Learn2 Write a Business Plan - Printable Version
<p class=default>
Learn2 Write a Business Plan
</p><p>
</p><p>
<u><b>Plan your way to profit </b></u>
</p><p>
You've figured out how to build a widget that's better
<br/>
than every other widget on the market. You know who
<br/>
needs it and why. You even know how to reach
<br/>
customers and convince them to purchase your product.
<br/>
Now all you need is the capital to put your dream to the
<br/>
test. It's time to hit up investors.
</p><p>
But before they part with their money, you'll have to win
<br/>
their trust. In other words, you must commit your ideas to
<br/>
writing and convince them your venture will be a success.
<br/>
Not only is a business plan essential for raising capital, it
<br/>
also will provide you with a guide for leading your
<br/>
business into the future. We'll reveal the secrets to a
<br/>
clear, concise, and convincing business plan, whether
<br/>
you're expanding an established company or striking out
<br/>
on your own for the first time.
</p><p>
</p><p>
Writing a business plan can take weeks, even months, of
<br/>
intense research and writing. Is it worth all the work?
<br/>
You bet. Even if you don't get all you want from
<br/>
investors, you're certain to benefit from the process. First,
<br/>
you'll have a better understanding of your own business
<br/>
as well as the industry as a whole. More important, you'll
<br/>
have a set of clearly articulated goals. This will help you
<br/>
organize and manage your business and give you a
<br/>
benchmark against which you can measure future
<br/>
performance.
</p><p>
If you're having trouble getting started, do the easy stuff
<br/>
first. Start with the things you know, such as listing the
<br/>
management team, the products or services you will offer,
<br/>
your target market, and a description of the current state
<br/>
of your business (even if it's only in the developmental
<br/>
stages). If you get hung up on a particular part of the
<br/>
plan, skip it. You can come back and fill it in later,
<br/>
perhaps with the help of an outside professional.
</p><p>
</p><p>
<u><b>Understand your audience </b></u>
</p><p>
All writers must begin by asking who's going to read their
<br/>
work. This is especially true for people writing business
<br/>
plans, because they have the added task of persuading
<br/>
readers to part with their money. Be sure your plan
<br/>
targets your readers' specific concerns. Your audience
<br/>
will include:
</p><p>
<b>Yourself</b>
. Experts say you should write a separate
<br/>
business plan for your eyes only. It should probably be
<br/>
the most conservative in terms of projecting future profits,
<br/>
so you don't overestimate your business's potential and
<br/>
end up with angry creditors down the road.
</p><p>
<b>Banks and other lending institutions</b>
. Bankers are
<br/>
generally the most conservative of investors. They're
<br/>
looking for a more or less foolproof plan, plus collateral
<br/>
(equipment, buildings, vehicles, etc.). In addition, you
<br/>
should be prepared to show them that you and your team
<br/>
are trustworthy. They're going to want to see a detailed
<br/>
credit history, plus as much evidence of past
<br/>
entrepreneurial success as possible. Be prepared to
<br/>
provide a good explanation if you've had credit trouble in
<br/>
the past.
</p><p>
<b>Individual investors</b>
. While individuals may be willing to
<br/>
take more risks with their own money, they're also going
<br/>
to expect more in return. A profit of 10 percent per year
<br/>
probably won't tempt them, since they can easily make
<br/>
the same amount by investing in larger, more established
<br/>
companies. Without being unrealistic, you want to
<br/>
emphasize that your venture could be highly profitable.
<br/>
Just don't make promises you can't keep. It's best to
<br/>
consult a good business lawyer before reaching any
<br/>
agreements, since individual investors might try to sue if
<br/>
they aren't happy with the way things are going.
</p><p>
<b>Venture capitalists</b>
. Competition for venture capital
<br/>
money is fierce, so you have to make a case that your
<br/>
company is not just going to be profitable, but will grow
<br/>
rapidly over a period of five to seven years. A personal
<br/>
introduction will help enormously, since venture capital
<br/>
firms get many more proposals than they can read.
</p><p>
<b>Relatives</b>
. If you borrow from relatives, keep things as
<br/>
professional as possible. This way, you can still spend
<br/>
holidays under the same roof. Don't expect them to sign
<br/>
on out of a sense of duty. Show them your venture can
<br/>
be genuinely profitable, and make sure any agreement
<br/>
you reach is committed to writing.
