A business plan is one of the most important documents to have when asking for financing. While writing a business plan may be time-consuming and tedious, it is an excellent tool to help you and others understand your company. It is the document that describes your product/service, where your company is at, and where you want it to be. If you are in the process of pursuing funding, many of the investors and institutions require a business plan. Not only are investors and traditional financial institutions looking at the viability of your product/service, they are looking at your knowledge of the market.
Here are some investors/places that require a business plan:
- Business Plan Competitions
- Angel Investors
- Credit Unions
The business plan is the document that can help you get the funding you need, but it can also be the reason you do not. An investor or financial institution may get hundreds of eager entrepreneurs who believe that their product/service “works”. This may be true, but when they hear this over a hundred times, they want to see the proof. So, this is where the business plan comes into play. A 25-35 page business plan is your proof that your product or service can make it in the market. The question is how can you write a business plan that stands out among the other hundred plans?
First, the business plan needs to be well written. If you are not a good writer, then it is advisable to have someone else write it for you. Depending on the type of company, the content of the business plan will vary. If you own a manufacturing company, your business plan will have more content on the production process than an event planning company. However, there are still several elements that should be included in all business plans, at a minimum.
The cover page of the business plan should include the name of your business (and/or logo), who you are, contact information (i.e. address, phone number, etc.), and a small disclaimer statement at the bottom. Many investors are not going to want to sign a nondisclosure agreement before they are able to look at the business plan. The disclaimer allows you to make a brief statement that the information in the plan is confidential and cannot be shared with any other party.
The executive summary is just that, a summary of your business plan. In the summary, you should include key information such as a brief description of your product/service, marketing strategy, key financial information and objectives, the management team, and the exit strategy. The executive summary should be 2-4 pages in length and is what will compel the investor to continue reading your business plan.
In this section, you explain what your company offers, in detail. This is where you answer questions such as, what is your product or service? What is your mission statement? What are the company’s goals or objectives? What are the trends in your industry?
You should also explain what type of business entity your company is, whether it is a sole proprietorship, partnership, LLC, or corporation, as well as details of ownership. Other general business information such as a tax identification number can also be included.
The marketing plan is a section that, often times, is not explained in enough detail by the owner(s). In this section, you should thoroughly explain how you are going to market your product/service, to whom, and where. Are you going to market your product through direct mailings, email, social media, face-to-face, or by phone? Depending on the type of business you have, some forms of marketing may work better than others. You can try several forms of marketing to determine which work best for your business.
The marketing section is where you explain to the investor who your target demographic is. What is their age group? Gender? Income level? Then you address where your target customers are located. Are they local? Do they reside in other states or countries? Once you know who your target customers are, you should try to conduct research. This will give you real data on how customers will react to your product or service. An easy tool to use, Survey Monkey, is a free and simple way to get feedback from your customers.
It is also important to discuss who your direct and indirect competitors are and how they compare to your business. You should never tell an investor that you have no competition. In addition, you should include detailed information on the market and conduct a SWOT analysis.
Here you should put together a financial review of your company going back a few years. Other items that must be present are 12 month profit and loss performance projections, 5 year profit and loss forecasts, and 5 year cash flow forecasts. A break-even calculation should also be included in this section.
You should address how much funding you are requesting and how that money will be used within your organization. Any assumptions that you have made while putting together the financials need to be in this section as well. It is important to be realistic about your financial projections. For example, an investor is not going to believe that in the first year, your company will have a 90% profit margin.
It is important that you explain who your management team is in the business plan. There should be a brief description of each team member’s experience, but do not insert a resume. Only include background information that is relevant to your business. If you currently do not have a solid management team, then you need to state what type of people you will need to hire, how you will recruit them, and how you will keep them at your company.
You should always include a strategy of recouping the capital invested by yourself and the investors. Investopedia explains, “You can think of the exit strategy as the first opportunity to trade an illiquid asset (shares in a private firm) for a very liquid asset (cash).”
This is where you insert any supporting documents such as survey questions or a sample advertisement. You should only include what is absolutely necessary for the investor to see.