Small businesses are the foundation of the American economy.

According to the Small Business Administration, small businesses generated up to 80 percent of new jobs over the last decade, employed about half of all private sector employees, and paid more than 45 percent of total U.S. private payroll.

Small businesses, however, are highly susceptible to failure. In 2006, there were an estimated 649,700 new small businesses starts and 564,900 closures; only 44 percent of new businesses survived at least four years.

As a financial counselor, I have regularly seen the results of small businesses that have failed or are in serious financial trouble. It is not good.

Too many businesses are started without a clear plan – usually leading to the predictable result. If you are interested in starting a small business, it is important to have a plan! The saying “Fail to plan. Plan to fail!” is so true.

A good business plan answers the following questions: How will the business generate sales? What will it cost to get the business up and running? What expenses are absolutely necessary to get the business started? Who is the customer? What is the size of the market this business will serve? How will they purchase products/services from the company? How will this business compete with existing businesses?

The lifeblood of any business is cash flow. Many great businesses have failed — not because of a bad business idea, but because the business ran out of cash. A person starts a company and immediately purchases all brand new equipment, a new vehicle, and hires an employee. All before the first order is sold. This is a recipe for early business closure.

Business is all about cash flow, and the plan should clearly address it.

Prepare pro forma income statements. An income statement is a summarized list of business income and expenses. Prepare these statements with different levels of income.

On the expense side, make sure you adequately account for cost overruns. It can be difficult to determine costs until the business is operating so plan conservatively.

Define what equals a successful business. Include key milestones that the business must achieve. People (me included) tend to be emotional about their small business. When there is a clearly detailed plan, it helps take emotion out of decision-making.

I advocate starting a new business without incurring debt.

However, if financing is necessary to launch the business, a clear and understandable plan is a great sign to a lender.

To summarize what is included in a great business plan (1) market analysis, (2) sales strategy, (3) pro forma income statements, (4) key milestones, and (5) financing.

I love small business. If you have the desire to start a business, it can be very rewarding. Develop a business plan, it is worth it.