</p><p>
<b>Employee investors</b>
. You can make your employees
<br/>
partners by promising them a share in the ownership of
<br/>
the business. In return, they may be willing to work for a
<br/>
below-average salary and even kick in some of their own
<br/>
capital. But again, make sure you have written
<br/>
agreements and consult a good business attorney for
<br/>
potential problems. For example, you need to be able to
<br/>
take action if your partner suddenly stops showing up to
<br/>
work.
</p><p>
</p><p>
<u><b>Prepare to research and write </b></u>
</p><p>
Before you can start writing any of the plan's sections,
<br/>
you'll need to start gathering evidence. Since every claim
<br/>
your plan makes should be backed up, the research
<br/>
process will take time. You'll find many answers through
<br/>
trade associations, magazines, newsletters, and annual
<br/>
reports. Subjects that require active research include:
</p><p>
Your company's past financial records (if
<br/>
you're already in business).
</p><p>
<b>Industry statistics</b>
. Find out the size of the
<br/>
overall market and what trends are currently
<br/>
affecting it.
</p><p>
<b>Statistics about competitors</b>
. Compare your
<br/>
numbers with firms of similar size in the same
<br/>
industry.
</p><p>
<b>Market research</b>
. Find out about who's buying
<br/>
products like yours, and what trends might be
<br/>
currently changing their buying patterns. This
<br/>
information is available in trade magazines and
<br/>
newsletters or through a professional marketing
<br/>
consultant.
</p><p>
<b>Potential investors</b>
. Find out who finances
<br/>
ventures like yours and the details of deals similar
<br/>
to the one you're proposing. Industry trade
<br/>
associations are a good place to start, as are
<br/>
personal contacts.
</p><p>
After you've done your research, it will be time to fill in
<br/>
the outline with pertinent facts and crystal-clear prose.
<br/>
You definitely want to capture your enthusiasm for the
<br/>
project, but your audience is trained to see through hype
<br/>
and sales-speak. Strive instead for clarity, simplicity, and
<br/>
thoroughness. Here are some guidelines:
</p><p>
Don't exaggerate.
</p><p>
Make your sentences short, sweet, and factual.
</p><p>
Guide the reader with bulleted lists, numbered
<br/>
sections, and clearly named subject headings and
<br/>
subheadings.
</p><p>
Don't clutter the text with small details that will
<br/>
slow the reading process. Relegate them to an
<br/>
appendix.
</p><p>
Provide a table of contents so readers can skip to
<br/>
relevant sections.
</p><p>
Keep the plan to about 20 to 30 single-spaced
<br/>
pages, minus the appendices.
</p><p>
<u><b>Consider outside help </b></u>
</p><p>
You should complete as much of the plan as possible
<br/>
yourself. This way, you'll be able to answer questions
<br/>
when investors grill you. Further, a full-service consultant
<br/>
may charge anywhere between $10,000 and $20,000
<br/>
(U.S.)--a lot of money if you're just getting on your feet.
<br/>
If you can afford the service, consult a local Better
<br/>
Business Bureau for recommendations, and make sure
<br/>
you ask plenty of questions before you write any checks.
</p><p>
No matter how confident you are, however, you should
<br/>
seek help at some point along the way. Professional input
<br/>
can both improve your chances of success and help avoid
<br/>
potential legal trouble down the line. At the very least, get
<br/>
several trusted, experienced businesspeople to give your
<br/>
plan a serious look. Also consider hiring an accountant to
<br/>
help you prepare the financial plan, and a business lawyer
<br/>
to look into regulatory issues and potential liabilities.
