Writing Effective Business Plans

By Beacon Staff

A business plan is a comprehensive description (20-50 pages) of a commercial venture including a description of the product or service, the management team necessary for success of the business, the sales and marketing techniques to be used by the management team to find and delight customers, the pro forma financials for the business, key operating issues for the company and a growth plan for the future. A brief description of each of these features of business plans are described below.

But first…why write a business plan? Entrepreneurs write business plans as an assurance they have carefully thought through all the critical success factors of starting, growing and operating a business. Entrepreneurs also use business plans to create alignment with directors, employees, customers, vendors, lenders, and investors. Finally, entrepreneurs use business plans to explain their businesses to potential investors, lenders and, for highly successful businesses, to potential acquirers of the company.

I am often asked where an entrepreneur can find an expert to write their business plans. My answer is that you, the entrepreneur, must write the plan. Entrepreneurs must understand every facet of their business and writing a business plan forces new entrepreneurs to carefully analyze all aspects of the new venture. Get a first class tool, such as The Business Mentor [available from FastTrac (Kauffman Foundation) for $34.99. Not currently available online, this product can be ordered by calling (877) 450-9800], then go through the painstaking process of writing the plan. But, what if the entrepreneur is not a skillful writer? By all means, use an editor to make the plan as readable as possible. The first draft, however, must be written by the entrepreneur.

OK…now to the content:

Product or Service – Describe the purpose of your product or service, the unique features of your product, compared to others in the market and the technology or intellectual property protecting the business from infringement by others. The unique product features should be described from the customers’ perspective. Why would customers purchase your product instead of using the product or service they are using today? What prevents competitors, with a lot more cash reserves than you have, from copying your product immediately after introduction? (The most common mistake entrepreneurs make in writing business plans to overwhelm the reader with descriptions of products and technology. Don’t fall into this trap – provide a good balance all facets of your business in your plan.)

Management Team – Briefly describe your background, especially your skills and experience that can be applied to starting this business. If you wish, add your full resume to the appendix of the plan. It is very important that you describe your experience in managing people and in the business sector of the product or service of the company. Follow the same outline for describing the members of your management team. If you have not yet hired key team members, describe the job descriptions you need to fill and provide some timeline for filling these positions. If you have team members who plan to join the company later, feel free to include some information on these employees. A good business plan also includes biographical information on the entrepreneur’s advisors and the board of directors. Describe the partnerships that are being pursued for the company – in development, sales, marketing and/or manufacturing. The expertise surrounding the entrepreneur is often a good measure of the potential success of the business.

Sales and Marketing – This is a critical and often underemphasized section of entrepreneur’s business plans. These are the important features of the sales and marketing plan:

• What is the size of the opportunity for this product/service, or what is the addressable market? If every potential customer in the world purchased this product, what would the annual revenues of the company be?

• Describe the competitive landscape. Who else is selling products in the same market? Who are the particularly strong (or well-funded) competitors in this space? Consider including a SWOT chart for all the competitors in this space, compared to your product/service (Strengths, Weaknesses, Opportunities, Threats). Convince the readers that customers will purchase your products over the competition.

• Sales channels are the avenues to the customer (a direct-to-the-customer sales team, sales representatives, the Internet, distributors, mail/telemarketing). Describe the sales channels used in your marketplace and specify those which will best serve your new company.

• Show your pricing model, gross margins and a break-even analysis for the business.

• Most importantly, describe your relationships with customers. Who has beta tested or is actually buying your product. What testimonials can your provide from those customers? Customer feedback is the key to successful product development and validation.

Operations – Where is the product being developed and tested? Where will the product be manufactured? What unique partnering will be required with vendors or contract manufacturers? What are the sales cycle idiosyncrasies of this market (time to sell, manufacturer, collection of invoices, repeat orders, etc.). What inventory expense and/or problems can you anticipate for this business? Will you need multiple locations for offices or factories?

Finances – Develop sales and income projections for the firm, as well as cash requirements and sources of capital. Attach complete income statements, balance sheets and cash flow statements for five years in the Appendix. Include briefs of each report in the body of the report. Of critical importance are the revenue projections and the cash requirements for the company to achieve positive cash flow (beyond break-even).

Growth Plans – Describe new product offerings that can be anticipated over the first three years of the company’s life and the additional management team members necessary for expansion success. Two very important features of business plans for investors are: (1) The exit strategy for the company – how investors will enjoy a return on investment. The most common exit strategy is through the sale of the company to a larger public company. If appropriate for your business, describe specific companies that would strategically benefit from purchasing your company after five years of success. (2) The capital plan for the company – how much capital from investors will be required to first achieve positive cash flow and then to grow the company. These are very important issues that require extensive analysis by entrepreneurs in writing their plans.

This is only an abbreviated introduction to writing business plans. To write a good plan, get a great planning tool and good advisors to assist you in completing this important task.

Columnist Bill Payne is an entrepreneur and angel investor. He may be reached by e-mail at bill@billpayne.com or see his website at www.billpayne.com where his book The Definitive Guide to Raising Money from Angels is available.
————————————————————————————————————————————
This is the second in a series of monthly articles in the Entrepreneurs’ Corner written by Bill Payne for the Flathead Beacon.

Stay Connected with the Daily Roundup.

Sign up for our newsletter and get the best of the Beacon delivered every day to your inbox.