Business plans are written documents presented to potential lenders and investors to raise financing.
There are really only two reasons to go to the hassle of creating a business plan: to raise financing, and to bring structure to the future of your company. Since most companies are looking to raise financing, that is our focus here.
"Hassle" sounds like a strong word in business, but creating a business plan is not a walk in the park. There’s a lot of research involved, a lot of meetings involved, a lot of options to consider. These all increase exponentially by the number of people in your firm.
Prior to even begin writing a business plan, the most important question is: What type of funding does the company need? Looking for a $10,000 Small Business Administration loan is very different from a $10 million venture capital investment. There are bank loans, angel investors, venture capital investors, bootstrapping, equipment loans, receivables financing, initial public offerings (both small and large), and a myriad of other choices for funding a business. Answering this first question is not easy, yet it is critical to locating the needed financing.
The basics of a business plan
Throughout these sites you will see common themes emerging. These themes are the core elements of a business plan and include:
- Usually a one or two page summary giving the type of business, a bit on the principals, and a glimpse of the type of funding required. Smart entrepreneurs will also be certain to include the exit strategy for the lender/investor.
- The product/service
- Description of the product or service that is the business. Whether it is a home based MLM company, or a large manufacturing company, the nature of the business must be defined early on.
- Biographical summaries
- Each principal player needs an introduction. This is not the standard legalese introduction, or even a job resume. No, this is an introduction that explains why this particular person is a great person for this particular job.
- Marketing summary
- How will you promote this product/service? Who will buy it? How much will they pay? And – most importantly – how do you know this? “Just knowing” is not good enough. Your lender/investor will have access to industry reports that detail the growth of your industry, or its demise. She will already know the key players in your field, and what their marketing strategy is. Determining what your marketing strategy will be, and why it will be successful, is crucial to your success.
- Your marketing summary also needs to include how you will advertise your business. If this is an online business, how will people learn about it? The same question applies for a local candy store. Getting the word out is crucial to your success. How will you accomplish that?
- Financial summaries
- Every business plan needs both historical and projected financials. The historical summary should go back several years, especially if you can demonstrate a growth curve over those years. Choose a time frame that shows your business in a good light.
- The projected financials are typically for three years. These financials needs to demonstrate how the money will be invested, and how that investment will help the company make more money. And finally these financials must show how the lender/investor will get her money back. If you need more than three years worth of projections to accomplish this, do it. The first year is typically the most detailed; subsequent years are typically summarized.
A step beyond the basics
Ten different people could take the same basic information and come out with ten very different business plans. Some would be good, and some wouldn’t. So what is it that sets one above another?
- Passion. This term seems to be overused a lot lately. But the passion has to shine through. Any entrepreneur who is going into business “to make money” is set for huge disappointment. The money may be there, but only if the passion is there too. Any successful entrepreneur is going to devote thousands of hours to her new business. Just going through the motions just won’t cut it.
- Flexibility. The economy has a nasty habit of making a left turn when we least expect it. The entrepreneur who has the demonstrated ability to dodge the punches and grab onto the brass ring as it flies by will be head and shoulders above the rest. There are no guarantees in business.
- Teamwork. A very trite term. A “team player” often means one who is willing to give up his life to make his boss successful. Here it means something very different. It means the ability to draw together people of varying talents to work on a single goal. And there are all kinds of people you will need: product development people, marketing people, finance people, human resource people, IT people. It’s not an easy task bringing all of these disparate viewpoint to look in the same direction.
- Industry Recognition. Sometimes companies have awards or commendations or patents they can flaunt. More often industry recognition comes from pulling together a strong Advisory Board, a Board that can truly provide useful inside information on your industry and help lead the company to success.
- Vitality. Do you have any idea how boring it is to read other people’s business plans? “Yucky” is the word that comes to mind. Use graphics, color, formatting and style to enhance your business plan. The attention that it gets from your reader will be well worth the extra effort.
Depending on the complexity of your business, you will begin weeks or months in advance to create an effective business plan for your business. Take all the time you need. You only get one "up" with your lender/investor. Make sure it is a good one.
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