</p><p>
</p><p>
<u><b>Outline the essentials </b></u>
</p><p>
No matter what your racket, a standard business plan
<br/>
includes the following 11 sections:
</p><p>
1.Executive Summary
<br/>
2.Investment Opportunity
<br/>
3.Company/Product Analysis
<br/>
4.Industry Analysis
<br/>
5.Market Analysis
<br/>
6.Marketing Plan
<br/>
7.Development Plan
<br/>
8.Manufacturing/Operations Plan
<br/>
9.Management Team
<br/>
10.Financial Plan
<br/>
11.Appendices
</p><p>
Begin your plan with a brief, one- to two-page summary,
<br/>
devoting a short paragraph to each section of the entire
<br/>
plan. This executive summary helps potential investors
<br/>
quickly decide whether they want to study your ideas
<br/>
further--so make it enticing. Emphasize your strengths as
<br/>
an organization, the ways you differ from the competition,
<br/>
and how you can realistically reach a potentially large,
<br/>
untapped market. Include contact information here so
<br/>
investors can reach you if they're interested.
</p><p>
</p><p>
<u><b>Detail the investment opportunity </b></u>
</p><p>
Now it's time to spell out exactly what you need from
<br/>
your investors, and what you can give them in return. You
<br/>
can use highlights from your financial plan to back up
<br/>
your claims. The essentials include:
</p><p>
The total amount of funding you need
</p><p>
How the money will be spent
</p><p>
What collateral you can offer, if any
</p><p>
The proposed terms of repayment (for banks), or
<br/>
equity-sharing (for venture capital or individual
<br/>
investors)
</p><p>
A projected return on investment (for investors)
</p><p>
An exit plan for private investors and venture
<br/>
capitalists
</p><p>
</p><p>
<u><b>Analyze the company and industry </b></u>
</p><p>
Your business plan needs to include a company/product
<br/>
analysis, a risk analysis, and an industry analysis. Here's
<br/>
where you'll display your knowledge of your venture, the
<br/>
risks involved, and the industry.
</p><p>
<b>Company/product analysis</b>
. First, describe what
<br/>
exactly your company is going to sell, and explain why
<br/>
you think people are going to buy it. Is your product
<br/>
superior in quality? Is it significantly cheaper? Does it
<br/>
come in a full-service package? Is it new or unique?
</p><p>
Now explain
<b>why your company is especially suited </b>
to
<br/>
create and market this product or service. Explain your
<br/>
overall strategy, as well as the way your company will be
<br/>
organized. Is it going to be a partnership, an LLC, a
<br/>
privately held corporation, or something else?
</p><p>
<b>Industry analysis</b>
. Once you've established your overall
<br/>
strategy, you have to provide evidence that no one else is
<br/>
doing the same thing. You need to show your thorough
<br/>
understanding of the industry as a whole, as well as your
<br/>
company's special niche. Be sure to answer the following
<br/>
questions:
</p><p>
What is the size of the entire industry?
</p><p>
What forces are affecting the industry now or will
<br/>
affect it in the future?
</p><p>
Who are your closest competitors, and how do
<br/>
you differ from them?
</p><p>
Can competitors from another industry provide
<br/>
substitute products?
</p><p>
<b>Risk analysis</b>
. Success in business is as much about
<br/>
avoiding problems as creating solutions. In addition to the
<br/>
other sections, many business plans include a risk analysis
<br/>
section to show investors the potential vulnerabilities of an
<br/>
enterprise. Having a lawyer-approved list of risks can
<br/>
also protect you from potential liabilities, as investors may
<br/>
have the right to sue if they prove they weren't informed
<br/>
of potential problems.
</p><p>
As you prepare this section, contemplate all the potential
<br/>
pitfalls and uncertainties that your business faces,
<br/>
including those things you may not be able to control.
<br/>
Basically, you want to list the potential problems and
<br/>
follow each with a paragraph of explanation. For
<br/>
example:
</p><p>
Will you be in trouble if you lose key personnel?
</p><p>
Could competitors prevent you from successfully
<br/>
entering the market (for example, by temporarily
<br/>
lowering prices, making distribution difficult, and
<br/>
so forth)?
</p><p>
Could new government regulations adversely affect
<br/>
your business?
</p><p>
Could new technology suddenly make your
<br/>
product obsolete?
</p><p>
Do you face any potential production or delivery
<br/>
delays due to technological failures or shortages of
<br/>
materials?
</p><p>
What would happen if clients or suppliers
<br/>
withdrew from business agreements?
</p><p>
</p><p>
<u><b>Address the market </b></u>
</p><p>
The market analysis will describe who exactly is going
<br/>
to buy your product. Here are the questions to address:
</p><p>
What are the ages, income levels, and location of
<br/>
your customers? Establish a clear demographic.
