June 30, 2010
by Bill Cherry
There are several good reasons to have a business plan. First, most people want to use a business plan to get investors. A potential investor needs a good reason to give you his or her money. Second, going through the process of creating a business plan forces one to examine every detail of the business venture resulting in gaining a detailed knowledge of every aspect of the business. The third reason is to keep a business on track. Many businesses can get side tracked by new opportunities, or other distractions and lose focus on their core competency, what they do best.
Most business plans are basically documents of facts and figures about a business. If you want to use the business plan to raise capital it needs to be written differently. You have to give the investor compelling reasons to want to give you money.
That being the case the business plan must be written like an advertising document, written to persuade. Getting an investor to give you money is an emotional event. Your written document must elicit emotion.
First let me say this, some think if you put the business plan in a fancy leather binder it will influence the investors positively. Not so. Experienced investors are not impressed with fancy looks. They are interested in the meat of the document.
Many students ask me how long a business plan should be. They think the more pages the more impressed the investors will be. Again, not so. Would you like to wade through 50 pages of minutia? Make your business plan as long as it needs to be but no longer. Don’t fluff it out. Keep it to fewer than 15 pages and fewer than 10 is better.
This is the first and most important section of the business plan. The most important thing the executive summary should do is to get the interest of the reader and entice the reader to read on. Write the summary so that the reader’s interest is peaked right away. Explain what the business is all about in the first two paragraphs and make him want more.
The executive summary should be no more than two pages summarizing the purpose of the business.
Include a mission statement. A mission statement states the philosophy within which the business will operate, not a description of what the business does or will do. An example is, “We believe our customers are always right and we do everything we can to insure they are happy.”
The next session is the Operating Statement
In this section tell what the business does or will do and how it operates. Make it a detailed description of how the business operates.
Include a resume of each of the owners and a two or three paragraph statement on each of his key employees. In addition include copies of documents like lease agreements, insurances coverages, and contracts with vendors and owners.
Next comes the financial projections. No one knows what sales will be so forecast what you realistically think you can sell. Gather the start up costs and then calculate the fixed and various expenses. Identify the ongoing expenses and determine monthly operating costs.
Determine on average what the sale amount will be per transaction. Project sales for each month of the first year. Then send all your data to Bob the accountant and have him or her, Bobette, make your financial projections look realistic.
There are three parts to this section. The national, regional, and local data. The national market analysis will have projections of your business category nationally. Get the data from Googling the national association. You will find plenty of data. Next do the same thing on a regional or state basis, and then on a local level.
Select three or four major competitors and write a page on each describing who they are, what they do, what are they known for, what they do best, and what vulnerabilities each has. Details here will pay off.
This illustrates how you will achieve the financial goals in the projections. Will you advertise? If so will you use radio, TV, newspaper, direct mail or other medium? If you will use radio advertising which stations will you choose? If TV which programs will you advertise in? Identify the demographics of your target customer. Get very detailed here.
Finally write a summary. A few paragraphs will do. Remind the reader of all the benefits of investing, the excitement and the monetary benefits. Sell it.