Writing a Business Plan

When you’re done with your business feasibility study and you find that your business idea is feasible, the next step is to write your business plan. Writing a business plan is important, as it will be your guideline in running your business. Your business plan should explain exactly how you will run your business, with all the exact figures including the capital needed to start the business. You should also provide the calculation of payback period in your business plan. You can use all the calculation that you put in your business plan to do a review on your business in the future. You can compare the figures in your business plan to the figures that you currently have to see whether your business is running better or at least just as planned, or not.

If you don’t have enough capital to start your business and you plan to attract some investors, you need to put some extra efforts in writing your business plan. Investors are investing their money to get profit, so they would need to see an excellent business plan before they decide to invest in a business. Your business plan should explain how your business can generate profit, how long will the investors get their return of investment, and how much profit they will get. In short, you should try to see from the investors’ point of view when you write the business plan. 

Calculation of Payback Period

Payback period is the time that we need to get the return of investment that can repay the amount of our initial investment. The calculation of payback period is simple. For example, when we invest $7500 in a business that gets $2500 per year, we would have a three year payback period. In calculation of payback period, the time value of money is not taken into account. Payback period is simply being used to measure how long a business takes to pay for itself.

Even though payback period has some limitations, it is being widely used as a method of analysis (especially by people who are running small businesses) because of its simplicity. In any kind of business, shorter payback periods are better than longer payback periods. However, in the calculation of payback period, the time value of money, risk, opportunity cost, financing, or other important considerations are not taken into account.