Business Plan – Extended
A business plan defines your business, identifies your goals, and serves as your company’s resume. The main components include a current and future (pro forma) balance sheet, a current income statement, and a cash flow analysis of your business. This will help you to allocate business resources properly, to handle unforeseen events, and to make good, solid business decisions. Because the business plan provides specific and detailed information about your company and (as an example) how you will repay a loan, a good business plan wil be a crucial part of any loan application at a bank. Additionally, it will inform your sales personnel, your suppliers, and other 3rd parties about your operations and business goals.
The importance of a comprehensive, detailed business plan can’t be overemphasized. Many important things depend on it: external funding, credit lines from suppliers, management of your operations and finances, promotion and marketing of your business, and finally achievement of your goals and business objectives.
If you are tempted to start a business without having a business plan, you will be very likely in trouble running a successful operation. A business plan is like a blue print of your business. Imagine a builder who starts building your new house without having a blue print. Writing these things down, is not the most fun event a new business owner wants to do. Make sure you spent the time and research to create a solid business plan.
Before you begin writing your business plan, consider four important questions:
What service or product does your business provide and what needs does it try to fill?
How will you attract your potential customers?
Who are the potential customers for your products and/or service and why should they purchase it from you?
Where will you get the financial resources (cash, loan, etc.) to start your business?
How does a business plan looks like?
1. Cover sheet
2. Statement of purpose
3. Table of contents
-> The Business
A. Description of your business
B. Marketing Strategy and Plan
C. Who is your competition
D. Operating procedures
E. Personnel / Staff
F. Business insurance
-> Financial Data
A. Loan applications
B. Capital equipment and supply list
C. Balance sheet
D. Breakeven analysis
E. Pro-forma income projections (profit & loss statements)
Detail by month, first year
Detail by quarters, second and third years
Assumptions upon which projections were based
F. Pro-forma cash flow
-> Additional Documents
– Tax returns of principals for last three years Personal financial statement (available at your local bank)
– For franchised businesses, a copy of the franchise contracts and all supporting documents provided by the franchisor
– Copies of letters of intent from suppliers, etc. (if available)
– Copy of proposed lease contract or purchase agreement / contract for office space
– Copy of all business licenses and other legal documents (if related to the business)
– Copy of resumes of all principals / company officers
If you start a new business and do not have financial data going 3 years back, you can substitute this with solid statements of your current situation. Described above is the ideal case – adjustments need to be made if necessary. Be detailed – it’ll be to your own favor. Ask your bank so that you can work with their small business specialists. Regular tellers might be friendly, but you want to make sure that you get decent information.
What makes a good business plan?
Is it the length of a business plan? The information it contains? How well it is written, or the brilliance and excellence of the strategy it describes?No.
A business plan will be very difficult to execute unless it is simple, very detailed, realistic and complete. Even if the business plan has all the items listed, a good business plan will need someone to follow up with and check on it, too. The plan also depends on the human elements it’s build on, particularly the process of commitment and involvement.
Successful implementation for your business starts with a good business plan. There are several elements that will make your business plan more likely to be successfully implemented.
Is the plan simple and easy to understand and to act on? Does it communicate its contents easily and practically and is it making sense?
Is the plan specific and detailed? Are its objectives concrete and measurable? Is the plan realistic? Are the sales goals, the expense budget, and milestone dates realistic? Nothing prevents implementation more like unrealistic business goals. Can you achieve your set goals?
Is the plan complete at all? Does it include all the necessary elements to be successful? Requirements of a business plan may vary, depending on the actual context. There is no guarantee, that the plan will work as planned if it doesn’t cover the main bases.
Preparing the business plan has to be an organized, logical way to look at all of the important aspects of a business. Don’t use a business plan to show how much you know yourself about your business. Nobody will read a long-winded, too detailed business plan: not your bank, nor venture capitalists. Years ago, people were favorably impressed by long business plans. Today, nobody is interested in a business plan that is more than 40 or 50 pages long. Don’t waste your time and the time of others by writing a book. Write a business plan that impresses and that is short-while.
Do I need a business plan if I’m not seeking financing?
For your small business to succeed, you need to know where you’re going and how you’ll get there. Creating a business plan forces you to set your own goals, determine the resources you will need to execute your business plan, and to foresee problems that might otherwise broadside you and would prevent you from being successful.
If your business plan is not being used to solicit funding you can create an informal plan only, that serves primarily as a planning tool for yourself and a tool that will keep you on track. An informal plan can also be used to be shown to potential business associates and partners.
How do investors and bankers read a business plan, and what do they look for?
Don’t expect every person you will give your business plan to read it thoroughly. In fact, you really can only count on them to skim it. Investors and bankers know what they’re looking for in a business plan – they want to see a business that will grow rapidly and someday return a handsome profit. Bankers want to see a business that will be able to pay off the loan they are granting. Venture capital firms, for example, expect to receive an average of five times their original investment within 5 to 7 years.
Keep in mind that investors rarely put money into a “product” — they invest in a business. Many great products have floundered because the inventors did not understand how to get people to buy them. So be sure to show that you understand how to market your product or service. If your banker does not understand your business model, he will not grant you the loan you are looking for.
How long should my business plan be?
30-40 pages should suffice. Anything longer than that and you risk alienating a potential investor, or you force them to skim through the document rather than read it. You won’t be impressing anyone by creating a 200-page document – what’s contained in the plan is much more important than how long it is. The more concise, detailed, and readable your business plan is, the more focused your business will appear. Focus on those details that tell your business’ story, that set you apart from your competition, that make your business appear to be a good, solid financial investment, and that show you will be profitable.
With the fast changes taking place in industry and society, how can a business plan be helpful if it is quickly outdated?
A well written and researched business plan will not only prepare your company for today’s business and market conditions but tomorrow’s unforeseen events. All business plans should have a contingency section to accommodate for the future. Your business plan is a plan that will not just sit on the shelf for 12 months but will always be updated when new market conditions or strategic changes take place. Plan your changes thoroughly. Running a business requires patience – making changes too often and to fast might result in your business going down faster than you can re-write your business plan.
Do the readers of my business plan need to sign a non-disclosure agreement?
A non-disclosure agreement can raise red flags with your intended audience. A seasoned banker or investor is bound by client confidentiality and may find a NDA insulting. Secondly, if the business needs to protect its ideas and concept at this stage of the game than there may not be any barriers to entry for others to enter the market. A simple confidentiality clause at the front of the plan should suffice. If you are selling your business or if you are seeking a strategic alliance/partnership, a non-disclosure may be necessary. If in doubt, consult with your lawyer.