💾 Archived View for gmi.noulin.net › mobileNews › 2160.gmi captured on 2023-06-14 at 17:11:50. Gemini links have been rewritten to link to archived content

-=-=-=-=-=-=-

How to Write a Great Business Plan

2010-06-30 15:37:30

Advice for small businesses on what it takes to create a solid business plan,

including forming an outline, integrating financial specifics, and spelling out

your marketing strategy.

A great business plan is a living, breathing blueprint for your business that

can help you navigate and manage your company while also helping potential

investors, partners, lenders, and others understand your business strategy and

your chances at success. A business plan is never quite finished because you're

always revising it, reviewing it, and building upon it. In fact, more important

to your business' future than having a written, 30-page, coil-bound plan to

distribute is the business planning process that you undertake on a regular

basis to hopefully keep your ship headed in the right direction without losing

sight of your long-term destination.

"In my company, we ve been working on the same plan for more than 20 years --

we review it every month and revise it every year. We ve printed it out a dozen

times and shined and polished it. We share it with the team constantly, but it

is never done," says Tim Berry, president and founder of Palo Alto Software,

maker of Business Plan Pro software, who blogs at bplans.com. "When your

business plan is finished, your company is finished."

The following pages will help you understand why you should write a business

plan, components to include in a business plan, and how to use the plan

internally to meet your business goals.

Dig Deeper: Setting Company Goals

How to Write a Great Business Plan: Reasons to Write a Business Plan

For those of you just starting a business, writing a business plan is a crucial

first step. It can help you describe your product or service, detail your

marketing strategy, and lay out your sales and operational forecasts --

including the ever important cash-flow projection so as to keep your business

on track for profits. Putting these plans in writing can hopefully start a

healthy business planning process that your business revisits on a regular

basis, updates, and revises.

If outside investment or loans are sought, whether from venture capitalists or

bankers or others, a business plan is essential. It's one of the first

documents that a loan officer will want to see. In addition, an angel or

venture capital investor will want to not only see and read the plan before

providing funding, but they'll try to poke holes in your business plan and quiz

you about things you should have addressed. For the purpose of financing, you

may add certain sections to your business plan, including background and

historical information about the business and a description of the management

team leading the organization.

"Show investors how they are going to make money," Berry says. "Don t confuse

the health of your company with money for the investors, because they don t

make a dime if your company is healthy and growing. To get money back to the

investors they have to be able to sell their shares in your company, either

because you ve sold shares on the public stock markets (called going public, or

initial public offering) or because you ve been acquired by another company.

This is the exit strategy."

If you re developing a plan involving a business loan, then your lenders are

going to want something slightly different. They will want to see a section

detailing collateral -- assets to pledge against the loan. Collateral includes

funds to support loan payments, interest expenses, and debt repayment, Berry

says. Banks aren t allowed to make speculative loans, so you need to include

information in your plan to make the banker feel safe.

A business plan may also be required if you plan to do business overseas. "If

you do business interna tionally, a business plan provides a standard means of

evaluating your products business potential in a foreign marketplace," says

Linda Pinson, author of Automate Your Business Plan for Windows and Anatomy of

a Business Plan, who runs a publishing and software business Out of Your Mind

and Into the Marketplace. Pinson also was selected by the U.S. Small Business

Administration to write its government business plan publication.

But a business plan is not only for start-ups or businesses seeking investment

or loans. A business plan can also be used by any business -- no matter what

industry, location, or size -- to formalize a set of business goals and outline

the operational and financial strategy for meeting those goals. A formal

business plan can be a vital tool for running a business, setting out sales

forecasts, marketing plans, and cash flow statements that can be revisited and

updated every month.

"It helps provide coordination. It's a way that different people can work

together on a team," Berry says. "There is a magic to metrics. Humans like to

have a way to measure themselves and track their own progress toward goals

rather than being completely subject to someone's guess later as to how they've

done."

Dig Deeper: Setting Realistic Sales Projections

How to Write a Great Business Plan: Components of a Business Plan

There are scores of websites these days on the Internet that offer to sell

business plans for $20 or more, designed to let you enter your company name and

specifics and generate a plan. These are about as valuable as the paper they're

printed on, says Berry. The reason is that each business is unique and,

therefore, each business plan should be a unique document to be truly

worthwhile to the business. A business owner should also be fully invested and

fully aware of every aspect of the plan. That said, there are some general

guidelines and structures that most business plans should follow.

Lay out the text simply using an easy-to-read font, in an obvious outline, with

a table of contents and topic headers. Include charts where appropriate, and

appendices for monthly projections at the end of the business plan document in

a landscape layout.

"Your business plan should look professional, but the potential lender or

investor needs to know that it was done by you," Pinson says. "A business plan

will be the best indicator that can be used to judge your potential for

success. It should be no more than 30 to 40 pages in length, excluding

supporting documents."

Dig Deeper: Why You Can't Afford to Skip Out on a Business Plan

How to Write a Great Business Plan: The Business Plan Outline

Pinson recommends starting a business plan with a cover sheet stating the

principles of the business, the name of the business, and the address of the

business. She also suggests following with a table of contents to provide a

quick reference guide to the topics covered in your plan.

