Why do I need a Business Plan?

FSBO. REO. Which is better? Preforeclosure. Preforeclosure short sale. Sheriff's Sale. Which is more profitable? Sub2. SaleLeaseBack. LO.... What's best? Should I buy and hold, or flip? Can anyone tell me the Pros vs. Cons..... Should I bird-dog? LLC? Incorporate? Do I need business cards? HELP!



What's a business plan, and why do I need one? A business plan is like a road map for you and your business. For the purpose of this essay, your business will be real estate investment, speculation, and entrepreneurialship. A well thought out plan can guide you through the identification of acquisition opportunities, and the selection of applicable acquisition techniques, helping you to avoid roadblocks and detours along the way while keeping you focussed. One of the benefits of devising a business plan is the process itself since it requires you to put your goals and plans down on paper. Even if you aren't going to present your plan to an outside person (possible financial partner, hard money lender, or conventional lending institution) the exercise of writing the plan will provide direction of where the business is going, and how you hope to get there. But even the best of plans can only guide you... it cannot actually take you to your destination.



Don't worry, most of you already have a business plan and an exit strategy floating around in your head, just waiting to be organized into a plan.



To coin a phrase by a former professor, "Whatever isn't written is rotten!" You really need to articulate your Plan in writing. Why? Because writing the plan will actually help you to plan the business... raising questions about your competition, your capabilities, weaknesses, and the process itself. When writing your Plan, you'll need to ask yourself, and answer a series of basic questions. To do that you'll need to learn about the various aspects of the business. For example, a working knowledge in the principles of real estate would help, even if it means taking basic courses, seminars, or securing licenses in real estate sales, mortgage loan origination, appraisal, title, insurance, &/or home inspection. You'll have to try to identify and predict obstacles that might block your success, and how best to avoid those obstacles. You'll have to assess your business and management skills, and make a realistic assessment of the business' potential. Sometimes, to avoid costly mistakes, it pays to consult with an attorney, CPA, and other professionals to see if your plan is viable, financially feasible, and lawful.





What's it really all about? For most of us, it's about getting paid. To get paid, you need an exit strategy which is loosely defined as the way an Investor closes out a specific investment, usually for cash.



Historically, an investment in real estate has been perceived as an illiquid investment, meaning not readily convertible to cash. In recent years, however, the dynamic practice of real estate investment has incorporated a form of entrepreneurial speculation in the control (rather than ownership) of real property. Additionally, enter 'flipping' which is the buying and then reselling property for a profit within a very short holding period. Each opportunity that presents itself to the speculative investor should be evaluated with respect to that individual's or entity's business plan and exit strategy.



Like our US Constitution, your 'anticipatory' business plan will become a living document, subject to periodic review and revision. The more experiences you have, the more 'forward thinking' your plan will become...the longer you are in business, the longer you will be in business. At least that's the theory. You must be open for change and learn to adapt... but adapt with a careful eye to your business plan.



A business plan, like travel trip's itinerary, tells you where you are going, when you are going, how to get there, when you've arrived, what to do once you are there, and when it's time to pack up and leave.....



[To get started, it's worth taking the time to check out the many free, on-line resources available to help you devise your own business plan. Good Luck, Good Learning, and Good Planning!]

Comments(2)

  • JohnMichael24th August, 2004

    You need a good business plan to launch your business. A business plan is a blueprint of the steps you need to take to build your business. It shows that you've taken the time and discipline to think about where you are and where you want to go.



    Many entrepreneurs don't understand the importance of writing a good business plan. A plan can help you raise money to start or expand your company, plan for the future, and track your growth. A written plan is a tool to help you:



    Get financing and investments. - Lenders and potential investors use your business plan to decide how much risk is involved in investing in your business. They look at your company's potential growth, your abilities as an owner and a manager, your purpose, your market, and your competitors.



    Explain your company's vision. A business plan is not just about numbers. It's about your belief in what your company can become, based on the firm understanding of your business and the market.



    Measure your performance.-This is your chance to outline what you expect in future growth, sales, profit, and more. If you look at your business plan regularly, you can review your performance, update your plan, and always know where you stand in terms of meeting your goals.



    A plan should have a beginning, middle and most importantly an end.



    To be a success in what ever you do, a plan will be your vehicle to success with out it failure will be knocking at your door.



    Great article AShortSalePro


  • drspencer25th August, 2004

    This article makes a good point. As a follow-up, I think it would be very helpful for individuals putting together a business plan for the first time to have a place on TCI where they could view copies of or links to existing business plans, particularly those related to the various paths a real estate investor might take. Good, bad, detailed, brief, commercial, residential, buy-and-hold, turn-and-burn - they would all be helpful to a variety of people on this site. It could even be extended to include examples of good loan packages or other documentation that investors will inevitably have to put together. And, not to pimp Microsoft or anything, but their Small Business Edition of MS Office has a business plan wizard that is actually not half bad. If you supplement it with spreadsheets geared towards real estate (such as those that can be downloaded from http://www.ccim.com/resources/library/busforms.html), then it would probably be a very useful tool for planning purposes.

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