Originally Published as: Business Plans & Fiction Writing: How to Write a Business Plan Investors Will Read
Once upon a time in a land far away, I had a consulting business where I helped businesses open and get funding. Part of this was writing business plans. The businesses included all kinds of things, fitness centers, a leasing company, plastic recycling and even a fractional jet ownership business. In the process I learned a lot about what works and what doesn’t. I could easily ramble for hours, but in 1,200 words or less, here are the basics for a “successful” business plan.
Step 1: Define Your Product
What is the subject of the Business Plan. Is it a start-up? Is it an expansion of a going concern or an acquisition of another company? What exactly are you selling. If asked what your business does and you cannot answer in one sentence, you have a problem.
Step 2: Define the Objective
All business plans are not the same. Business plans will differ dramatically based on the desired outcome. If the document is an internal plan for expansion, it will be completely different than one designed to acquire funding.
Most of this article will be addressed to the objective of acquiring funding. When we look at adding a new product or expanding we consider these items and do an outline, but not a complete, formal business plan.
Step 3: Select the Audience
It helps to remember that fundamentally a Business Plan is a Sales Presentation. All of the same steps apply. The business is the product and the person receiving the Business Plan is the prospect. I often use the cliché “Everyone listens to radio station WIIFM, What’s In It For Me.” A business plan for a private investor will differ dramatically from one for your bank.
A bank is looking to minimize risk. They want collateral and security. A private investor is betting on you and maximizing their return. Knowing what your audience is looking for is potentially the most important single factor for your plan to achieve its objective.
Step 4: Limit the Scope
Another cliché in sales is “The first thing a customer buys is you.” That is doubly true when looking for an investor. The investor has to “buy” two unrelated components.
The first is your idea. Will the product or service you are offering appeal to the end user and will the method of delivery work. Showing that is the explicit purpose of the business plan.
The unstated part is: Can the associated management team make it happen. A great idea with the wrong people is a bad idea. Huge aspirations and dreams of global conquest are great. My staff has accused me of “stroking my cat like a Bond villain” when I am cooking up a new idea. Thinking you are Ernst Stavro Blofeld is great, but complicated plans and multiple steps required for success are barriers to your bank/investor/audience saying yes.
Take one step at a time. If you want to open 27 roll-forming shops, start by opening one. Mention that there are options for expansion or the business may be scalable, but pick a stated objective that limits the scope to make success achievable.
After defining your business, your objective, your audience and the scope, it is time to start the actual business plan.
Most Business Plans have standard sections. The highlighted portions are the chapter headings as they would appear in the table of contents. What follows after is brief ramblings about what to include in the section and what is important.
Executive Summary
This is the first section and it is essentially the blurb on a book. The objective is to demonstrate enough value for the audience to read what follows. It should include a brief overview of the company, mission, product/service, target market, and financial highlights
Many sources will say it should be written last. I would write it first and then rewrite or edit after completion. It will demonstrate if you understand Steps 1-4 enough to continue with the business plan.
This section should be rewritten for different audiences.
Company Description
This section is mostly boiler plate and standard. It should include legal structure, ownership, history and mission statement.
I do not know any bank or investor that has ever made a decision based what is said in the mission statement. This is an item that can generate a “no” but not a “yes” so keep it short and non-controversial
Market Analysis
This includes industry overview and trends, target market definition and demographics and an analysis of competitors.
Do not shy away from competitors and an accurate analysis. If it is a financial institution they probably won’t know or care. If it is a private investor and you miss something that is a huge red flag.
Organization & Management
Includes ownership and organizational structure, management team bios and responsibilities and advisory board or key partners.
The key for the business plan is that key personnel appear to be able to meet the responsibilities assigned. In most cases, this will be more important with a private investor than a bank or financial institution. In my experience private investors bet on people more than ideas.
Products & Services
This includes a detailed description of offerings, your unique value proposition and any information related to lifecycle, R&D, intellectual property.
One of the items both investors and financial institutions look for is a stable cash flow. Recurring revenue from maintenance programs, memberships or service contracts generates stability.
Marketing & Sales Strategy
This includes branding and promotion strategy, pricing model, sales process and customer acquisition and retention plans.
This needs to be included and should have a rationale in place for what and how it will work. The honest truth is anyone reading your business plan will assume it is a work of fiction.
Operations Plan
This included facilities, equipment, technology supply chain, logistics and staffing.
The objective of this section is to show that you have investigated and established procedures to actually do what you claim you can do. One valuable addition is to include letters from vendors and strategic partners verifying contacts and relationships in the Appendices & Supporting Documents section. I can claim that I have connections and relationships, but letters or other assets verifying those claims are accurate are critical for credibility.
Financial Plan
This includes revenue model and projections, profit & loss, cash flow, and balance sheet forecasts (typically 3-5 years) and source & use of funds.
The first thing to realize is that everyone assumes they will be incorrect. No investor, banker or anyone else thinks that you are making accurate predictions of future revenue. You are always being optimistic and there are always unanticipated expenses.
Some suggest including a “break even analysis” I prefer two complete sets of numbers. One labeled as “Anticipated” and one labeled as “Low Case.” These scenarios should be evaluated based on your intended audience.
In all instances, the “Low Case” should be an accurate indication of what you see as the worst case scenario for normal business. You do not need to include acts of God or extinction level events.
The “Anticipated” is more important. You need to understand the level of return your audience considers acceptable.
Finally, ALWAYS include a disclaimer that future predictions are all subject to change and involve uncertainty. You can and should contact your legal advisor for the wording of the disclaimer.
Appendices & Supporting Documents
This includes resumés, legal documents, leases, proposals, charts, research, or additional data.
Remember a business plan is a sales presentation. One of the parts for any sales presentation is the Feature-Advantage-Benefit presentation. For review:
- Feature – What it is, tangible and beyond dispute.
- Advantage – What the Feature does.
- Benefit – Why it matters.
People buy products based on Advantage and Benefit. The Feature makes the Advantage and Benefit believable. Wherever possible you should have supporting documents to corroborate every Feature and Benefit listed in the business plan.
Banks and investors are looking for reasons to say no. People say yes based on emotion and usually say no based on facts (or the lack of facts). Take away the reasons to say no.
Remember: Every business plan is part story, part sales pitch. Your job is to make it believable enough for someone to say yes.
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