present or is the business trying to fundamentally alter the "lay of the land"? Think Apple and Microsoft in their early days.

* Business model - Just how comprehensive is the model? Has the owner examined and evaluated the customer's perception of the value and differentiation of the product on offer? What about the company's internal organizational structure? How will profits be achieved?

Basically, what are the markets, money and management?

With regards to credibility when a business is just starting out, this will be the most significant hurdle to overcome. How can a business owner convince certain key people and organizations of the chances for success with the venture? In order to do this, the following must be addressed:

* Anticipated market scenarios - What are the best, worst and nominal case scenarios the business can expect once it starts operations? Has the owner developed plans to respond to changes in the marketplace as they arise?

* Financials - This is the very lifeblood of the business. Has the owner fully addressed the company's anticipated sales and expenses? Are there sufficient funds available to cover cash flow issues? What are the industry's financial ratio benchmarks and how do they compare with this business? What key ratios is the owner using to measure his company's performance and are they realistic?

* Management team (both internal and external) - Does the management team possess the requisite knowledge and skills to operate and grow the business? Are there any shortfalls and just how are they being addressed?

* Exit - What are the owner's plans for the future? How long does he or she anticipate operating the company and what are the plans for the future (i.e. disestablishment, selling or buyout or merger)?

A written plan will enable the business owner to analyze, evaluate and decide on an acceptable course of action. The great thing about having a plan before the business is started is that if a mistake is made, an owner can simply go "back to the drawing board" and re-evaluate the strategy. If the business is already in operation and a mistake is made, the owner will be reaching for his or her checkbook to correct the deficiencies, which is a rather unpleasant task.

The choice is yours.

Jim Carroll is the vice president of small business for the Hampton Roads Chamber of Commerce and the executive director of the Hampton Roads Small Business Development Center. He can be reached at 664-2595 or www.hrsbdc.org.