It is a mistake to write a business plan too early. The business plan must be substantive enough and have sufficient details about the merits of the new venture in order to convince the reader that the new business is exciting and should receive support.
Reasons for Writing a Business Plan
There are two primary reasons to write a business plan. Internal reason and external reason.
1. Internal Reason
Forces the founding team to systemically think through every aspect of its new venture. We need to do as much research as possible before developing the products. So that our business won't suffer in the midway.
2. External Reason
Communicates the merits of a new venture to outsiders, such as investors and bankers. So then your business can grow with the help of investors if you catch their interest in your business.
There are two primary audiences for a firm’s business plan. A Firm's Employees and Investors or other external stakeholders.
A. A Firm’s Employees
It is important for both the management team and the rank-and-file employees. A clearly written business plan also helps a firm’s rank-and-file employees operate in sync and move forward in a consistent and purposeful manner.
B. Investors and Other External Stakeholders
Investors, potential business partners, and key employees are the second audience for a business plan. To appeal to this group, the business plan must be realistic and not reflective of overconfidence on the firm’s part. Overly optimistic statements or projections undermine a business plan’s credibility. The plan must clearly demonstrate that the business idea is viable and offers potential investors financial returns greater than lower-risk investment alternatives.
Guidelines for Writing a Business Plan
If the plan is incomplete or looks sloppy, it is easy for an investor to infer that the venture itself is incomplete and sloppy. It is important to be sensitive to the structure, content, and style of a business plan before sending it to an investor or anyone else who may be involved with the new firm.
A. Structure of the Business Plan
Here are the red flags that must be avoided in every Business Plan
B. Content of the Business Plan
It must be long enough to provide sufficient information, yet short enough to maintain reader interest. For most plans, 25 to 35 pages (and typically closer to 25 than 35 pages) are sufficient.
1. Style or Format of the Business Plan
The plan’s appearance must be carefully thought out. It should look sharp but not give the impression that a lot of money was spent to produce it. There are three types of business plans, each of which has a different rule of thumb regarding length and level of detail.
- Summary plan: 10-15 pages. Works best for new ventures in the early stages of development that want to "test the waters" to see if investors are interested in their idea
- Full business plan: 25-35 pages. Works best for new ventures that are at the point where they need funding or financing; serves as a"blueprint" for the company's operations.
- Operational business plan: 40-100 pages. It is meant primarily for an internal audience; it works best as a tool for creating a blueprint for a new venture's operations and providing guidance to operational managers.
2. Recognizing the Elements of the Plan May Change
Recognize that the plan will usually change as it is being written and as the business evolves. New insights invariably emerge when entrepreneurs immerse themselves in writing the plan and start getting feedback from others. This process continues throughout the life of a company, and it behooves entrepreneurs to remain alert and open to new insights and ideas.
Recognize that the plan will usually change as it is being written and as the business evolves. New insights invariably emerge when entrepreneurs immerse themselves in writing the plan and start getting feedback from others. This process continues throughout the life of a company, and it behooves entrepreneurs to remain alert and open to new insights and ideas.
Exploring Each Section of the Plan
Business Plan Outline
Cover Page
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Table of Contents
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I. Executive Summary
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II. Industry Analysis
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Industry Size, Growth Rate, and Sales Projections
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Industry Structure
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Nature of Participants
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Key Success Factors
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Industry Trends
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Long-Term Prospects
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III. Company Description
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Company History
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Mission Statement
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Products and Services
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Current Status
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Legal Status and Ownership
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Key Partnerships (if any)
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IV. Market Analysis
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Market Segmentation and Target Market Selection
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Buyer Behavior
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Competitor Analysis
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Estimates of Annual Sales and Market Share
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V. The Economics of the Business
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Revenue Drivers and Profit Margins
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Fixed and Variable Costs
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Operating Leverage and Its Implications
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Start-up Costs
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Break-Even Chart and Calculation
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VI. Marketing Plan
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Overall Marketing Strategy
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Product, Price, Promotions, and Distribution
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Sales Process (or Cycle)
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Sales Tactics
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VII. Design and Development Plan
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Development Status and Tasks
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Challenges and Risks
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Projected Development Costs
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Proprietary Issues (Patents, Trademarks, Copyrights, Licenses, Brand Names)
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VIII. Operations Plan
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General Approach to Operations
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Business Location
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Facilities and Equipment
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IX. Management Team and Company Structure
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Management Team (Including a Skills Profile)
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Board of Directors
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Board of Advisors
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Company Structure
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X. Overall Schedule
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XI. Financial Projections
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Sources and Uses of Funds Statement
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Assumptions Sheet
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Pro Forma Income Statements
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Pro Forma Balance Sheets
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Pro Forma Cash Flows
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Ratio Analysis
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Appendices
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1. Cover Page and Table of Contents
The cover page should include the company’s name, address, and phone number; the date; the contact information for the lead entrepreneur; and the company’s website address if it has one.
