March 2, 2011
Graduate Entrepreneurship Call
1. What a business plan is:
A business plan is a report that tells the reader what your business is about. It includes several different sections like the executive summary, operating statement, mission statement, important documents, market analysis, situational analysis, and marketing plan.
2. Why a good business plan is necessary and valuable:
A good, well written business plan can be used for several important things. First, it can be used to raise money from investors or bankers, and second to help the business owner plan the details of the business and be clear on what it will take to be successful.
Some general rules:
Business plans can be in many different formats, but as long as it has the important information, the format will be fine. Don’t put the business plan in a fancy leather binder. The investor or banker reading the business plan will not be impressed. Just use a nice folder or binder. Use a cover sheet with the name of the investor or banker and his title and company he represents, and a table of contents.
Don’t make your business plan 50 pages. No one wants to plod through 50 pages. Make it long enough to explain your business plan but no longer. The investor or banker will usually read the executive summary first and then turn to the financial section. If those numbers look OK, they will turn back to the second section in the business plan and start reading there.
How to make your business plan sell an investor:
As I said earlier, most business plans are written to inform the reader. To create a business plan that sells the reader, it should be written as a selling document from the beginning.
3. The executive summary is the most important part of the business plan:
Because the purpose of the business plan is to sell your business idea to the reader, you have to grab their attention right away. Just like when you write a newspaper story, after the headline the first paragraph will contain the “who, what, when, where, and how much.” Then the details are filled in as the story progresses.
Like a newspaper story, the executive summary should grab the reader’s attention and make them want to read more. The first paragraph in the executive summary is to get the reader’s attention, and tell them what the business is about, why it is needed and necessary, what the business will do, and why the reader should be an investor. When he finishes reading the first paragraph, he should know what the business plan is about and want to read more.
Once you capture the reader’s interest, follow that with a more detailed description of the business. What the need of the business is, what the business is, what it does, and how it operates. When the reader finishes reading this section he should have a clearer picture of what the business is.
Next is the statement of the vision statement and the mission statement. The vision statement is a description of the business as the owner envisions it in three years, and five years. Use the magic wand approach. If you could wave a magic wand and make the business anyway you would want, what it would be like. This needs to be very detailed stating things like “you be operating out of a building which you own. You run five trucks in your business have ten employees, and you are no longer working directly but managing the business. You will be able to afford to take a vacation trip each quarter of the year. The business will be generating gross sales of $1.5 million and net profit of $400,000 a year.” This vision statement will serve as a target you can aim at to achieve.
The mission statement is not a description of the business. The mission statement is a statement about the guiding principles with which you will operate your business. Examples are, “We believe our employees are our most important asset we have and we treat them as such,” and, “We are dedicated to insuring that our customers are satisfied with every transaction and product they buy. We will do any thing necessary to satisfy the customer.” You can have one statement, or many, which ever you choose.
The next section can be the operating statement. This describes how the business works, how the process of making the products or services occurs from ordering the materials to make the product or service. Break the process down into logical segments. For example, Order entry, operations, production, finishing, and delivery to the customer. You must assign someone to be responsible for each major section and each sub section. For example, there needs to be a person responsible as the Chief Executive Officer who is in charge of everything. There needs to be someone assigned the responsibility of accounting, bookkeeping, and cash flow management. Some one must be assigned the responsibility for the operation of the business including production. There needs to be someone responsible for marketing. In some cases there will need to be someone assigned responsible for other main categories like information management.
In some cases you may be the only person in the business so you will be responsible for each of the major areas. If there are two or more key employees, assign divide up the major responsibilities among them. Any task or responsibility left to everyone will be done by no one.
The reader of the business plan will be impressed that you have thought through very carefully how the business will operate including many of the key details. This will show the reader that you have the ability to think, analyze, and have attention to detail. Remember, you are trying to impress and convince the reader you are a capable, responsible person and will probably be a good risk for an investment. Remember, your are selling him.
The next section is for important documents. These will include a resume, three years of tax returns, and a paragraph on each key employee. In addition include copies of documents like your insurance policies, lease agreements and any other agreements with suppliers.
The financial section comes next. These need to be put on a spreadsheet and you need to show the numbers for the first twelve months. Year two and three you only show figures each quarter of the year. You need to have done your home work and know the start up costs, and the approximant amounts of your fixed and variable expenses. Fixed expenses are the same amount every month like your rent, or car payments. Variable expenses will be different amounts each month. An example is utilities, sales commissions, and cost of goods needed to produce your product.
Estimating the revenue you will earn is harder to determine. There is usually no way to know how much gross sales and net income will be. So put down what you would like them to be. Make these numbers reasonable. When you have all the data on the spreadsheet, send it to your accountant to look it over and make adjustments to make it look professional and realistic.
The market analysis is the next section. This section should show what the national, state, and local economies are like and what changes are expected. You can find that data at home pages of associations of the business category of your business. For example, if you own a restaurant, there will be a national association of restruantiers. You will find the statistic data and projections for that industry. The state will also have similar data, and there may be a local association of restaurant owners that will have statistics on your businesses.
Remember to include to site where you got the statistics and create some graphs to illustrate the numbers, it will look more professional. This kind of detail research will again impress the potential investor and build his confidence in you as a loan risk.
Competition analysis comes next. Identify your four main competitors and write a paragraph about each one telling who they are, what they do, what they are good at, and what are their weaknesses. Include any other information that will add value to the analysis. Remember, you are trying to impress the investor with your data. Do a good job.
Next is the marketing plan. Show how you will make the business successful. How will you generate sales? How will you compete against the competition? Will you use advertising? If so what kind. If you are going to use sales persons, what businesses or target customer will they sell to? Get as detailed as possible. Really impress the reader in this section.
Final summary ends the business plan. One paragraph will do. State why the investor or banker should invest in your business. Don’t draw it out. This format is designed to sell the reader on investing in your business.
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