How To know a genuine business plan. And what is required from you.

 

The fact is, crafting a meaningful business plan
takes thought, time and money. If you farm out
the writing, the price tag could run from $5,000

to $40,000, including market research, legal and
financial expertise, says Jim Casparie, chief
executive of The Venture Alliance, which gives
fledgling companies advice on nabbing venture
funding. For that, entrepreneurs get a 30- to 40-
page document that often obscures even the
most fundamental facts about the business–what
it does and how it makes money.
“If, after reading those first few lines, I still
don’t know what they’re doing, that’s not a
good sign,” says Casparie. But it’s not just the
nuts and bolts that matter, he adds: “You have
to tell me in a few lines why you have a
competitive advantage in whatever market
you’re going after, because I need to know why
you’re going to win. Most plans don’t do that.”
Here, then, are some highlights of an effective
business plan.
Start with a clear, concise executive summary of
your business. Think of it like an elevator pitch.
In no more than two pages, billboard all the
important stuff. At the top, communicate your
value proposition: what your company does,
how it will make money and why customers will
want to pay for your product or service. If you
are sending your plan to investors, include the
amount of money you need and how you plan
to use it. You have to know the whole picture
before you can boil things down, so tackle the
summary after finishing the rest of your plan.
Next, establish the market opportunity . Answer
questions like: How large is your target market?
How fast is it growing? Where are the
opportunities and threats, and how will you
deal with them? Again, highlight your value
proposition. Most of this market information
can be found through industry associations,
chambers of commerce, census data or even
from other business owners. (Be sure to source
all of your information in case you are asked to
back up your claims or need to update your
business plan.)
While you may have convinced yourself that
your product or service is unique, don’t fall into
that trap. Instead, get real and size up the
competition: Who are they? What do they sell?
How much market share do they have? Why
will customers choose your product or service
instead of theirs? What are the barriers to
entry? Remember to include indirect
competitors–those with similar capabilities that
currently cater to a different market but could
choose to challenge you down the road.
Now that you’ve established your idea, start
addressing the execution–specifically, your team .
Include profiles of each of your business’s
founders, partners or officers and what kinds of
skills, qualifications and accomplishments they
bring to the table. (Include resumes in an
appendix.)
If potential investors have read this far, it’s time
to give them the nuts and bolts of your business
model. This includes a detailed description of all
revenue streams (product sales, advertising,
services, licensing) and the company’s cost
structure (salaries, rent, inventory,
maintenance). Be sure to list all assumptions
and provide a justification for them. Also,
include names of key suppliers or distribution
partners.
After all of that, one big question still remains:
Exactly how much money does your business
stand to make? More important, when will the
cash come in the door? That’s why you need a
section containing past financial performance
(if your company is a going concern) and
financial projections. Three-year forward-
looking profit-and-loss, balance sheet and cash-
flow statements are a must–as is a break-even
analysis that shows how much revenue you need
to cover your initial investment.
For early stage companies with only so much in
the bank, the cash-flow statement comparing
quarterly receivables to payables is most critical.
“Everyone misunderstands cash flow,” says Tim
Berry , president of business-plan software
company Palo Alto Software. “People think that
if they plan for [accounting] profits, they’ll have
cash flow. But many companies that go under
are profitable when they die, because profits
aren’t cash.”
After you’ve buffed your plan to a shine, don’t
file it away to gather dust. “A business plan is
the beginning of a process,” says Berry.
“Planning is like steering, and steering means
constantly correcting errors. The plan itself
holds just a piece of the value; it’s the going
back and seeing where you were wrong and
why that matters.”