What is a business plan?

A business plan is a written document that describes the business you want to start and how it will become profitable. A business plan usually begins with a statement outlining the purpose and goals of the business and goes on to show how the business owner will realize those goals, including a detailed marketing strategy. A complete business plan also contains a formal break-even analysis, a profit-and-loss projection, and a cash-flow analysis designed to show that if the business develops as expected, it will make money.

For more information, see The Essentials of a Business Plan.

Do I need to create a business plan even if I'm not going to borrow money?

Absolutely. A business plan isn't just window dressing to attract potential investors or market your business to potential lenders. A solid business plan should sell you, the potential owner, on the financial viability and soundness of your business idea.

Creating a business plan will force you to think about key issues before you start your business -- such as how you'll raise money and what your projected start-up costs and marketing strategies are -- and will help you figure out if your idea is a winner.

If you write a business plan, complete with a break-even analysis, profit-and-loss forecast, and cash flow projection, you can tinker with your idea and improve it before you start. On the other hand, you may take an honest look at the numbers and find that hoped-for profits are unlikely to materialize. In this case, one of the most important purposes of writing a good business plan is to talk yourself out of starting a bad business.

How do I write a business plan?

The structure, content, and format of your business plan will depend on your business idea and your intended audience. If you're trying to raise money from investors or borrow money from a bank, your business plan will have to present solid financial data and market research in a professional, polished package. On the other hand, if you're funding your business yourself, you can probably forgo the sales pitch (and the fancy paper), but the basic principle is the same: Do your homework and create a business plan that gives you a realistic picture of your proposed business.

To learn more about creating a solid business plan, see The Essentials of a Business Plan.