A sound business plan can mean the difference between a company that prospers and one that flounders. A good business plan communicates accuracy and credibility, and generates enthusiasm for your business. Your plan should be thorough, professional, and realistic.
General Rules
Here are some important things to remember when sitting down to write your plan:
- Your plan should be concise (30 to 40 single-spaced pages at most, not counting appendices).
- Your plan should be easy to read and understand, without typos or grammatical errors.
- Your plan should convey large and profitable market opportunities for the business.
- Your plan should convey the strength and depth of your management team.
Business Plan Don'ts
Here are some tips on what not to do in drafting your business plan:
- Don't make unrealistic assumptions.
- Don't underestimate the difficulties in growing a business.
- Don't underestimate competitors.
- Don't assume that the reader knows industry technical jargon.
- Don't include long, tedious or overly technical information.
- Don't include highly confidential or proprietary information.
- Don't avoid discussing the risks to the business. This may detract from the plan's credibility.
Standard Business Plan Format
The form of every good business plan, although not set in stone, tends to run along the same basic lines, containing the following key sections:
Cover page. The cover page should be professional and informative and should contain an appropriate confidentiality legend.
Executive summary. The executive summary is the introduction to your business plan and the most vital section. Although it comes first, you generally write it last because it summarizes the entire plan. Effective summaries generally cover:
- The company's origins.
- The product or service and its uniqueness or competitive advantage.
- The company's goals.
- The market potential for the product or service.
- A three- to five-year summary of key financial forecasts, especially sales and profit/loss. For new businesses, do some market research and make realistic assumptions about how your business can compete.
- The management team and its track record.
- The financing required to grow the business.
- The exit strategy.
The company description. This should convey a sense of the history of the company, as well as its goals. You should also include a summary of the company's principal objectives — both long-term and realistic interim goals.
Management. The management section of the plan identifies key members of the management team, describes their individual responsibilities and establishes their relevant experience and accomplishments. Include resumes that stress accomplishments and relevant track records in an appendix.
The product. If the company is selling a product, this section describes what the product is or will be and shows why it can penetrate the existing or developing market. If the product is still under development, discuss in detail where the project stands and what remains to bring it to market.
Investors are typically not interested in a one-product company. You should therefore discuss logical extensions of the company's product line and future enhancements in the product section.
The market. You must convince prospective investors that the company's market is large, growing, and receptive to your products or services. If the market is small or stagnating, investors are less likely to invest. Appendices can include more detailed market information.
Competition. The competition section of the plan identifies competing products and technology. Compare your product or service with the competition. How will your price or quality be different? What will make it successful?
Marketing. The marketing section of the business plan should describe the company's marketing plan and strategy in as much detail as possible.
Financial statements and projections. The body of the plan should include a summary of the key aspects of the financial forecasts, which appear in more detail in appendices. These may include total cash requirements, the time frame for positive cash flow and the anticipated growth in sales and profits.
The financial forecasts appendices should have more detail: balance sheets, income statements, and cash flow projections for a three- to five-year period, with the information presented monthly for the first year and quarterly in following years. The projected income statement is probably the most important projection.
The most significant aspect of the forecasts is the set of assumptions supporting your numbers. Make sure your discussion sufficiently communicates the basis of your assumptions — they must be realistic, logical, and attainable.
If you're not a financial statement guru, get help. Credible financial forecasts are so important — if you're not familiar with financial statements, you should seek help from an accountant or other reliable source.
Reality check. After you complete your draft business plan, circulate it for comment to friends, professionals, and other trusted advisors. Ask for their blunt assessments. Even better, ask them to give you a "markup" of the plan with specific recommended changes.
Write a Mini Business Plan
A two- or three-page business plan can also be useful at times. This condensed plan helps introduce the company to prospective investors, lenders, or employees. If the party is interested, you can follow up with the complete business plan.
More from AllBusiness.com:
