Whether you are in the beginning stages of starting your own business or planning on taking it to the next level, you will need a clear and informative business plan. “What is a business plan?” you may ask. In short, it is a comprehensive guide wherein answers to the questions and problems you will face in each stage of growth are laid out in detail. Moreover, business plans provide both a literal and proverbial roadmap to reach the personal and financial goals one has set out to achieve. Before writing your business plan, it’s best to spend a few days collecting information and creating financial estimates. Most of that time is spent explaining difficult questions and assumptions.
There is value in doing an ample amount of preparation prior to creating a business plan: you construct creative solutions to complex problems. Make sure to take the time to do the job properly. Additionally, be sure to keep detailed notes on your sources of information and on the assumptions underlying your financial data. With all of this in mind, the question shouldn’t be if you write your plan, but how you draft an effective business plan that will take your company where you want it to go. The ten tips in the chapters below offer guidance and direction in answering such a question.
In the beginning, one may have the urge to delve straight into specific strategies, such as evaluating production methods, studying market segments, and evaluating the competition—but do not do that, at least not yet. Do not misunderstand, these are important inclusions in your plan; however, during the early stages of drafting, it is important to create a broad vision that can be adapted once your specifics have been identified.
When writing a business plan, have an end goal in mind. You need to ask yourself, Where do I want it to go? What will my business look like? Stated differently, how do you want your business functioning in the next five to ten years? This is your vision. This vision should include tangible goals such as profits and market share, but more importantly, it should focus on the intangible/unquantifiable long-term goals, such as your willingness to adapt, emerging business-trends, and an ever-present desire to “excel.” Likewise, your business plan should answer these questions during the short-term period, particularly one year; specifically, what your business’s goals are for the current year, and what is essential in order to make your first year a success.
Some commenters believe it is a good idea to have multiple versions of business plans for different audiences—one for bankers, one for individual investors, one for vendors, and so forth. I, on the other hand, do not believe this is a good approach. I believe a properly constructed, well-thought-out business plan will provide readers of all types the information they need to understand your business’s purpose and capabilities. If there is any tailoring needed for a specific audience, it should be done during your oral presentation of the plan.
Having said that, I feel it is important to know your audience and understand what they are looking for. The primary purpose of a business plan has less to do with the actual product or service and more about the process of delivering these products or services to the customer. Being able to effectively explain this process through a clear and concise vision will allow the reader to fully understand the feasibility and viability of your business. Therefore, a detailed explanation of how your business will bring its product or service to market is much more valuable in the analysis of a business than merely describing it.
We’ve all heard this acronym before: Keep it simple, stupid. Not only is this a great tip for writing a business plan, but also for writing in general. If there is anything that I have taken away from my three years of law school, it is that no matter how advanced or educated the reader, he or she has a limited amount of interest and time to grasp what you are trying to convey.
This message was consistently conveyed by my legal writing professor who relentlessly scrutinized his students’ work for being overly complex and wordy. His message was simple: explain your argument to me as if I were a third-grader. I think this is an excellent tip to employ when drafting your business plan.
This is not to say you should not be articulate in your word choice or be afraid to elaborate on complex issues. Rather, it is both a concept to keep in the forefront of your writing style and an easy-to-remember acronym for always stating a conclusion, and doing so as simply as possible.
A business plan is a living, breathing document that should be evolving as you continue the circular process of asking and answering questions. By this, I mean you should always be thinking of ways to improve your business and thus your business plan. As a result, you have to be willing to add, edit, or even remove certain portions of your business plan when new information becomes available. To be able to effectively master this process, always keep a notepad, phone, or some other recordable medium nearby. By doing this, you will allow yourself to:
Having said this, not all thoughts will produce that “ah-ha!” moment. But, if done consistently, you will eventually find that diamond in the rough. Additionally, recording your thoughts allows for consistent scrutiny of your business plan. Since one or two people initially think up most new ventures, it is important to continually scrutinize how you are running your business, and its correlation with your business plan.
Going a step further, find someone who can poke holes in your plan and point out possible weak areas. Just as important, ask this objective third party person to highlight strengths in your business and your plan, as most developing businesses are generally good at doing one thing very well while tending to remain mediocre at the rest.
