Step 2: Planning Stage, Writing a Business Plan
Why create a business plan? Creating a business plan can be one of the most eye-opening times for you as an entrepreneur. Many of you will find that this stage is fun and easy, while others will find this stage hard and painful. Regardless of which group you fall into, this is a necessary stage for most businesses. There are several reasons to create a business plan, below are just a few of these reasons: 1. To map out the feasibility of your business. 2. To present to potential financial backers when you are looking for funding. 3. To get a good idea of what kind of costs you can expect in the start-up phase and how long it will take to break-even on those costs. 4. To do a mock-run of your business on paper. Sometimes it’s easier to think of writing a business plan as doing homework before the big test. As you probably found out early in grade school, if you properly prepare for a test, then the test was usually pretty easy. The same concept can apply to creating a business plan. Doing your homework, thoroughly and completely, before you launch a business can make the start-up phase of your business go much smoother and easier. It’s essentially another form of an insurance policy; you are insuring yourself against potential failure and you increase the chances of success by fleshing out many of the unknowns. Major components of a good business plan A good business plan will be: • Well thought out • Concise, clear, and structured properly • Free of fluff and baseless assumptions • An illustration of your abilities as a manager • A roadmap to show that your business can turn a profit All of this is especially true if you are seeking funding from a bank or funding from other sources, such as Angel Investors or Venture Capitalists (VC). Outside investors will want to see that the cash flow of your business will exceed the expenses and have enough money left over to allow the business to grow. Many times you will find that a Small Business Administration (SBA) loan is right for you, while at other times you may find that you need more than an SBA loan can provide…so, you must look towards more non-traditional sources like those mentioned above, Angels and VCs. Regardless of your need for a plan, there are some major components that all people will want to see and read, even if you aren’t seeking outside funding you should still have these components. Below are some standard components of a business plan. You may find that you need to add more components; the ones below are really considered the minimum necessary. 1. Executive Summary – This section is meant to summarize the most important aspects of the plan. This is a concise overview of the business plan outlining your general idea and concept. This should not be more than two typed pages and should be written last; after the entire plan is complete. The idea here is that someone can read the Executive Summary and get a good feel for you, the business, and the plan. 2. Business/Company Description – This section describes the general make-up of your business. You should outline the history, goals and mission of your business, an in-depth description of your business and the industry, what type of business model you will operate, major assets, the present outlook and future possibilities of your business. After reading this section, people should fully understand what you are trying to accomplish and the industry you plan to operate within. 3. Product/Service Description – This section should fully outline the products or services you plan to market and sell. Make it clear how you plan to monetize this business. 4. Market Analysis – This is where you demonstrate that you fully understand the market that you are about to enter. You should outline macro-level market trends and micro-level analysis. You should write about your customers and the need that your business will serve. This section should cover your competition and how you expect to provide products or services that are better/faster/cheaper. You should really take the time to complete a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. Cite all sources of your information. 5. Strategy and Implementation – This is where you will discuss a strategy for implementing your marketing efforts and how you will get your products or services to your customers. This is typically where you will discuss your marketing goals and a timeline for implementation. You should be specific here and discuss who is responsible for these items, the budget that is allotted towards these items, and a timeframe. 6. Management Team – This section should include the background and experience of any key members of the management team. This section may only contain info about you, which is fine, but it needs to be included. Discuss the management team’s ability to run the proposed business and highlight key points of experience. 7. Financials – This should outline at least the first 2 years of financials for the proposed business. You should include a profit and loss statement, cash flow, income statement, balance sheet, break-even analysis, return on investment (ROI), explanation of business cost and profit assumptions (to back up numbers). This section will really help you flesh out how much cash you will need to start the business and when you can expect to turn a profit. Different options for crafting your plan Many people start out writing the business plans themselves, without much outside help. They will either buy business plan software and/or follow an outline of a business plan that they found online or received from a friend/acquaintance. Many times this strategy is fine and it suits the entrepreneur’s needs. However, many times people get frustrated and find the process more difficult than originally thought or they find that most of the information they need is not readily available. We recommend a multi-pronged approach. We recommend that you do the first draft yourself. This is so that you get a good understanding of the market and the business feasibility. Either find a good template to work from or purchase some business plan software. After you’ve taken a first cut at it, we recommend that you seek outside help/counsel. Whether that help is from a trusted friend, family member, of professional, you should always get the opinion and review of an experienced person who is as unbiased as possible. If you are seeking funding from a bank, the SBA, Angel Investors, or VCs, you should definitely seek the help of a professional. Many times you will find that a professional is reasonably priced for the amount of knowledge and effort you get. You cannot afford to have a sub-par business plan when seeking funding. You should talk with several professional business plan services; get different opinions and price quotes. See if you get along with the person and if you trust them. Many times, these same companies that can help you craft a solid business plan can introduce you to other funding options that you may not have considered or heard about. A business plan is only as good as the effort put into it. Take the time to craft a solid business plan. Map out your business and determine the feasibility before you sink a lot of money and effort into it. Once you’ve written a solid plan, it’s time to get the financing you need.