How to Write Your Own Business Plan in Order to Get Financing for Your Business
Excerpted from Financing Your Small Business by James E. Burk and Richard P. Lehmann ©2004
A business plan is a blueprint of what your business is and what you want it to become. The business plan describes a serious problem suffered by individuals or organizations. It shows how your solution to that problem is much better-not just marginally better-than those that already exist. The plan shows how you will implement your solution, grow your company, and create ownership value.
Generally, business plans take two forms-one is the plan you write to raise capital and the other is the plan that represents ongoing evolution of your business. You will find that both forms must be updated frequently to incorporate your latest progress and achievements.
This section focuses on the plan you write to crystallize your business strategies and raise capital. Numerous resources exist in print and online to assist you in writing a business plan. These sources range from business plan software like BizPlanBuilder (www.jian.com) to the Small Business Administration's website at www.sba.gov, to classic works such as the Venture Capital Handbook by David Gladstone.
The private placement memorandum (PPM) is a somewhat stylized disclosure document, prescribed by federal and state securities laws. The PPM serves a different function than the business plan. The PPM is a legal retail document and the business plan is a strategic wholesale document. In other words, when you go to individual investors to raise capital, you use the PPM as your offering document. When you approach larger investors, sometime called angels and institutional investors, including banks or financing institutions, they are more likely to ask for your business plan.
A business plan allows you to address the essential issues of your new business, such as the unique benefits and competitive advantages of your products or services, your market opportunity and marketing plan, and how you intend to capture a defensible share of the market. The financial statements (income statement, balance sheet, and cash flow analysis) accompanying the plan will give you, your management team, and potential investors a roadmap of the next three to five years of your business. Your financial projections should not exceed five years, as too much can change in that amount of time. Three years is generally sufficient. What matters is that you select a reasonable time frame during which you can achieve your stated goals.
STRUCTURING YOUR BUSINESS PLAN
Before discussing the contents of a business plan, it needs to be clear that a business plan is a management tool-it is not a legally required document. If you have an existing business and intend to continue that business without specific plans for expansion or other significant change, then you may not yet need a business plan. If you are going to register with eBay to sell your grandmother's china online, you may never need a business plan (although you do need your grandmother's permission or that of her estate).
A business plan should be a living document that evolves with the business and is constantly a work in progress. Business planning is a constant process, not a brief project. Internally, the business plan is a useful management tool when it is continually updated to reflect the marketplace. It should not be treated as a paperweight. Externally, the business plan often secures bank financing and attracts private or institutional investors. When your company is more mature, a business plan may serve as a basis for a strategic alliance, a merger, or an acquisition.
Assuming the business has been determined to be generally feasible, turn to the specifics of the plan. Investors want to know some very fundamental information.
? What is your business?
? What is the market for the product or service?
? How big is the market for the product or service?
? Have you segmented the market into digestible pieces?
? What is the revenue model (i.e., how does the business identify and sell to its customers)?
? What have you done to develop the business model?
? Have you identified all the resources you need to support the revenue model?
? How does the business make money?
? Why is this product or service unique?
? What qualities give it a competitive advantage over existing products or services?
? How is it better, faster, and cheaper than other choices available to your customers?
? What tangible assets does the company own?
? What intellectual property (trademarks, patents, trade secrets) does the company own?
? Who is in management and what are their backgrounds?
? What does the investor get for the investment?
? How much will the business be worth?
? How long will it take to be profitable?
? What is a reasonable risk assessment?
Do not be intimidated by these questions. Very few beginning businesses will have all of these questions fully answered from the start. However, sophisticated investors get hundreds of business plans to read. Your task is to write a business plan that is sticky-a plan that piques the interest of an investor to look further at your business. It has been said that one of the purposes of writing a business plan is to get a meeting with a capital source. A general outline for a business plan follows.
Cover Sheet and Table of Contents
The cover sheet should contain the name of your business, CEO, and contact information (including the address, phone, fax, and email for both). If you have a spiffy logo, the cover page is good place to introduce it. The next item should be a table of contents of the major topics contained in the business plan. Some reviewers like to have the various sections tabbed for easy reference.
Executive Summary
This is the most important part of the business plan because it is the part read first and determines whether the reader goes any further. The executive summary gives a brief synopsis of:
? the company's strategy for success;
? the company's unique business proposition;
? how your business proposition offers a competitive advantage;
? the market you are addressing;
? a description of the product and services offered;
? the management team's qualifications;
? key financial data and a statement of funds required; and,
? a statement of how you will either pay the funds back or how the investors will receive a return on their investment.
All of these brief topic descriptions will be expanded in the business plan. The executive summary should be brief, usually no more than two pages. Typically, the executive summary is the section written last, after the whole business plan is completed.
Statement of Purpose or Mission
This is where you articulate the vision of the company and its management. Some writers have called this the distinctive value proposition of the company-the formula you have devised that delivers goods and services to your customers better than the competition does.
Description of the Business
In this section, you are giving the history of the business entity. For start-ups, the following information is recommended:
? name of the business;
? legal form of the business (corporation, LLC, partnership, etc.);
? state of organization;
? when it was organized;
? location of the business;
? brief description of the owners/founders; and,
? stage of development of the business-conceptual, start-up, emerging, mature.
Description of the Products or Services Offered
Describe your products and services and show how they are related to your mission. What is your business? Be clear. Many business plans do not begin to discuss the actual business of the company until the middle of the plan. Most investors will not be that patient. Tell it up front and tell it in plain language. If the product is highly technical, save the details for inclusion in an appendix. Keep the discussion on a strategic level. The potential financers are probably not yet interested in tactical details.
Management Team
On equal footing with the products and services offered is the credibility of the management team of the company. Investors say that the three most important factors for success in business are management, management, and management. In this section you will be providing a synopsis of the management team and their qualifications. You can include full résumés in an appendix. Investors, especially sophisticated ones, would prefer an A management team and a B idea to a B management team and an A idea.
What differentiates the A team from the B team is a history of solid success and accomplishment. It proves the existence of skills and experience that can mean the difference between success and failure. Do not merely state that the marketing executive spent decades with a Fortune 500 company. Instead, specify the revenue growth and profitability results achieved in products and divisions for which the executive was responsible.
Many start-up ventures have difficulty attracting an experienced management team before their business has been tested in the marketplace. One way to offset any lack of depth on the management team is to establish a board of advisors and populate it with persons well-known in the business and professional community. Often, advisors become more interested in the business and can be recruited to join the management team. Alternatively, they may introduce you to qualified management candidates.
Marketplace and the Competition
The marketplace and competition section helps you understand and define your market, the demographics and psychographics of your target customers, your competitor's products or services, and your business risks.
Describe the target market for your product or service and the trends in your industry. For example, your market may be consumers between 25 and 40 years of age in the Rocky Mountain states or the upscale furniture industry in Chicago. ...
--This text refers to an out of print or unavailable edition of this title.