By writing your thoughts down you can go back and review what led to a particular idea. This often leads to more questions and more answers, which in turn results in a better, more solid business plan.
I ask you to stop for a moment and think: What good is it to deliver a business plan that projects revenues, much less profits, more than three years into the future? Your immediate reaction may be something like: “Isn’t that the entire purpose of a business plan?” or “If I am not going to include long-term financial figures, why would an investor even listen to me?”
While this may sound counter-intuitive as we are discussing a topic that is inherently “planned,” there is a downfall to long-term quantifiable projections. As a new company, it is virtually impossible to accurately predict such measures, and the secret here is: seasoned investors know this! By becoming overly technical in your approach with numbers in order to show your intelligence and preparedness, you may in fact come across as a naïve business owner.
Therefore, when including financial figures in your plan, it is more important to show that you have considered key financial drivers that will ultimately determine the success—or potential failure—of your business. Additionally, numbers need context. When introducing figures such as production yield, distribution costs, or interest rates, make sure to explain why you have included them, and their relevance to the success or failure of your business.
It is in the rarest of cases a new business venture is led to success by an inexperienced individual. Therefore, if you are going into a market that you have experience in, make it a point to emphasize this fact. Savvy investors understand that without the right person(s) at the helm, nothing else really matters.
Take for example a NASCAR team. On any given day the team could have the fastest car, the perfect driving conditions, on a track tailor-made for success. However, without a talented and experienced driver behind the wheel, the value of the other successful elements will be significantly diminished.
Therefore, if you or other members of your team have relevant experience, it is important to include a “Personnel” or “Management” section emphasizing your team’s industry insight and experience.
If there were ever a place to boast about your accomplishments in your business plan, this is it. This section should be more than a resume-like list of previous jobs, skills, and hobbies. It should candidly describe each team member’s particular knowledge of the new venture, including its products, industry, competition, and potential customers. This demonstrates to investors that you and your team possess a solid understanding of the industry and its players.
Think of your business plan as a detailed resume for your new venture. By this I mean it is important to be as open and honest as possible, because the last thing you want is to embellish or hide facts that could prove harmful to your success. Similar to a job offer, you do not want to receive the opportunity and then fail because you concealed some damning information.
This is where the discussion of risk comes into play. To some, this may be a daunting task that leads to a rushed discussion or an effort to conceal important information. However, you should not be afraid to identify risks, as any serious investor knows they are inherent in any business. While impossible to discuss every possible pitfall, your business plan should identify the significant internal and external factors that could be detrimental to the success of the business. Identification and discussion of risks must be accompanied with management and mitigation plans. Having such strategies in place strengthens your business plan, enhances your credibility, and increases investor confidence that transparency will be a core element of your business philosophy.
Therefore, rather than glossing over discussing potential risks, use this opportunity to your advantage. Be upfront in the discussion and remember to include your strategies for isolating and removing them. This not only builds trust with investors, it reveals your ability to identify problems and proactively solve them.
If it looks good but lacks a foundation in facts and research, then you’re not doing it right. While relevant graphs, pictures, and color may have a place in your business plan, make sure you use them sparingly. This is not a middle-school science project, it is the real world. In fact, according to a study from the Harvard Business Review, the more elaborately crafted the document, the more likely the venture is to fail.
Now, that is not to say that your business plan should look like it came out of a 1950’s typewriter. However, playing off of the idea of knowing your audience, the visual aspects of your business plan should be industry specific. For example, if your business plan proposes a new line of design furniture, there’s nothing wrong with threading a subtle design element throughout your work.
Force yourself to ask difficult questions and to, more importantly, find answers. “Why?” you may ask—because the investors funding you will surely be doing so. Stated differently, you must be open to self-scrutiny, and make a commitment to delivering a well-thought-out business plan. Always be willing to poke holes in your work, because that is certainly what your readers will do. Moreover, you must construct an impressive document that investors can read and come away believing you have thought of every potential flaw in your plan and have provided a solution for it.
Finally, while your business plan is an important introduction to your venture, it is by no means set in stone. With this in mind, no matter what the contents of your business plan are, stick to what matters: feasibility, viability, and desirability.
LegalNature can help you with all of your personal legal form needs such as business plans and promissory note forms. Let us help you get started today. Click here to create your business plan now.
Can't find what you are looking for?
Contact us here.