A successful business plan doesn’t get written overnight. First and foremost comes the all important foundation: research. Without a good foundation the business plan probably isn’t worth putting on paper. Your research provides the very basis for your projection of costs, expenses, sales and profit.

Business Market Information

Before you accurately project potential sales, you need market information. Who buys your products or services and how do you reach them? What are the preferred styles and colors, what doesn’t sell and why? What are the price points? At what point do you lose money and at what point does the customer stop buying. If you lower the price, how does that affect sales? Do customers for your products and services exist in your area? Is there room for growth? Is the market already saturated? Are there new technologies that will cause your products or services to phase out?

Collection of this information takes time, understanding and the wherewithal to extrapolate that which pertains to your specific market. No entrepreneur can plan for everything, but a detailed business plan exposes a lot of possible pitfalls. Researching and extrapolating data accounts for about 80% of the time involved in writing the business plan.

Business Plan Organization

Writing the business plan requires discipline and organization. Your plan should flow from the beginning to the end with continuity from one section to another.

Start with a title page which includes the name and address of your company. If your company doesn’t exist yet, use your contact address. Also include a telephone number and possibly an email address for quick contact.

Use the executive summary format for the first page. An executive summary provides a broad overview but includes sufficient data and statistical information so the reader knows the rest of the document supports the summary and its conclusions.

A table of contents makes the plan user friendly. It directs readers to the various broken down sections of the document in a quick easy method.

Follow up with the administrative details of the business. Who serves in what role and what are their responsibilities, educational background, expertise, etc. Include details as to how the company operates day to day, who makes the decisions and how these decisions are made. What are the policies and procedures for hiring and firing employees, their benefits, pay scale, and promotional opportunities and how will they be trained?

A marketing plan is a vital part of your business plan. Detail how you plan to increase sales and reach new markets. Demonstrate that your marketing plan is viable and will produce increased sales.

The financial end of the business comes next. Include data tables, charts and graphics depicting cash flow and sales projections. Back up these pictorial efforts with solid data references.

The final section of a winning business plan provides support documentation such as contracts, leases, resumes of principles, bank statements and other financial documents, letters of reference, demographics, articles and trend projections.

It’s time to write a business plan. Why? Equate a good business plan with a good house plan. Building a house without a plan means catastrophe and probably a hodgepodge of rooms. With little or no planning, costs skyrocket because no one plans economically placing the utilities or even laying the appropriate foundation for the expected dream house.

Strong Foundations

A business plan represents the foundation of your business. If the foundation fails, the business can’t survive. The foundation must be strong and able to withstand bad times along with good. A business plan forces consideration of where the business starts as a going concern and how it grows over time. It incorporates your eventual hopes for your business with realistic plans for today’s budget. It makes good use of money, carefully ensuring that the money available stretches as far as possible. Your business plan lays out the exact business you start, the products and service offered, the costs and expenses associated with those products and services and a realistic look at potential profit. Remember, define your markets – those currently buying, potential buyers and how you plan to attract both.

If you finance your business start-up, those helping you with financing expect a detailed business plan incorporating a section showing judicial use of their capital. The plan shows investors that you seriously researched your market and your projected profit depends on realistic sales and costs.

Next, we discuss actually writing the business plan.

Understanding the common mistakes made by small business entrepreneurs helps other entrepreneurs avoid these mistakes.

Resistance to Change

Change all by itself may be good or bad, but frequently we resist change without knowing the possible outcomes. Businesses often make the mistake of doing the same things the same way without understanding why or evaluating whether change might be beneficial. When an idea or method doesn’t work, find one that does. Change could improve something that does work. Constantly evaluate if change may provide savings in either time or money.

Promote Your Business

Marketing your business allows discovery of new markets and growth opportunities. Often we get so stuck in paying regular monthly bills that we forget the importance of allocating a marketing budget. Without marketing, your market share and financial position stay static. Growth demands marketing. Short of marketing dollars? Find cost effective ways for continual promotion of your business, making sure you identify possible new markets.

Know Your Customers

Your customers’ preferences change with new inventions in the market place. Their live styles and ages change. Be proactive in understanding your customers’ changing needs and buying patterns. Take time to listen to their needs and be constantly searching new solutions.

Provide New Products and Services

Listening to your customers offers you new ideas for products and services. Not all new products and services catch on quickly. Give customers time for adopting new items, but don’t stick to them so long that they bring your business down.

