The Most Important Part of The Business Plan

Filed in archive Writing a Business Plan on April 2, 2007

All sections of the business plan are important. Picking one which is most important is difficult. However, I think that there are three areas where most business plans either fail or pass:

1) Market Analysis: how big is the market? The answer to this question tells the reader of your business plan how much market share you need to achieve in order to meet your income objectives. This is the first area I look at in a business plan. For example, if your business plan shows you needing to get a 10% market share to break even -- how achievable is that? Whereas, if the actual number is 0.002% that is very realistic and attainable.

2) Financial projections: your financial projections need to reflect everything else you explain in the business plan. Investors, bankers and experienced business people will look at your financial projections to see if you really do have a good handle on what it will take to run the business.

3) Sensitivity Analysis: if your sales go down 10% and expenses increase 10% is your business still viable? If sales increase 10% and expenses remain the same -- how much profit does it produce?

These three areas will show how well thought out and viable your business plan is -- you should make sure that you do a good job in these three areas. It will make you be realistic and readers of the business plan will know you know how to make this business profitable?

Do not misunderstand me -- the rest of the business plan is important -- but these three areas are the first ones that a seasoned investor and banker will look at closely.