Writing A Business Plan

One of the first steps when formulating a strategy for any new business is the writing of business plan. If you think only Type A personalities compose business plans, you’re wrong. Talk to a random sample of successful business owners, and you will be amazed at how many took the time to put their business plans into writing.

If you are truly determined to succeed, you will follow their example. Why? Without a plan, you are leaving far too many items to chance. Just as a blueprint is used to ensure that a building will be structurally sound, a business plan will help you to see whether your business will be able to stay afloat financially.

The idea of a business plan is simple: to bring together in one document the key elements of your business. These elements include what products or services you will be selling, what they will cost to produce and how much sales revenue you expect during your first months and years in operation. Most important, your plan will help see how all the disparate elements of your business relate to one another, which will allow you to make any necessary alternations in order to maximize your business’s potential to turn a profit.

Additionally, business owners who want to borrow money or attract investors often write business plans. This is good because most lenders or investors will want to know as much about your business as possible before deciding to back it financially. Unless you are prepared to show them a well thought-out business plan for how you expect your business to become profitable, you won’t have much chance of convincing them to finance your project.

However, creating a business plan also is a good idea even if you don’t need to raise start-up money. The discipline involved in developing financial projections such as a break-even analysis and a profit and loss forecast will help you decide if your business really is worth starting, or if you need to rethink some of your key assumptions.

All business plans needs to show two things: that the business idea is a good one, and that the numbers show a profit. In addition, all good business plans have two basic goals: to describe the fundamentals of your business idea, and to provide financial calculations to show that it will make money. However, depending on how you intend to use it, a business plan can take somewhat different forms.

For example, if you expect to use your plan to borrow money or interest investors, it should carefully be written and edited to sell your vision to skeptical people. Normally this means that it should include a persuasive introduction and request for funds, in-depth market research information, an evaluation of your main competitors, your key marketing strategies and a management plan. Additionally, it should contain detailed financial information including your best estimates of start-up costs, revenues and expenses. Finally, since your plan will be submitted to people you don’t know well, the writing should be polished and the format clean and professional.

On the other hand, if your plan primarily will be used for your own information, if you don’t need to raise money then it is not as important to make a sales pitch or slick presentation. However, don’t skimp when it comes to doing your numbers. The last thing you want is to experience the very real misery of starting a business that never had a chance to make a solid profit.

It also is important to plan to get the help you need. Not all businesspeople are great writers. However, excellent writing skills can be a huge help in creating a compelling business plan. Consider paying a freelance writer with small-business savvy to help you polish your plan. Similarly, if numbers challenge you, find a bookkeeper or accountant to provide needed help.

The first several stages of your plan should describe your business idea and why it will work. If you will show your plan to potential lenders, investors or people you want to work with, show them that you have hit upon a product or service that customers really want. For example, show the rise in service-related spending over the past five years. Or, provide numbers describing the growth of the indoor tanning industry over the past couple of years. In addition, In order to show investors you are the right person to make this business work, include the following:

• A statement of the purpose of your business.
• A detailed description of how the business will work.
• An analysis of your market.
• An analysis of your competitors.
• A description of your marketing strategy.
• A resume setting forth your business accomplishments.

Again, depending on how you intend to use your business plan, you may be able to skip some of these elements. For example, if you don’t need to raise start-up money and are writing a plan mostly for your own use, you may decide to skip the resume of your own business accomplishments. However, twice before leaving too much out. Any new business will need to introduce itself to suppliers, contractors, employees and key customers. Showing them a part or your entire business plan can be a great way to do just that.

Besides describing how your business will work, including how it will reach all of its new customers and fend off competitors, you also will need to do some number crunching to show that it will in fact turn a profit. All the rosy predictions in the world will not make your business a success if the numbers turn up red. Projecting the finances of your business may seem intimidating or difficult; however, in the reality it is not terribly complex. Basically, it consists of making educated guesses as to how much money you will need to sped and how you will take in. You then use these estimations to calculate whether your business will be sufficiently profitable.

Needless to say, predicting and planning the finances of your business is an important task, not just to attract investors, but also to demonstrate your business idea will be successful. If your first projections show your business losing money, you will have an opportunity while still in the planning stages to make sensible adjustments such as raising your prices or cutting costs. If you neglect to make tight financial projections, you won’t realize your plan is a money loser until you actually start losing money—at this point it may be too late.

Nonetheless, many new entrepreneurs avoid crunching their numbers, often due to fear that their estimates will be off-base and yield useless results. This is a poor reason to avoid forecasting your finances. If you do your best to make realistic predictions of expenses and revenues and accept that your approximations will not be absolutely correct, you can learn a great deal about what the financial side of your business is likely to look like in its early months and even years of operation. Even a somewhat inaccurate picture of your business’s likely finances will be much more helpful than having no picture at all.

The form of every good business plan, although not set in stone, tends to run along the same basic lines, containing the following key sections:

Cover page—The cover page should be professional and informative and should contain an appropriate confidentiality legend.

Executive summary—The executive summary is the introduction to your business plan and the most vital section. Although it comes first, you generally write it last, because it summarizes the entire plan. Effective summaries generally cover:

• The company’s origin.
• The product or service and its uniqueness or competitive advantage.
• The company’s goals.
• The market potential for the product or service.
• A 3- to 5-year summary of key financial forecasts, especially sales and profit/loss. For new businesses, do some market research and make realistic assumptions about how your business can compete.
• The management team and its track record.
• The financing required to grow the business.
• The exit strategy.

The company description—This should convey a sense of history of the company, as well as its goals.

Management—The management section of the plan identifies key members of the management team, describes their responsibilities and establishes their relevant experience and accomplishments. It is here that you may want to include a resume that stresses accomplishments and relevant track records in an appendix.

The product—If the company is selling a product, this section describes what the product is or will be and shows why it can penetrate the existing or developing market. Investors generally are not interested in a one-product company. Therefore, you should discuss logical extensions of the company’s product line and future enhancements in the product section.

The market—You must convince prospective investors that the company’s market is large, growing and receptive to your products or services. If the market is small or stagnating, investors are less likely to invest. Appendices can include more detailed market information.

The competition—The competition section of the plan identifies competing products and technology. Compare your product or service with the competition. How will your price or quality be different? What will make it successful.

Marketing—The marketing section of the business plan should describe the company’s marketing plan and strategy in as much detail as possible.

Financial statements and projections—The body of the plan should include a summary of the key aspects of the financial forecasts, which appear in more detail in appendices. These may include total cash requirements, the time frame for positive cash flow and the anticipated growth in sales and profits. The financial forecasts appendices should have more detail: balance sheets, income statements and cash flow projections for a 3- to 5-year period, with the information presented monthly for the first year and quarterly in following years. The projected income statement probably is the most important projection. The most significant aspect of the forecasts is the set of assumptions supporting your numbers. Make sure your discussion sufficiently communicates the basis of your assumptions— they must be realistic, logical and attainable. If you are not a financial statement guru, get help. Credible financial forecasts are very important-if you are not familiar with financial statements, seek help from an accountant or other reliable source.