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How to Get StartedYou have the option of calling our office and letting one of our senior business consultants take your order over the phone or clicking on the links to PayPal and ordering online. In any event, we are always available to give you assistance. We believe a business plan that always works starts by defining the true end result. What do you want your business to provide you and at what mile stones? What will it look like when the business is complete? Once you understandwhat you are creating, then you can go to work creating a successful business plan to launch your entrepreneurial vision. If you need help starting your business plan, developing a plan to get funding, or understanding all the essential elements of a successful business plan, then contact us. The steps you should take: I. Overview of the Business A. Description of business's products or services B. How the business markets or sells its products or services C. Who the business competes with--both directly and indirectly D. Special operating procedures used by firm E. Descriptions of people working in firm (both headcounts and types of employees) F. Risk management issues (such as insurance, bonds, and so forth). II. Financial Information A. The completed loan application and any supporting information B. List of fixtures, equipment and other "hard collateral" items that'll secure the loan C. Break-even calculations to show how much revenue the firm needs in order to not lose money D. Pro-forma financial statements including a projected profit and loss statement, balance sheets, and a statement of cash flows. (Commonly, if they're required, you prepare pro forma financial statements on a monthly or quarterly basis for three or five years.) E. Modeling assumptions you base your financial projections on III. Supporting Documentation A. Tax returns of business (if an existing firm) and of business principals for the last two or three years B. Franchise contract and any related documents (if applicable) C. Copy of lease agreement D. Copy other significant legal documents E. Resumes of owners and key personal F. Copies of any material purchase orders, customer or vendor contracts, letters of intent from suppliers, etc. Writing a Business Plan for InvestorsIf you want to write a business plan for an angel investor or a venture capitalist, you take a different approach from that used when you write a business plan for a bank. Business plans for outside investors like venture capitalists and angel investors, boiled down to their very essence, answer the following five questions that these prospective investors need to answer in order to decide whether they should invest: Is a firm's product or service feasible?For example, can the technology really be developed? Is the necessary legal and regulatory approval obtainable? Does the process work in practice? Obviously, if a firm is already operating, this question doesn't need to be asked and answered. But for many types of new ventures--especially technology companies--the question does need to be discussed. Do customers want the product or service?This question seems silly, maybe, but potential customers ignore many interesting and seemingly useful products and services. Ideally, you can show that clients or customers are already buying a product or a close substitute that is inferior to what you're going to offer. In some situations, you may need to rely on market research or focus group studies to show that people want what you're selling. Is the basic transaction profitable?Even if you have a feasible product that people want, you need to prove the item can be sold at a profit. Predictably, the way you answer this question is by providing a business pro forma financial statement that provides enough detail and goes far enough into the future that potential investors can confirm your venture is ultimately profitable. Is the return on investment adequate?Even profitable-on-paper businesses don't really work if they require too much capital relative to their profits. New businesses, therefore, must generate acceptable returns on investments. Different categories of venture investors have different acceptable return thresholds. For example, wealthy individuals, or angel investors, may happily accept 20-25% annual returns, while professional investors, like venture capitalists, may expect at least 35-40% annual returns.) Note: These returns get compounded annually. Using the example numbers given in the preceding paragraph, for example, an angel investor may want to double his or her money every three years. And a venture investor may want to double his or her money every two years. One related note: Different sorts of investors often prefer to make different-sized investments in new ventures. An angel investor, for example, might be comfortable investing $25,000 or $50,000 (perhaps in collaboration with several friends). A venture capitalist might not be able to look at investments of less than $1,000,000. Can the management team operate the business?Even if you can answer yes to the first four questions, that's not really enough. A new venture will probably fail if the management team lacks the skills to successfully run the business. So the last part of a business plan written for an outside investor needs to describe the management team and why they're likely to succeed at executing a wildly successful business plan. The ideal answer to this fifth question is, of course, to be able to show through past performance that the management team has successfully run a similar business. I think you could use these five questions (or edited versions of the five questions) as the highest level headings in a new venture plan. A few paragraphs of well-written answers to the asked business planning question will give you a better business plan than most newbie entrepreneurs write. The only other headings you might want to add to such a new venture plan would be for an introduction and an executive summary. Tip: A neatly, manually bound new venture plan is often 20-25 pages in length. How to Write a Business Plan for Raising Venture Capital Are you looking to
raise venture capital? Hook them on the first page. Most investors are inundated with business plans. Your first page must make them want to keep reading.
Be brief. The executive summary should be 2 to 4 pages in length. The purpose of the executive summary of the business plan is to provide your readers with an overview of the business plan. Think of it as an introduction to your business. Therefore, your business plan’s executive summary will include summaries of:
Company Analysis Give some history. Provide the background on the company, including date of formation, office location, legal structure, and stage of development.
Industry Analysis Goal of the industry analysis section: Prove that there is a real market for your product or service.
