The General Business Environment

As you draft your business plan, you may feel somewhat overwhelmed by the sheer number of external factors that can dramatically impact your business. Most of these factors are simply beyond your control.

For example, if your business is dependent on loans or a line of credit, the interest rate on that debt is crucial. Say that you can get a loan at 2 percent over the prime rate. There is no guarantee that the prime rate won't fluctuate, perhaps wildly, in the first few months of your planning period.

That means it is up to you to decide not only what assumption to make regarding the rate, but how likely it is that your assumption is correct. If you assume that rates won't change by more than 1 percent one way or the other, how comfortable can you be with that assumption?

You'll also have to make assumptions about factors that are less susceptible to being quantified. While you may know exactly how many people are physically located in your geographic market, assumptions regarding how many are actually potential customers for your product or service aren't so easy to nail down. But such assumptions are an absolute requirement when it comes time to project sales.

Despite the difficulty in ensuring that your assumptions are reasonable, there is a lot of help available. There are any number of sources that provide objective information you may find helpful. For example, a bank can provide you with historical information regarding rate changes. Vendors can tell you about product availability issues.

Get as much information as you need to feel comfortable with your ability to make reasonable assumptions. Remember, however, that no one is likely to be right all the time. If the assumptions on which you base your planning are generally "in the ballpark," you have done a good job.

Assume you're considering opening up a store to sell auto racing collectibles. The auto racing industry provides a good example about making assumptions. It experienced growth in broadcast viewers and race attendance for a number of years from the 1990s well into the economy began to falter. Expecting 10 percent annual growth in the audience was pretty reasonable, at least for a while. Now, however, that situation has reversed, with small audiences, race tracks closing, sponsorship money hard to find. An optimistic growth assumption now would be that the market has stopped shrinking. More realistically, you might want to consider the possibility of further contraction for some period of years.