January’s Question of the Month

Q: I think I need a business plan. Can you recommend a book or some other source to help me develop a business plan?

- Dennyse, Waukegan, IL -

A: There are about as many ways to write a business plan as there are types of businesses, but all plans contain about the same basic information.  Most good business plans start with an executive summary and contain sections describing your business, marking information, financial information and management. A great place to get started is the Small Business Administration (SBA) website at www.sba.gov. There are also hundreds of real business plans to view at www.businessplanarchive.org. You can even find several sample plans to help you get started in newer versions of Microsoft Office.

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Business plans 101.

What is a business plan? At its core, a business plan is essentially a blueprint or a roadmap of your business’s future. It describes what you hope to do and how you plan to do it. It defines your business, identifies your goals, and serves as your business’s resume. Often business plans are used to convey your vision to potential investors, as well as to attract key employees, prospect for new business, or to gain a better understanding of how to manage your business.

Who needs a business plan? Just about anyone who is starting a business or expanding a business venture should create some kind of plan. If your business is only a hobby or you’re just moonlighting from your day job with no intention of ever taking things to the next level, then you probably don’t need one. For virtually everyone else in business, they’re a must. Many great businesses were once just great business plans that were smartly used to convince potential investors of their financial viability. But don’t think that all business plans are produced by optimistic entrepreneurs. Many plans are written by existing companies looking to expand a product line or division and are seeking additional funding from potential investors. Most established companies also use them as a guide to keep themselves focused on their core business.

What goes into a good business plan? It depends on who you ask, but generally speaking there are four main sections to the body of any business plan:

1. Business concept - This is where you describe what your business is all about, what product or service you will provide, the need your business fulfills, your business structure, and how you plan to succeed. If you’re opening up a flower shop, this part will be easier to explain to investors than if you’re introducing a groundbreaking or technological advanced product.
2. Marketing information - In this section, you’ll analyze potential customers, examine the current marketplace and competition, express your positioning, and explain how your business will reach your targeted customers (e.g. advertising, public relations, etc).
3. Financial information - Here you’ll get into the real financial heart of your business. Depending on your industry, this section usually contains your balance sheet, income, cash flow statement, sales forecasts, previous tax returns and other important financial documents.
4. Management information - If investors are going to be putting their hard-earned dollars behind your business, they’re going to want to know who’s driving the boat and what kind of experience they have. Make sure to emphasize all key members of management and what makes their backgrounds unique and vital to your success.

The executive summary: the most critical piece. The executive summary is without a doubt the single most important piece of any good business plan. It is a compact version of the entire plan designed to quickly grab the attention of potential investors in only a few short pages. It appears first in every business plan, but it is usually best written last after you have completed your entire plan. Sadly enough, you can have the greatest business plan ever written, but most investors will only ever read your executive summary. If they’re still interested, then will they crack open and analyze the rest of your plan.

Writing the executive summary. In your summary, make sure to clearly spell out what sort of company you have, what the product/service is, who the managers are, how much money you need, and how it will be spent. If you make an investor struggle to understand your business or what you want, it’s just an easy reason for them to say “no.” But you also don’t want to bore investors or lenders either. They might get dozens of business plans every week. So try to generate interest and excitement by focusing on the uniqueness of your business opportunity.

Know your audience. Unless you have a rich relative or friend that is going to finance your business, you’re likely going to need to impress potential investors. Put yourself in their shoes and think about what they’re going to want to know and see. Everyone wants to find the next Google^® or Microsoft^®, but not everyone is going to understand your industry and why your particular business will take off and flourish. You’ll need to express, without a lot of buzzwords or jargon, why you are a smarter choice and why they’ll be able to make a lot of money by investing with your particular business.

How long should a plan be? Most experts agree that the accepted length of a business plan should be around 50 pages. If it is too long, no one will ever get all the way through it. If it is too short, it will seem like you haven’t put enough thought into your venture. Obviously, some business concepts will require more explanation than others and 50 pages is only a guideline for editing purposes. No real investor is going to knock you for being slightly over or under. They will be more focused on the content and what you have to say over how long it takes you to say it.

Don’t reinvent the wheel. Unless you’re introducing a brand new category of a product or service, there’s no need to start writing your business plan from scratch. There are literally thousands of plans available for free in books and on the Internet that you can model yours after. See www.businessplanarchive.org or www.Bplans.com to get started. Find a plan that is similar to your type of business and try to deliver the same information without plagiarizing it. You’ll also find that there is plenty of helpful business plan software available these days. If you have a newer version of Microsoft Office^®, there are even several sample plans included in the new document formats.

Don’t wait until you need it. You may have been able to pull off all-nighters in college, but this is one project that’s best done with plenty of time and care. Well-crafted business plans take a lot of hours, financial analysis and research to be done right. Many smart businesses still have their startup plan and update it every so often as the marketplace and their business dictate. Plus, there’s nothing worse than having an interested investor tell you to send over your business plan tomorrow and not have one (or have it be woefully out-of-date).

Be honest. Most savvy investors will see through any smoke and mirror tricks or glassy-eyed optimism you dish out. If your business sounds a little too good to be true, investors will doubt your credibility. If your business ever struggled at times, talk about how you met those challenges and overcame them and still wound up smelling like a rose. Investors will want to know how you’ll deal with adversity.

Internal plans. Business plans are also great tools for internal company use. You probably don’t need a section describing the company or management team here, but detailed financial projections can easily translate into forecasts and budgets. Plus, internal business plans can and should be revisited from time to time to keep your company on track and make sure your compass is still pointed north.

Proofread, proofread, proofread. Nothing ruins your credibility faster than a typo or two in your executive summary. Have several sharp eyes read and re-read your business plan to check for errors and a level of professionalism throughout. Also, be sure your final plan is nicely bound and presents itself and your company in a professional way without going over the top.

(4 votes, average: 5.00 out of 5)

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