Why all small business startups need an operating plan

Do you know why all small business startups need to have an operating plan? With a proper operating plan for your small business, you are prepared to overcome the worst.

If you are in the start-up phase of your small business keep in mind that you will most likely need to look for financing to help you get on your feet. In order to obtain funding, most investors whether private, banks or your government – everyone will ask you for an operation plan of your business.

Your operational plan is key to knowing when your current funds that you have on hand will run out and when you will need more financing to help your business further grow. As a small business owner, your primary job is to make sure that all of your expenses are covered and that you do not run out of money. At the same time, being a startup and all, you may not have any sales history or stats to back up your projections, but you would be surprised how accurate you can estimate your expenses and when you may need more money. This is to say that you shouldn’t think since you are a startup you should have a proper operational plan in place.

Again, the primary goal of your operating plan is to tell you when you will run out of money. And for an investor, they want to make sure they see your plan in order to keep you from running out of money. If you run out of funds, to an investor this means the end of the road. Preparing for this situation is what the investors want you to do, so you may ask for funding again.

The Revenues: The first year of business is always the toughest, and investors know this as well. Your revenues in the first year may be very little, so don’t be scared to say so. You know it, and the investors know it so ensure you take advantage of this. It is better to keep investors happy with zero revenue, then to over-estimate and come under their expectations. This can cause an investor to back out. If you don’t have accurate numbers or have a tough time making estimated guesses, tell your investor that you expect the revenues to be zero the first year. If any revenues come in, then you are better off with the investor then you thought, and if it remains at zero, no big deal since it is what you said it would be in the first place.

The Expenses: Hiring employees is one of your biggest expenses when you are starting up your small business. Take into consideration that you don’t necessarily know how many people you will need in the future, when the business grows but your operational plan should allocate certain expenses for the “must have staff”. If you end up hiring more people and managing the expenses well, your business is taking off.

Don’t Over Promise: The old saying “make a plan and meet the plan” is what is important here. The details of the plan matter less here. The investor is already on your side, so now you have to impress them not by the monies or the number of sales you expect – but with the actual facts. If you show your investor the opportunity that the company will generate a quarter of million in the first year, make sure you meet it. If you estimate it will be only ten thousands then say that instead, but meet the goal whatever it is you set. Over promising will make the investor worried, and not have trust in you – which results in not having trust in their money with you.

If you are able to take the investors’ money and cover you entire operating plan and all the little things mentioned in it, well you’ve won. However if you are unable to estimate when you will need more money for the fact that you’ve over-spent, then you’ve lost.

This is simply the main reason why your small business startup should have a well-organized operating plan. It is well worth the time and effort.