</p><p>
What are their needs and how does your product
<br/>
meet them ?
</p><p>
What products are they currently buying to meet
<br/>
the same need?
</p><p>
You've shown who needs your product; now it's time to
<br/>
prove you can actually get them to buy it. That's where
<br/>
your marketing plan comes in. And the more creative it
<br/>
is, the better. Just make sure it answers these basic
<br/>
questions:
</p><p>
What is your overall marketing strategy?
</p><p>
How do you initially plan to inform and educate
<br/>
customers about your product?
</p><p>
How will you generate sales over the long term?
</p><p>
How will you price products?
</p><p>
Will you hire a sales team? If so, what will its
<br/>
function be?
</p><p>
What is your distribution scheme--how will the
<br/>
product reach the customer?
</p><p>
Will you hire public relations professionals?
</p><p>
Do you plan to use advertising? How?
</p><p>
What will your overall marketing costs be? What
<br/>
percentage of your total costs does this entail?
</p><p>
</p><p>
<u><b> Explain how your business will run </b></u>
</p><p>
Your development plan explains how your business will
<br/>
run. Think of it as a series of deadlines. Begin by
<br/>
explaining the parts of your business that are already in
<br/>
place (the management team, a product template, etc.).
<br/>
Then provide a timeline for future goals (when hiring will
<br/>
be complete, when your product will reach the market,
<br/>
when the first radio ads air, and so on), and briefly outline
<br/>
the steps you'll take to reach these goals. Keep these
<br/>
things in mind:
</p><p>
Show you're aware of potential obstacles.
</p><p>
Mention input from outside contractors.
</p><p>
Prove you can protect proprietary information
<br/>
during the development process.
</p><p>
Maybe you know how to make a single widget, but can
<br/>
you make a million? Investors want to know whether or
<br/>
not production can meet consumer demand. Anticipate
<br/>
their concerns by including a manufacturing/operations
<br/>
plan that answers the following questions:
</p><p>
Where will you get raw materials (if applicable)?
</p><p>
How will your product (or service) be generated?
</p><p>
How will you ensure consistent quality?
</p><p>
What is the maximum capacity of your operation?
</p><p>
Are there any regulatory or other legal issues you
<br/>
need to address?
</p><p>
How long will it take to produce the first product
<br/>
(lead time)?
</p><p>
Will any part of the production process be
<br/>
outsourced?
</p><p>
Where will the product or service be generated?
<br/>
How will this affect distribution and other costs?
</p><p>
Will warehousing be necessary?
</p><p>
</p><p>
<u><b>Introduce the management team </b></u>
</p><p>
People are your most important asset. It may sound like a
<br/>
feel-good ad, but it's true. The more complete your
<br/>
management team, the better. Demonstrate that you have
<br/>
a well-rounded team in which each person has a
<br/>
well-defined function. Most important, show that, as a
<br/>
team, you're capable of meeting the goals outlined in your
<br/>
business plan. The management team section should
<br/>
include:
</p><p>
A chart that explains how the full-time management
<br/>
is organized, including accounting, operations,
<br/>
marketing, sales, and any other industry-specific
<br/>
specialists
</p><p>
Bios of all managers, outlining the skills and
<br/>
experience that make them right for the job (full
<br/>
resumes can go in the appendix)
</p><p>
A list of the board of directors, with bios
</p><p>
A list of outside advisors or consultants
</p><p>
</p><p>
<u><b>Prepare a financial plan </b></u>
</p><p>
Unless you're an accountant, the financial plan is
<br/>
probably going to be the most difficult part of the overall
<br/>
business plan. It must include detailed spreadsheets, as
<br/>
well as text that summarizes and explains the numbers
<br/>
(for example, any assumptions you make about business
<br/>
projections). You should definitely consider seeking help
<br/>
from a professional accountant or business consultant
<br/>
when preparing your financial plan.
</p><p>
Don't overestimate income or underestimate costs, and
<br/>
be ready to provide verbal explanations for every
<br/>
number, even if you received help from a third party.
