Creating a Business Plan

Posted: May 7, 2009 1:41 PM
Updated: May 7, 2009 1:41 PM

Real Small Business: Building Your Business

From the Editors of Real Small Business

E. James Burton on Creating a Business Plan

By E. James Burton

E. James Burton is Dean of the Jennings A. Jones College of Business at Middle Tennessee State University in Murfreesboro, TN. He holds a Ph.D in accountancy, as well as an MBA. His books include Total Business Planning, Accounting and Finance for Your Small Business, and Sales and Operations for Your Small Business, all published by John Wiley & Sons.

Q. What financial information should I include in my business plan?
A. That depends on the reason for the plan. Business plans should be written for specific audiences with specific purposes in mind. And the level of detail, particularly when it comes to financial information, should depend upon the expected reader and the plan's purpose.
For example, a business plan developed for operational purposes, meant to be shared with employees and managers, should provide only enough detail necessary for these people to do their jobs or manage their particular area of the business. So, while you wouldn't include, say, owner's compensation, you would provide financial details of their part of the operation.
On the other hand, you'll need to provide more detail if the plan is aimed at securing funding. Again, the information you include will differ slightly depending on whether you're addressing investors or lenders. A lender will require information covering the term of the loan and, probably, detailed information about owners' compensation and perqs. Also, lenders of a particular security -- inventory, say, or fixed assets -- will want significantly more detail about that particular asset category. Both, however, will likely require historical financial statements and even tax returns for the previous years -- perhaps as many as five years -- plus pro forma income statements and balance sheets for the next several years. Most important will be your cash flow statements, both historical and pro forma, since cash is the life-blood of the business. And, if the firm is multi-product or multi-locational, you may want (or be required) to provide financial information by product and/or location.