How to Write Your Business Plan: An Outline
The Executive Summary
The last thing you write should be your Executive Summary, a short version of all that you have developed in your business plan. Although you write it last, the Executive Summary appears first in the plan. In addition, the Executive Summary can serve as a stand-alone short tool to introduce people to your business.
The best place to start the core of the plan is with a basic overview of your company. You want to tell the reader your industry, size, and location. Explain whether you will be a manufacturer, wholesaler, retailer, service-provider, or a combination. Mention generally the products or services you will sell. Describe the type of organization you plan to create and its geographic scope.
Products and Services
Be as detailed in your description as possible, limited only by confidentiality and readability. Include pictures or diagrams of your product if you can.
Make sure to describe each of the specific services you will be offering. Explain how your company will interact with consumers. Fully describe a typical engagement with a client or customer from beginning to end.
Regardless of the type of product or service you offer, you should have a potential buyer in mind. If you are a service provider, you may appeal to a specific region, industry, or consumer base. If you are a retailer, you should be targeting a specific kind of consumer. If you are a manufacturer, you may actually have multiple types of buyers, including wholesalers, retailers, and consumer end-users. Define your consumers as clearly as possible. In certain cases, companies are built around one individual consumer. Although the needs of the consumer are well understood, the venture faces the risk of overdependency. The ideal situation is that no single customer represents more than 20 percent of your revenues. The reality is, for many niche market small businesses, a particular customer (usually another company), is the primary source of income. If you're in this situation, there are two important considerations:
Your main customer is potentially your best source of financing; and Regardless of the initial arrangement, your plans should include a strategy to diversify your customer base over time.
First, consider what competition currently exists. Geography or market focus may offset what would otherwise be direct competition. For example, a retail store selling the exact same goods, outside of driving range of your target consumer base, is not currently a competitive threat.
Second, identify potential competitors. The same regional competitor outside of your locale is likely to move into your area if you are visibly successful. Similarly, you need to consider the competition that awaits should you expand to new areas yourself.
You should also discuss your company in the marketing section. In your discussion of the company, you need to consider internal pressures and potential problems. Is the organization poised for long-term growth? In the case of success, will the company be able to ramp-up or start operating quickly and efficiently enough to meet demand?
The operations section is the most technical portion of your plan. You've told them what you want to do; now tell them how you expect to do it.
Give the specifics of how your company will operate. Explain your production process, if any, as well as your systems for ensuring quality control.
Once you have studied the market, you are well-equipped to create a marketing plan. Product, price, promotion, and distribution should be included in your discussion. You are addressing how you plan to get your projected share of "The Market" you described above.
Most venture capitalists consider the entrepreneur and the management team to be the most important component of a venture. Discuss how your education and experience and that of your managers, if any, equip you to lead your venture. Your resumes will be in the appendix. Go beyond summarizing your backgroundsexplain how the skills of the individuals on the team interrelate to each other and the work at hand. If you plan to run the company yourself, tell why you can by supporting your propositions with examples.
Sustainable competitive advantages help assure long-term success. Having gone through the qualitative components of your plan, recap for the reader the strategic advantages of your venture.
Financial Assumptions and Risks
Show how you arrived at your financial projections. Support your projections with evidence and logic. By detailing your financial assumptions, you will lend credibility to your pro forma or projected financial statements. You need to avoid making unsubstantiated projections about the success of your venture by explaining the assumptions you make. Can you justify your expected sales volume? Have you charted out your anticipated costs over time?
Sources and Uses of Funds
Investors don't like to be alone so you need to spell out other sources of capital. They also don't like to give away their money with no restrictions. Of course, you probably don't now yet where the money is coming from, but it is wise to show that you have a plan for raising capital. Discuss your expected sources of capital. You'll be expected to contribute capital as well. Also use this chance to explain your long-term plan for funding the company. Will the company fund its own growth through profits or is this the first of many stages of financing? Then explain how you will use your capital. You don't want to look as though you've arbitrarily picked $200 or $200,000 or even $2,000,000 as the amount of money you need to start your business. Why do you need that money? How will you use your funds.
Pro Forma Financial Statements
Once you have developed your plan and your assumptions, creating financial projections is simply a matter of formatting and calculation. If you are unable to produce the financial statements yourself, work with an accountant or consultant on a deferred or project fee basis to do it for you.
Essentially, you will need two sets each of the three primary accounting statements: the balance sheet, the income statement, and the cash flow statement. For each statement, make monthly projections for the first year and annual projections for the first five years of the venture.
The appendices are the most custom-designed portion of your business plan. Aside from the resumes of the principals or key management, what you put in the appendices to the business plan is entirely up to you.
If your company has been in the news or there are other relevant press clippings, you can include them here. If you have been published yourself, you may want to include relevant excerpts, especially if you have a medical or high-tech venture. Some people even like to personalize their business plans with photographs of themselves.
Source: Business Capital for Women by Emily Card
and Adam Miller. Macmillan, 1996.
Source: Business Capital for Women by Emily Card and Adam Miller. Macmillan, 1996.
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