Use independent research. If possible, source research through an independent research firm to enhance your credibility. For general market sizes and trends, we suggest citing at least two independent research firms.
It’s not just a research report – each fact, figure, and projection should support your company’s prospects for success.
Be prepared for due diligence. It’s critical that the data you present is verifiable, since any serious investor will conduct extensive due diligence. Customer Analysis
Detail their demographics. How many customers fit the definition? Where are these customers located? What is their average income? Identify the needs of these customers. Use data to demonstrate past actions (X% have purchased a similar product), future projections (X% said they would purchase the product), and/or implications (X% use a product/service which your product enhances). Explain what drives their decisions. For example, is price more important than quality? Detail the decision-making process. For example, will the customer seek multiple bids? Will the customer consult others in their organization before making a decision? Competitive Analysis List competitors. Many companies make the mistake of conveying that they have few or no real competitors. From an investor’s standpoint, a competitor is something that fulfills the same need as your product. If you claim you have no competitors, you are seriously undermining the credibility of your plan. Include direct and indirect competitors. Direct competitors serve the same target market with similar products. Indirect competitors serve the same target market with different products, or different target markets with similar products. List public companies (when relevant, of course). A public company implies that the market size is big. This gives the assurance that if management executes well, the company has substantial profit and liquidity potential. Don’t just list competitors. Carefully describe their strengths and weaknesses, as well as the key drivers of competitive differentiation in the marketplace. And when describing competitors’ weaknesses, be sure to use objective information (e.g. market research). Demonstrate barriers to entry. In describing the competitive landscape, show how your business model creates competitive advantages, and – more importantly – defensible barriers to entry. Marketing Plan Focus on the 4 P’s. They are: Products, Promotions, Price, and Place. Products. Detail all current and future products and services – but focus primarily on the short-to-intermediate time horizon. Promotions. Explain exactly which marketing/advertising strategies will be used and why. Price. Be sure to provide a clear rationale for your pricing strategy. Place. Explain exactly how your products/services will be delivered to your customers. Detail your customer retention plan. Explain how you will retain your customers, whether through customer relationship management (CRM) applications, building network externalities, introducing ongoing value-added services, or other means. Define your partnerships. From an investor’s perspective, what partnership you have with whom is not nearly as important as the specific terms of the partnership. Be sure to document the specifics of the partnerships (e.g. how it will work, the financial terms, the types of customer leads expected from each partner, etc.). When writing the business plan, the Marketing Plan section explains how you're going to get your customers to buy your products and/or services. The marketing plan, then, will include sections detailing your:
The easiest way to develop your marketing plan is to work through each of these sections, referring to the market research you completed when you were writing the previous sections of the business plan. Products and/or Services This part of the marketing plan focuses on the uniqueness of your product or service, and how the customer will benefit from using the products or services you're offering. Use these questions to write a paragraph summarizing these aspects for your marketing plan: What are the features of your product or service? Describe the physical attributes of your product or service, and any other relevant features, such as what it does, or how your product or service differs from competitive products or services. How will your product or service benefit the customer? Remember that benefits can be intangible as well as tangible; for instance, if you're selling a cleaning product, your customers will benefit by having a cleaner house, but they may also benefit by enjoying better health. Brainstorm as many benefits as possible to begin with, and then choose to emphasize the benefits that your targeted customers will most appreciate in your marketing plan. What is it that sets your product or service apart from all the rest? In other words, what is your Unique Selling Proposition, the message you want your customers to receive about your product or service that is the heart of your marketing plan? The marketing plan is all about communicating this central message to your customers. Management Plan When writing the business plan, the Management Plan section describes your management team and staff and how your business ownership is structured. People reading your business plan will be looking to see not only who's on your management team but how the skills of your management and staff will contribute to the bottom line. A convenient way to organize the Management Plan section of your business plan is to break it into sections detailing your:
The Ownership Structure section describes the legal structure of your business. It may be a single sentence if your business is a sole proprietorship. If your business is a partnership or a corporation, it may be longer; you want to be sure you explain who holds what percentage of ownership in the company. The Internal Management Team section will describe the main business management categories relevant to your business, identify who's going to have responsibility for that category, and profile that person's skills. The basic business categories of Sales and Marketing, Administration and Production work for many small businesses. You may find that your company needs additional management categories such as Research and Development and/or Human Resources. Operations Plan Concept vs. reality. The operations plan transforms the business plan from concept into reality. Investors do not invest in concepts; they invest in reality. And the operations plan proves that the management team can execute on your concept better than anybody else. Everyday processes. Detail the short term processes and systems that provide your customers with your products and services. Business milestones. Lay out the significant long-term business milestones for the company, and prove that the team will execute on the long-term vision. A great way to present the milestones is to organize them into a chart with key milestones on the left side and target dates on the right side. Be consistent. Make sure that the milestone projections are consistent with the