<br/>
Finally, develop an accounting system to ensure accurate
<br/>
financial reporting to both you and the lender. Required
<br/>
elements include:
</p><p>
Past income statements (which include both
<br/>
income and expenses) and balance sheets (total
<br/>
assets vs. total liabilities) if you're already in
<br/>
business
</p><p>
Projected income and balance sheets for each
<br/>
month of the first year, then quarterly and annually
<br/>
for years two and three
</p><p>
Projected cash flow statements for each month
<br/>
of the first year, then quarterly and annually for
<br/>
years two and three (your investors want to be
<br/>
sure you have the cash to meet payroll and other
<br/>
expenses)
</p><p>
If possible, make three versions of each of these plans:
<br/>
best-case, expected-case, and worst-case scenarios. It's
<br/>
also important to show what these numbers mean for the
<br/>
investor, so provide analysis that explains the following:
</p><p>
Gross and operating margins: What total profits
<br/>
or losses can investors expect (gross margin)?
<br/>
What percentage of total revenues ends up as
<br/>
profit?
</p><p>
Break-even date: When will income meet
<br/>
expenses?
</p><p>
Return on investment: When can investors
<br/>
expect to get their money back? How much profit
<br/>
will they make?
</p><p>
</p><p>
<u><b>Provide source materials </b></u>
</p><p>
The appendices are made up of documents that support
<br/>
specific claims you've made in the body of your business
<br/>
plan. Items might include:
</p><p>
Financial documents or other evidence of past
<br/>
success
</p><p>
Detailed balance sheets and income statements (if
<br/>
they're too long for the financial plan section)
</p><p>
Any necessary legal documentation
</p><p>
Detailed flow charts for management and
<br/>
production decisions
</p><p>
Product/service specifications (a detailed
<br/>
description)
</p><p>
Letters from suppliers or potential customers,
<br/>
including any agreements you may have already
<br/>
reached
</p><p>
Resumes from the management team
</p><p>
Information about other investors who have
<br/>
already signed on
</p><p>
</p><p>
<u><b>Avoid common pitfalls </b></u>
</p><p>
People who read business plans say they see the same
<br/>
mistakes over and over again. Here are some problems
<br/>
to avoid:
</p><p>
Rose-colored glasses. Make sure you don't
<br/>
overlook potential risks. Investors are going ask a
<br/>
lot of what-if questions. Beat them to the punch by
<br/>
explaining how you'd react to specific problems.
</p><p>
Unsubstantiated claims. Don't just say "Widget
<br/>
sales are rising quickly." Give specific figures, and
<br/>
quote your sources.
</p><p>
Over-optimistic sales projections. You can't
<br/>
just assume sales will grow simply because you
<br/>
remain in business. Explain how you're actively
<br/>
going to expand your market.
</p><p>
Unrealistic cash flow projections. New
<br/>
companies (and established ones) are frequently
<br/>
strapped for cash even when business is good.
<br/>
This can be especially problematic for fledgling
<br/>
ventures since they don't yet have the perfect
<br/>
confidence of creditors.
</p><p>
Numbers that don't add up. If your balance
<br/>
sheet doesn't square with your income statements
<br/>
and cash flow projections, you're going to cast
<br/>
doubt on your entire plan. Make sure all your
<br/>
numbers, calculations, and financial statements are
<br/>
sound.
</p><p>
Deer in the headlights. Make sure you
<br/>
understand every part of your plan, including the
<br/>
financials. Don't just refer investors to your
<br/>
accountant. They'll think your accountant could be
<br/>
robbing you blind--and they might be right.
</p><p>
</p><p>
<u><b>Proofread your work </b></u>
</p><p>
After all the work you've invested, make sure you don't
<br/>
shoot yourself in the foot with bad spelling or grammar.
<br/>
And double-check your numbers one last time. A single
<br/>
typo could throw off a whole spreadsheet.
</p><p>
The final version should be printed on 8.5 by 11-inch
<br/>
paper, with single-spaced, 12-point, professional-looking
<br/>
type. Leave fairly wide margins so investors can take
<br/>
notes. The overall look should be inexpensive (otherwise
<br/>
you may seem like a spendthrift) yet professional.
</p><p>
Once you get funding and start to achieve your goals,
<br/>
you'll realize all the effort you put into your plan was well
<br/>
worth it. There's nothing like making your dreams into
<br/>
reality.
</p><p>
-end-
</p>