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Your business can be profitable, but have poor cash flow.It’s also possible to have decent cash flow and not be profitable, especially if you’re running your business from savings or a line of credit. Use your business plan to understand where the money is coming from and how much it’s really costing you to run your business. Realistic projections will help you identify how much you’ll need to reinvest in your business to meet expenses as more supplies, equipment and employees become necessary to support its growth.
At a minimum, your business plan should have best- and worst-case scenarios in four key areas: Operating budget.
List your business’s day-to-day operating expenses — rent, salaries, supplies, insurance, telephone, Internet and the like — and the income that you’ll need to offset them.
These days, business plans are simpler, shorter, and easier to produce than they have ever been.
Otherwise, they should be dynamic documents that you maintain on your computer.
If the expenses are too high, you’ll see that right away and can work on reducing overhead.
I recommend using Biz Stats, a free online tool that helps you compare your business’s expense ratios with those of others in your industry. This identifies your business’s sources of income and when they’ll arrive.
If you have trouble articulating your business’s purpose, strengths, challenges and goals clearly in a few pages, this is a sign that you might not be clear about your business vision or market strategy.
It’s a good idea to share your executive summary with someone objective, like your accountant or a business mentor.
My involvement with small businesses over the past two decades — owning one, studying and writing about them, and conducting seminars for entrepreneurs — has made me a huge advocate of business plans (so much so that I co-wrote ).
The reason is simple: A business plan enables you to address on paper many of the variables that make small businesses fail. Since lenders and investors are holding their purse strings tight these days, an inadequate business plan could keep you from getting the financing you need.