rest of the business plan – particularly the financial plan. Be aggressive but credible. Presenting a plan in which the company grows too quickly will show the naiveté of the management team, while presenting too conservative a growth plan will often fail to excite an early stage investor (who typically looks for a 10X return on her investment). The operating plan section describes the physical necessities of your business' operation, such as your business' physical location, facilities and equipment. Depending on what kind of business you'll be operating, it may also include information about inventory requirements and suppliers, and a description of the manufacturing process. Keeping focused on the bottom line will help you organize this part of the business plan; think of the operating plan as an outline of the capital and expense requirements your business will need to operate from day to day. You need to do two things for your readers in the operating section of the business plan: show what you've done so far to get your business off the ground (and that you know what else needs to be done) and demonstrate that you understand the manufacturing or delivery process of producing your product or service. So divide the operating section of the business plan into two parts, starting with the Stage of Development section. In this section, describe how your product or service will be made, and identify the problems that may occur in the production process. Then show your awareness of your industry's standards and regulations by telling which industry organizations you are already a member of and/or which organizations you plan to join, and telling what steps you've taken to comply with the laws and regulations that apply to your industry. Explain who your suppliers are and their prices, terms, and conditions. Describe what alternative arrangements you have made or will make if these suppliers let you down. Explain the quality control measures that you've set up or are going to establish. When you're writing this section of the operating plan for the business plan, start by explaining what you've done "to date" to get the business operational, followed by an explanation of what still needs to be done. Follow this with a subsection titled "Risks" that outlines the potential problems that may interfere with the production process and what you're going to do to negate these risks. The rest of the development stage part of the operating plan will be divided into subsections such as "Industry Association Membership", "Suppliers" and "Quality Control". Financial Plan Goal of the financial plan: Explain how your business will generate returns for your investors. Detail all revenue streams. Be sure to include all revenue streams. Depending on the type of business, these may include sales of products/services, referral revenues, advertising sales, licensing/royalty fees, and/or data sales. Be consistent with your pro-forma statements. Pro-forma statements are projected financial statements. It is critical that these projections reflect the other sections of your business plan. Validate your assumptions and projections. The financial plan must detail your key assumptions, and it is critical that these assumptions are feasible. Be sure to use competitive research to validate your projections and assumptions versus the reality in your market place. Assessing and basing financial projections on those of similar firms will greatly validate the realism and maturity of the financial projections. Detail the uses of funds. Understandably, investors want to know what, specifically, you plan to do with their money. Uses of funds could include expenses involved with marketing, staffing, technology development, office space, among other uses. Provide a clear exit strategy. All investors are motivated by a clear picture of your exit strategy, or the timing and method through which they can “cash in” on their investment. Be sure to provide comparable examples of firms who have successfully exited. The most common exits are IPOs or acquisitions. And while the exact method is not always crucial, the investor wants to see this planning in order to better understand the management team’s motivation and commitment to building long-term value. Above all, the business plan is a marketing document that helps to sell the investor on the business opportunity, the management team, the strategy, and the potential for significant return on investment. Think of your business expenses as broken into two categories; your start up expenses and your operating expenses. All the costs of getting your business up and running go into the start up expenses category. These expenses may include:
This is just a sampling of start up expenses; your own list will probably expand as soon as you start writing them down. Operating expenses are the costs of keeping your business running. Think of these as the things you're going to have to pay each month. Your list of operating expenses may include:
Once again, this is just a partial list to get you going. Once you have your operating expenses list complete, the total will show you what it will cost you to keep your business running each month. Multiply this number by 6, and you have a six month estimate of your operating expenses. Then add this to the total of your start up expenses list, and you'll have a ballpark figure for your complete start up costs. It's at the end of your business plan, but the financial plan section is the section that determines whether or not your business idea is viable, and is a key component in determining whether or not your business plan is going to be able to attract any investment in your business idea. Basically, the financial plan section of the business plan consists of three financial statements, the income statement, the cash flow projection and the balance sheet and a brief explanation/analysis of these three statements. Raising venture capital is a difficult and time-intensive challenge. There is no easy shortcut or silver bullet. However, you can greatly improve your chances of raising venture capital by writing a business plan that speaks directly to the investor’s perspective. How much information you provide in this section depends on the purpose of your business plan. If you are seeking funding, you will want to provide more detailed information. At the very least you should include your profit and loss history and projections as well as your statement of cash flows. You may also decide to provide important summary information in this section in the way of tables, with statements that support the number in your tables referenced in your appendix section. You may need an accountant to prepare these statements correctly, if they haven't been prepared already. You'll want to include both historical financial statements and forward-looking financial statements. Your projected and historical profit and loss information is especially important. Be sure to explicitly state any assumptions made in your calculations for future performance |
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