The following are recommended components of your business plan, although the

order in which you write and present these sections can be subject to change:

Executive Summary -- This is the abstract of your business plan, a summary of

everything you will say in greater detail in the ensuing pages. It spells out

the content and goals of your plan, hitting all the highlights. This section is

key if you are seeking outside funding as it introduces possible investors to

your business. Be sure to include background about your company, the market

opportunity, your capital requirements, a mission statement, an overview of

management, competitors, your business' competitive advantages, and a summary

of your financial projections over the next three years. "Some people write the

executive summary first, but I would never do that," Pinson says. "I would go

through and write my plan first and come back to the executive summary." Keep

this to no greater than three or four pages.

Company Overview -- The company overview is designed to provide more

information about your business, why and when it was formed, its mission,

business model, strategy, and any existing strategic relationships. Pinson

recommends including this section as part of an Organizational Plan that also

covers administrative issues, such as intellectual property you may own, costs

associated with your location, the legal structure of your company, management,

personnel, and how you address accounting, legal, insurance, and security

matters.

Business Offering -- Here's where you talk about why you're in business and

what you're selling, whether it's products and/or services. If you sell

products, state whether you are the manufacturer, distributor, and/or retailer

or a product and tell about your manufacturing process, availability of

materials, how you handle inventory and fulfillment, etc. If you provide

services, describe those services. Make sure to address any new product lines

or service lines that you expect to enter into in the future.

Marketing Plan and Analysis -- In this section, you spell out your marketing

strategy, addressing details of your market analysis, sales, customer service,

advertising, and public relations. Many businesses use this space to showcase

their vision of why their business will be successful, backing that up with

market research that identifies their target market and industry and customer

trends. But sometimes small and mid-sized businesses don't have the deep

pockets to hire outside firms to undertake exhaustive market research. "A

sizeable majority of smaller entrepreneurial companies are going to bet the

company on their own sense of the market without the validation of outside

research," Berry says. In lieu of research, Berry, who sits on a panel of angel

investors, the Willamette Angel Conference, says companies can provide

testimonials from existing customers.

Strategy and Implementation -- Every business plan needs details. This

section is where many should go. "This is where I'm going to be looking as an

investor for dates and deadlines," Berry says. "I'll be looking for things

we'll be able to track. When you're going to be able to do the first release,

how many visitors are you going to get on the Web, etc." Make sure to include

the details in a table called "Milestones." That table should lay out the dates

and deadlines. This is also a section in which to include your sales forecasts,

Berry says.

Management Team -- If writing the business plan for investors or bankers, you

want to explain the background of your company executives and managers and

explain how that will help you meet business goals. "For investors, it's an

important element to include who these people are and what their experience

is," Berry says. "Investors need to evaluate risk, and the general assumption

is that management team experience greatly affects risk. The more seasoned the

management team, the less the risk." If writing this solely for internal

purposes, you may want to explain how managers expect to grow the staff of the

business in the future to meet business objectives.

Financial Projections -- In the financial section, you provide "the

quantitative interpretation" of everything you stated in your organizational

and marketing sections, Pinson says. She also advises not to write the

financial section until those other sections are complete. This is where you

include your projected profit and loss statements, your balance sheet, and your

cash flow statements for the next three years. "Those are forward-looking

projections," Berry points out. "It's not your accounting." That's often a

source of confusion. The order of the numbers will be very much like they

appear in accounting statements but they will be forecasts for the future.

"Accounting I today backwards into the past," Berry says. "Planning is today

forward into the future."

You may want to include supporting documents to back up statements or decisions

you've made. These should be included in a separate section. These supplemental

materials might include resumes of your managers, credit reports, copies of

leases or contracts, or letters of reference from people who can attest that

you are a reputable and reliable business person.

Dig Deeper: The Executive Summary as a Guiding Light

How to Write a Great Business Plan: Use Your Business Plan Internally

Build in metrics to your business plan so that you can use the document

internally to help manage your business going forward. Berry recommends that

business executives review the business plan regularly to see if they are on

track with expectations or to revise those expectations going forward. "One of

the great mistakes people make is to view the business plan as something you do

once a year and then follow it blindly," Berry says. "That s a damaging myth.

Planning is a continuous process."

Berry advises that executives revisit the plan once a month. "On the third

Thursday of every month, for example, you could go to a conference room and

order in lunch and take an hour or two to look at how your assumptions have

changed, look at your progress," Berry says.

Specifics are vital. A business plan should not be solely about strategy;

include specifics including who s responsible for what, when it happens, how

much your products or services cost, the sales your business will generate,

etc. Business planning is about what s going to happen. Fill your plan with

metrics, measurements and information you can later review. One good test of

this part of the plan is whether or not you ve actually implemented it.

Always include cash flow projections, Berry says. "Businesses live with cash

and die without it. Profits are nice, but you spend cash, not profits."

Profitable companies go bankrupt all the time because they don t have money. It

isn t intuitive, but the math and financial principles involved are not that

hard when you lay out your cash in logical order. "Look at the difference

between making a sale and getting paid for the sale, which is an issue for just

about every business-to-business sale you make," Berry says. "Look at the cash

flow impacted by inventory, which can have you paying for things you buy long

before you get paid for things you sell."

Lastly, if you don t have somebody outside the company reading your plan, then

you might not need to put it out onto paper. "The business plan is the content,

the strategy and the specifics of what is going to happen to your business,"

Berry says, "not the document."

Dig Deeper: Planning for an Economic Rebound