Writing a business plan is not an easy task. It’s a way to provide the perfect blueprint of a venture and the first step for an entrepreneur when executing his or her initial idea. The business plan will not only serve as a pitch to potential investors, but also as a guide when trying to accomplish your milestones. Below you will find some tips that will shed some light on the process of drafting your business plan.

1.) Divide your plan into sections. A business plan should be very well structured and at the same time very easy to read, especially for people that don’t know what your company is about (e.g. investors, angel investors, venture capitals, etc.). Be sure to organize your plan by including a table of contents, executive summary (company ownership, location, etc.), market overview (market segmentation, industry analysis, competitors, etc.), strategy and implementation (competitive edge, marketing strategy, etc.), management summary (financial highlights, startup summary, etc.), revenue forecast, personnel forecast, projected profit and loss, break-even analysis, projected cash flow, projected balance sheet, sensitivity analysis, and an appendix.

2.) Get a second opinion. Once you have drafted the business plan it is important to have another pair of eyes review it. The reason for this is not only to correct possible mistakes, but also to get feedback on other possible routes that you were not aware of. The more people you have looking at it, the better. This will help you when you are looking for that missing piece of the puzzle.

3.) Be prepared to re-draft. Every business plan changes several times. It is almost impossible to get it right on the first try, and if you do, there is a high possibility that it was done incorrectly. Once you share your business plan, be sure to ask for feedback because when you launch a product, your plan may need change based on the demand of clients and customers. Additionally, be sure to change your plan accordingly every few months, so that when it comes time to meet with investors, you know that they are looking with the most recent draft.

4.) Think like an investor. Always put yourself in the shoes of the investor. Make sure you always highlight the returns and competition that you will face when launching your venture. These are the top two factors that investors will be looking for. Try to include both sections in your executive summary so that investors can see it right off the bat. Some other factors that investors could potentially be interested in are: industry-leading gross profit margins, intellectual property rights, brand extension capabilities, customer contracts, recurring revenue potential, and partnerships with larger companies.

5.) Know your market. It is very important to know your market before starting anything. You need to know what you will need in order to build the structure. It is critical that you know what other companies are within the same field as you. Make a very clear difference between you and them and explain how you will be able to do things better and faster. Carefully explain how and where you intend to sell your product and how much it would cost you in order to get costumers rolling into your business. The value of a customer should be three or more times greater than the cost of acquiring a customer.

6.) Have the right profit margin calculations. Profit margins should be measured in percentages. The profit margin is the net income divided by revenue, or net profit divided by sales. It measures the amount of money a company makes: meaning every dollar that has been made out of sales. These margins are very useful when comparing your company with another one. A higher margin would mean that the company is more profitable and that there is a better control over the company’s cost. Make sure you are comparing averages with other companies within the same field. Identify if you are on the high or low terms compared to the industry’s performance.

7.) Know the risks. You should write in detail what the operating risks that your venture may be faced with in the future. You also need to be open to change and to other suggestions in order to gain such trust from investors. These investors love when you are open to new ideas, this will help in building a stronger relationship with you and your investor(s). We suggest that you write down the top risks that could damage your sales. In this stage, you have to have the willingness to learn, and to accept a different range of possibilities.

8.) Be very descriptive with your projections. As explained earlier, business plans should not be drafted only to be understood by you. Of course, you will be able to understand what your excel sheet is saying, but other potential investors will not have the time nor the interest to learn what your sheet is saying. Make sure you clearly explain in detail what you are saying, include introductions and descriptions that will help understand your numbers.

9.) Explain the use of proceeds. Every business plan should include how the money is intended to be spent. Make sure you allocate proceeds to the right resources and that the numbers are reasonable. Pay special attention to this section, otherwise the potential investors might feel like investing in your project will be the same as burning the money or throwing it in the trash. The details of the proceeds normally focus on product development, intellectual property filings, equipment acquisitions, debt repayment, and marketing.

10.) Establish clear milestones. This section might be one of the most important parts of the business plan. Be honest with yourself: is this something you can accomplish? In the event that investors decide to put money into your business you need to make sure that they are going to follow these milestones very closely. In the event you don’t reach them, difficult situations may arise for you, for them, and for other interested parties that may be turned off right away. Try to specify the management milestones as well. Separate your milestones from the your product milestones and make sure that both sections are clear and understandable.

There are, in reality, three primary reasons you need to have a business plan. Publishers, and a certain number of consumers, like to see Top 10 lists, so I arbitrarily chose Top 8 Reasons, just to be different.

Gleaned from years of working with a variety of business in putting market strategies and business plans together, here are three of the main benefits to you, as a business owner, for having a business plan:

1) Risk Prevention. What? If you’ve been in business for any length of time, and paid for advertising to promote your business, can you quantify how much revenue that advertising has generated for your business? Spending ad dollars to reach potential consumers is a risky gamble that can be prevented with a little research, identification of your market, and an effective marketing strategy. These are all elements of your business plan.

Unfortunately, a majority of business owners fall prey to the “marketing consultants” who sell radio or TV time or space in a magazine or newspaper. Don’t get me wrong, they are all excellent media resources for conveying a message to consumers, but each one has a unique delivery system, targeted audience, and ability to be effective. That’s why you’ll hear the representative say, “There are no guarantees.”