- At the top of the page, you should include the contact information (a land-based phone number, e-mail address, and a smartphone number).
- At the bottom of the cover page should include information alerting the reader to the confidential nature of the plan.
- If the company already has a distinctive trademark, it should be placed somewhere near the center of the page.
- A table of contents should follow the cover letter. It should list the sections and page numbers of the business plan and the appendices.
2. Executive Summary
The executive summary is a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
3. Industry Analysis
The main body of the business plan begins by describing the industry in which the firm intends to compete. This description should include data and information about various characteristics of the industry, such as its size, growth rate, and sales projections.
4. Company Description
- The company history section explains where the idea for the company came from and the driving force behind its inception.
- A mission statement defines why a company exists and what it aspires to become.
- A tagline is a phrase that a business plans to use to reinforce its position in the marketplace.
- The products and services section should include a description of how your product or service is unique and how you plan to position it in the marketplace.
- The current status section should reveal how far along your company is in its development.
- A final item a business should cover in this opening section is whether it has any key partnerships that are integral to the business.
5. Market Analysis
The market analysis breaks the industry into segments and zeroes in on the specific segment (or target market) to which the firm will try to appeal. The final section of the market analysis estimates a firm’s annual sales and market share.
6. The Economics of the Business
It addresses the basic logic of how profits are earned in the business and how many units of a business’s product or service must be sold for the business to “break even” and then start earning a profit.
7. Marketing Plan
The marketing plan focuses on how the business will market and sell its product or service. It deals with the nuts and bolts of marketing in terms of price, promotion, distribution, and sales.
8. Product (or Service) Design and Development Plan
If you’re developing a completely new product or service, you need to include a section in your business plan that focuses on the status of your development efforts. The first issue to address is to describe the present stage of the development of your product or service. Most products follow a logical path of development that includes product conception, prototyping, initial production, and full production. A section labeled “Challenges and Risks” should be included and disclose any major anticipated design and development challenges and risks that will be involved in bringing the product or service to market. A final section should describe any patents, trademarks, copyrights, or trade secrets that you have secured or plan to secure relative to the products or services you are developing.
9. Operations Plan
10. Management Team and Company Structure
The management team of a new firm typically consists of the founder or founders and a handful of key management personnel.
The final portion of this section of your business plan focuses on how your company will be structured. The most effective way to illustrate how a company will be structured and the lines of authority and accountability that will be in place is to include an organizational chart in the plan. An organizational chart is a graphic representation of how authority and responsibility are distributed within the company.
11. Overall Schedule
A schedule should be prepared that shows the major events required to launch the business. The schedule should be in the format of milestones critical to the business’s success, such as incorporating the venture, completion of prototypes, rental of facilities, obtaining critical financing, starting the production of operations, obtaining the first sale, and so forth.
12. Financial Projections
The final section of a business plan presents a firm’s pro forma (or projected) financial projections.
- The first thing to include is a sources and uses of funds statement, which is a document that lays out specifically how much money a firm needs, where the money will come from, and how the money will be used.
- The next item to include is an assumption sheet, which is an explanation of the most critical assumptions on which the financial statements are based.
- The pro forma (or projected) financial statements are the heart of the financial section of a business plan. Pro forma financial statements include the pro forma income statement, the pro forma balance sheet, and the pro forma cash flow statement.
Any material that does not easily fit into the body of a business plan should appear in an appendix. It should include only the additional information vital to the plan but not appropriate for the body of the plan itself.
14. Putting It All Together
In evaluating and reviewing the completed business plan, the writers should put themselves in the reader’s shoes to determine if the most important questions about the viability of their business venture have been answered.
Presenting the Business Plan to Investors
If the business plan successfully elicits the interest of a potential investor, the next step is to meet with the investor and present the plan in person.
A. The Oral Presentation of a Business Plan
The founders of a new venture should prepare a set of PowerPoint slides that will fill the time slot allowed for the presentation portion of the meeting. The first picture shown below is the 10 most important questions a business plan should answer. The second picture is twelve PowerPoint slides to include in an investor presentation.
B. Questions and Feedback to Expect from Investors
The question-and-answer period is extremely important. Here investors are typically looking for how well entrepreneurs think on their feet and how knowledgeable they are about the business venture. An entrepreneur can take the investor’s feedback to heart and use it to improve the business plan and/or the presentation.
