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Writing an Effective Business Plan by Doug Williams Writing an Effective Business Plan By Doug Williams The hardest part about writing a business plan is getting the energy to get started. There is no single correct way to put together a plan, just as every venture is unique. An effective business plan tells a great story, weaving an exciting plot that captivates the reader. You want 50 pages of brilliant strategies and dazzling statistics. There are two main reasons to write a business plan. The first is to create a blueprint for success of your business. This gives a plan for your management team to follow and effectively communicates the company direction to your staff. It is a proven fact that people who create and write plans are more successful. The business plan provides a considered and logical framework within which a company can develop and pursue its strategies over the next 3-5 years. The second is to obtain financing. Whether it is from lenders or investors (i.e. venture capitalists), you need to convince them that your business is going to be a great success and that the money they invest will lead to a nice profit. Venture capitalism is about assuming high-risk while banking on a high return. The Business Plan is a very important document in that it often serves as the company's first introduction to investors. If your objective is to get financing, the layout and presentation of your plan is very important. A business plan should be 50 pages or less. It needs to be written in a concise and focused manner. Appropriate color graphics and an attractive cover always set a positive tone. Usually, less is more. Utilize charts, graphs, tables, and pictures to convey information. Have several people proofread your plan. The fewer mistakes you have, the more professional you'll look. A business plan should be a realistic view of the expectations and long-term objectives. It provides the framework within which a business must operate and, ultimately, succeed or fail. Don't embellish - state things as they are. Making things look better than they are will only cast a shadow on all other statements and claims made in your plan. Still not sure that you or your team will have the time or desire to tackle this project? Hiring a consultant to write the plan may be the most cost-effective way to handle this project. Typical cost for plans range between $3000-$10,000 -possibly more depending on complexity. It’s important to still try to write a rough draft on you own. This will help you think through your strategies. A good starting point is a SWOT analysis done by you and your management team. Remember to build on Strengths; resolve Weaknesses; exploit Opportunities; and avoid Threats. 1.0 Table of Contents (1 page) This is just what you would expect. Take only one page and lay it out in an organized fashion. Make sure the page numbers match the plan after your revisions are complete. 2.0 Executive Summary (2-3 pages) Keep it short, 3 pages tops. A Venture Capitalist won't read through your entire business plan until you've impressed him/her with an exciting and captivating executive summary. You have to make the opportunity clear and establish your company’s key advantage over the competition. State the purpose of the plan succinctly. What sort of company is it? What's the product/service, and what's special about it? What is the opportunity? How much money do you need and in what stages? What will you use it for? Show the milestones. When will profitability be hit? Who are the managers? What is the exit plan for the investor? The summary must be persuasive in conveying the company’s growth and profit potential and management’s prior relevant experience. If the executive summary doesn’t succeed, your business plan will never sell investors. We recommend that you write the summary first, and use it as a template for the plan as a whole. Remember, this might be the only section that gets read. 3.0 Company Overview (2-3 pages) Tell your story. What is it that makes your firm unique? Describe the product or service you specialize in and the markets you serve. Talk about what your enterprise does, the legal form of your company, where principal offices are located and the year founded. What’s the history and what stage of development are you in? Describe the current ownership of your company and list the significant shareholders. For the most recent period what were the sales and profits? With financing, what are the expected results? 4.0 Product or service (1-3 pages) List products/services and briefly describe each in order of highest sales or significance. Describe in understandable terms. Avoid using technical jargon and terms that could confuse the reader. Where is each product/service in its lifecycle (introductory, growth, maturity)? Explain the critical factors for success and describe the unique advantages you enjoy in the marketplace. What is it that keeps out competitors? Describe the barriers to entry. Are there any patents, copyrights and trade secrets that protect your business? 5.0 Market Analysis (5-7 pages) This is where you will show the knowledge of the market and the results of your market research. Show your data using charts and graphs. Define the market, size and growth. What share do you have now? How about in the future? Profile your competitors discussing their market share, strengths and weaknesses. How is your product positioned in the market and how does it stack up against the competition? Profile your targeted customers. What drives their buying behavior and what would cause them to select your product / service over your competitor. 6.0 Marketing Plan (4-6 pages) Present your company’s strategies to penetrate and capture the market. Describe your company’s basic 3-year strategic plan for the market, products and services, and customer segments. Explain your marketing and sales strategies you will employ to reach your targeted customer base in terms of pricing, distribution channel and promotion. Discuss advertising, public relations communications, trade shows, telemarketing, direct mail or any other market and sales plans you intend to employ in promoting and selling your product. Present your sales forecasts. 7.0 Risk/Opportunity (1 page) This is where you demonstrate that you have thought the plan through and have the ability to adapt. Describe the key risks that you face (i.e. market, technology, management, etc.) How are the risks faced being addressed with strategies? If the risks are overcome, what are the opportunities to become a market leader? 8.0 Infrastructure (1 page) Can your operations handle the planned growth? Take into consideration staffing, overhead, office space, location and size of your facility, vehicles, machinery, equipment, supplies and inventory. Is the company in the proper location? Is there a skilled labor force in the area? Are area wages competitive? Describe what has to be done to meet this plan. 9.0 Management Team (1-2 pages) Develop a short profile on officers and key employee including their age, qualifications, and work history and stock ownership. It is important to emphasize the team’s relevant, proven track record. The reader will be asking if management is capable of implementing the strategies? Try to answer that question in the profiles. Note your key open positions and how you intend to fill them. Describe your outside support team. This would include attorneys, accountants, board of directors and advisors. 10.0 Capital Requirements (1 page) State the amount of money required and be specific in the description of the uses of the funds sought. How will the funds be used? Tie this back to your business development goals. The initial financing will typically lead to subsequent rounds, and presenting a realistic timeline demonstrates to an investor that the plan is carefully prepared. Do you have a clear and logical explanation about the investor’s exit strategy? This might be merger, acquisition, initial public offering (IPO), or buy out from profits at some specified time. 11.0 Financial Plan and Analysis (10 pages) Include 3-5 years of monthly Income Statements, Balance Sheets, Cash Flow Statements and Break Even projections. Financial statements should be monthly for the first year or until profitability is reached, then quarterly thereafter. There should be a 1-2 page narrative with assumptions, describing key items in the financials. Support your projections with assumptions. Developing a detailed set of financial forecasts demonstrates to the investor that the entrepreneur has thought out the financial implications of the company’s growth plans. 12.0 Appendices Use this section to add support for the exciting story you have presented. Product literature and brochures Sales sheets Media coverage Clips from industry publications Relevant patents Market research data Past advertising campaigns Useful photographs of facilities, warehouses etc. Conclusion When submitting your plan to a Venture Capitalist: Include a cover letter addressed to a specific contact person in the firm and follow up with e-mail or phone call. Provide extra copies of the plan to speed the review process. Send a hard copy…not an email. Include a phone number and e-mail where the investor can reach you with questions. 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