Employee Care and Feeding

Employees need encouragement and mentoring. Their vision differs from that of the owner. Remember that employees need ways to grow and feel appreciated. Keep morale high and watch productivity grow. Without good, committed employees, a business deteriorates quickly.

Sales Plan

Construct a realistic sales plan determining your market and their buying patterns; then measure sales constantly. Define methods for growth and ensure your business implements growth actions. Without a plan for sales, you have no gauge for the financial outcome. Without growth, your business remains static as costs increase.

Delegate, Delegate, Delegate

Find trustworthy employees and then delegate responsibility. It’s hard to let go, but you must over time. As your business grows, you need more and more support and more ways to delegate. Employees need increasing responsibility for their own self worth and to feel valued. Start with good training and as the employee grows, delegate more and more responsibility. Become the overseer, verifying those fulfilling their new roles and those employees not ready yet.

Springboard Ideas

Develop friends, other business entrepreneurs or family members as a trusted source for sounding out ideas. One mind alone may stay on the same track while throwing ideas around may develop new methods, products and services.

Forget Fear of Failure

Failure teaches us. Those who fear failure may not experience failure, but they may also miss out on great success if their fear drives them to be overly cautious. Those who fail and pick themselves back up, often learn from their failure and move forward to success.

Having by-passed the notorious due date for 2007 individual and some business income tax returns, today we discuss the dreaded subject of income taxes for businesses.

IRS Increased Business Audits

The IRS increased their audits of individual tax returns in 2007 by about seven percent, audits of small corporation returns by just over 10% while drastically increasing audits of “flow-through entities”. Flow-through entities are Partnerships and Limited Liability Companies (IRS audits increased by 25%) and S Corporations (IRS audits increased by 26%) that flow through their income to the owners. The IRS contends that these self employed workers are some of the biggest non-compliers in the tax system.

No one knows that exact triggers the IRS uses for choosing which returns get audited but wide variations in expenses, losses and unusual items certainly gain attention. Business owners make their audit trails much cleaner by following some simple, smart rules.

Separate Bank and Credit Card Accounts

Separate bank and credit card accounts – You business needs separate bank and credit card accounts. Flowing income and expenses through your personal accounts, even occasionally, leaves the argument open that your personal and business assets are comingled. Don’t use business credit cards for personal expenses and don’t use personal credit cards for business.

Comingling shouts an alarm that you are a sloppy record keeper and may be expensing personal items. Worse yet, in the event of liability issues, your personal assets may suddenly be considered part of the business.

Avoid Red Flags

Entertaining and home-office expenses raise red flags, especially if they appear high. Make sure dinner with the wife or movies with the kids don’t show up as an expense on your business return. Accountants say that consecutive loses and income reported by 3rd parties that doesn’t match your reports raise flags. The amount of deductions claimed in relationship to income also raises flags. The IRS also reportedly matches the income and expenses you report with other same industry reporters in your geographic area.

If you prepare your own return, check and double check your math. Manually prepared returns contain the highest number of math errors. Also make sure you keep up with the changes in the constantly changing tax code. An accountant or good tax preparation software saves these costly errors that slow down your return and also may raise audit flags.

Organized Records

The biggest favor you do for yourself is to attach documentation to your copy of your return. What better time to organize these records since you already have them out for preparation of your return. If you are audited, you saved hours of searching and pulling records to document your return. You know exactly on what you based your calculations; a life saver when you must explain your return 3 or 4 years later.

When valuing a business an intangible asset exists: goodwill. While you don’t see or touch goodwill, it exists in many businesses, especially businesses with longevity. Goodwill may incorporate the customer loyalty built by the business, but in today’s world, goodwill also includes valuable properties such as favorable government contracts, copyrights, patents and even domain names of considerable value. All these things increase the potential earning power of the business and must be accounted for when setting the value of a business.

Of course sellers want payment for the goodwill built into their business. Unusual or lucrative copyrights and patents which make the business unique or simplify processes certainly offer value to the buyer. Sellers should carefully explain the value of these intangible assets since buyers tend to place value only on tangible assets. The buyer considers the cost of starting his own business when valuing an existing business. So if a good portion of the price of an existing business involves goodwill, the buyer must understand why the existing business provides a better opportunity.

The bottom line: Both sellers and buyers should be aware of goodwill. The buyer should understand the value of these intangible assets. The seller should carefully value goodwill so that it offers a realistic value for the price.