However, if you know your target market and their preferred method of receiving advertising messages they will respond favorably to, your choices for advertising become much more simple. Your ratio of success and odds of increasing sales go up exponentially. That’s one way your plan helps you prevent risk… and lose money!

Another aspect of preventing risk that your plan provides is the development of strategies to handle a down economy or reduced demand for your product or unforeseen circumstances or market trends. When you take the time to think things through and put them into a plan, you create solutions to problems you may only envision happening. Better to do this in advance instead of waiting until it happens. You then know how to react and don’t have to waste time figuring out what to do. The plan goes into action without delay.

2) Management Tool. Yes. Operating a business requires sound management principles and effective managers. One of the key elements a bank or lending institution looks at in providing financing for a business is the strength of the management team. Strong managers are confident in making difficult decisions, and that is important to the bank. If payroll needs to be reduced, lenders like to know the decision will be made for the good of the company and its bottom line.

What management needs, therefore, is a management tool to provide guidance, determine strategies, and effect changes if necessary. This is where the business plan plays a vital role. With a well-defined budget, a pivotal element of a business plan, managers have a tool they can use every month to assess the company’s performance. If sales projections are less than expected, management can implement corrective actions to improve the results. If the plan is well thought out and written with action plans that deal with uncertainties, management succeeds in turning the negative influence around.

On the reverse, if sales are better than projected, management can make adjustments to production or inventory control to meet the increased demand.

The point is that your business plan should be an ever-changing document, part of the fluid process of managing your business effectively with the right tools.

Evaluate the definition of your products and/or services at least twice a year. Do you have sufficient margin to operate in the black? How does your pricing compare to the competition across the board? Is there enough strength to keep your prices where they are and retain the business against competitive influences?

We worked with one client who was afraid to raise prices. She felt she would alienate and therefore lose customers. When we explained that without an increase she would be unable to keep the doors open, and that would eliminate all customers, she understood and raised prices.

There are times when you are working so hard you forget the reason you’re in business to begin with; the adage that you fail to see the forest for the trees is applicable. Get some outside help so you have other eyes to help you take the time to think and see golden opportunities in front of you.

3) Financing. In the economic era of Frank-Dodd legislation, banks and credit unions need to see a business plan to extend a line of credit or provide financing for your business endeavor. There are exceptions, of course.

One of our clients had gone to the bank with his updated business plan and got his line of credit extended. When he went back for financing to add an additional location, he figured he needed another update. The bank told him they were so impressed with his original update they were fine with that version of his plan. He got the funds to open a new store.

Since the economic downturn of 2008, government intervention in the banking and financial business has stifled the growth of our economy. The Fed wants banks to loan money, but keep a certain percentage of their assets in reserve funds. The result is the banks have to be more selective in the types of lending they underwrite, and as they take steps forward, there is an auditor or inspector watching every move and controlling where they can invest. It can be daunting for a business owner.

There are countless stories of business owners having a long-term relationship with a bank that comes to an end because the bank is divesting itself of those types of customers and loan portfolios. The owner stands in the street wondering which way to turn. She may have to work with a banker that is less than receptive to her operations, hopes, and dreams for her business.

The importance here is that the business plan needs to have realistic projections, and the business owner must be able to explain where the numbers came from, how they were arrived at, and how they will be met. If you fail to have the answer, your odds of getting financing are greatly reduced.

Just so you can say there were 8, here are 5 more reasons to have a business plan:

4) Create a new business.

5) Sell your existing business.

6) Share and explain business objectives with management.

7) Valuation of your business for formal transactions, such as estate transfer.

8) Deal with professionals.

Writing a business plan not only helps you to establish whether your idea is a viable one but it also helps you to lay out a direction for the future of your company. Without it, your business could simply meander along with no real direction and with no means of measuring its success.

It may not be an easy process but going through with writing a plan could force you to think carefully about your business overall and whether the model will work. Once complete, you’ll have a much better idea of whether you can make your venture work and whether you still really want to go ahead with it. Before you invest your own time and money into any idea, wouldn’t you rather have done a plan first to make sure that you know it can work?

There is now software available which can help you with writing a plan so it does not need to be such a mind-boggling task. There are online sites and a whole host of self-help resources out there which will help you to draw up a plan and carry out an analysis of your proposed ideas.

To carry out just a quick assessment or executive summary of a business idea will only give you a very brief overview and will not go into enough depth about whether the business could be viable should any extenuating factors get in the way – and let’s face it, there will be many!

In your business plan, you can expand it to include critical factors such as contingencies should you need them. You can work other factors into it that needn’t be too complicated but will give you a good idea of where you might be in, say, five years’ time. It will help to focus your mind on your goal and show others how you plan to keep yourself afloat.

And once you have your plan, it is never lost. All good projects or ideas start out with a plan. The plan then changes as it goes along if need be and you can keep reverting back to the original plan to track and measure your successes or failures.

Of course, having a plan does not ensure success and some would argue that a full business plan for a small venture is not necessary; that your time would be better spent on getting your business up and running rather than worrying yourself with laborious documents. However, you can make your plan as minimal or as in depth as it needs to be, according to the size of your proposed venture.

But bear in mind that, as with any plan, it could be seen as a restrictor and actually remove the entrepreneurial spirit in which the business idea was first created. You should always remember than any plan can be broken, changed or amended at any time and that it’s important for small business owners not to lose the importance of free will.

So, ‘to plan or not to plan?’ – that is the question.