2.0 Getting Started
HOW TO WRITE A BUSINESS PLAN >> Each section contains key Action Items located within the downloadable Action Guide >> Click to Download Action Guide.
2.1 Stop thinking about it and just do it already!
One of the most common questions entrepreneurs ask is “how do I get started with my business plan?” If you’re taking this course, you’ve probably grappled with it yourself.
It’s true that there are plenty of challenges and roadblocks that present themselves when it comes to getting started: a lack of research, little solid information, confusion about how to structure your business plan, and apprehensions about creating a financial model. While those are all valid concerns, the greatest roadblock to getting started is often the entrepreneur.
To get started you’ve got to ignore all that background noise, stop the hand wringing, and put pen to paper (or fingers to keyboard). In the next two sections we’ll go over specific exercises you can do that will help you get that first sentence (or number) down.
ACTION ITEMS: Complete the Action Items in your Action Guide.
Have you thought about writing a business plan, or even tried? What challenges and roadblocks have you faced? Write some down and keep these in mind as we move on to the next section.
2.2 Baby steps: getting something down on paper
Ernest Hemingway once gave a piece of great advice about writing: “Write what you know about.”
It’s worth considering in the context of a business plan (even if that’s not what he had in mind). If you can’t figure out what to write first, start with what you know best: yourself. Get your bio down on paper, but don’t just regurgitate your resume – another common mistake a lot of entrepreneurs make. While it’s obvious that you think you’re capable of running your business successfully, if you’re seeking money you need to convince an investor or lender of that as well. Focus on really selling the qualities and skills you possess that will help you make the business a success instead of just rattling off the jobs you’ve held over the last ten years.
Writing your management summary before you do anything else is a good idea for another reason, too. It may provide you with a serious reality check. If you’re struggling to come up with reasons why you are the right person to lead your start-up and why you’ve got the chops to make it happen, then you’ve got a problem.
At that point it’s time to go back to the drawing board to reassess what it is you’re doing, and why you think you’re capable of doing it. If you can’t come up with a good rationale, it may be an indication that this is one business plan that is better left unwritten.
ACTION ITEMS: Complete the Action Items in your Action Guide.
Consider your resume. What specific experience or skills do you have that you believe make you well suited to launching and operating your start-up?
Write those down and then see if you can craft a management summary that makes those pieces of your resume the focal point on the next page.
Write out your skills and experience in sentences.
Example: “XYZ Company will be managed by ___________________ who is well qualified to run the organization due to (his / her) experience in the following areas…”
2.3 Don’t let the numbers scare you
Unless you’re an accountant or an IRS cube-dweller, it’s easy to see why creating detailed financial projections may seem like a daunting task, particularly when there’s the expectation that those numbers will be (somewhat) accurate. To get started, consider your numbers from the perspective of the person you intend to pitch – either a banker or an investor.
Bear in mind that financial projections you include depend on what you want your business plan to accomplish. If you’re seeking venture capital or angel investment, the most basic things you should include are per unit economic assumptions, something that we’ll describe more below. If you’re trying to secure a bank loan, you should focus instead on cash flow and balance sheets.
The reason for this difference is that investors and lenders are concerned with two different things. Investors are more interested in how quickly you can get to scale, and how quickly they can get a return on their investment, while bankers want to ensure you can make your payments.
The two thus judge “success” far differently. Depending on what type of financing you’re seeking, you may want to place a greater emphasis on different figures. While per unit economic assumptions, cash flow and balance sheets are the basic elements you should have, other key financial projections you may wish to include are sales forecasts, profit and loss statements, and break-even analysis.
If you’re seeking venture capital, angel investment, or a chunk of cash from your Cousin Larry, a great place to get started with your financial projections is to create per unit economic assumptions.
Per unit economics assumptions describe two things:
1) What it costs you to produce a product or offer a service
2) What you make per unit (that is, the retail price less the total cost of production, marketing, etc.).
It’s a simple way to show investors when you’ll reach critical mass – the point when you’ll become profitable, and more significantly for them, when they’ll start to see a return on their investment.
Per unit economics also answer another question for an investor: whether it’s truly feasible for your business to make money. Say for instance you’re making a widget, and that you need to move 100 million widgets in year one to break even in month six and to turn a small profit by the end of the year. Such a scenario might cause an investor to arch an eyebrow, because unless you’re promoting something free, pushing 100 million units in one year is hard for even a successful business. Investors will also be concerned if you are only generating a tiny profit after selling that many widgets.
Keep in mind that running out of cash is not an option (or it is, but it’s not a scenario you want to present in your business plan) as you’re developing your per unit economic. You might also want to figure out your burn rate. That is, how quickly you’ll use the capital you’ve raised and, as a result, how quickly you need to either become profitable or raise more money.
Creating a business plan to seek a bank loan? It can’t get any simpler than this: bankers primarily want to see three things in your business plan: profit and loss, cash flow statements, and balance sheets. Anything else is gravy, but make sure you put these numbers out there front and center, and that they work in your favor – meaning that they show how you’ll repay your loan.
ACTION ITEMS: Complete the Action Items in your Action Guide.
Consider your product or service and write your answers in sentences for each question below.
How much does it cost you to make/produce/offer whatever it is your business sells?
How much profit do you make per unit?
Using these figures, how many units do you need to sell to become profitable?
How long might it take you to sell that many units?
Is this number realistic?
2.4 Other ways to gain forward momentum
It goes without saying that research is the cornerstone of any great business plan. But many entrepreneurs feel overwhelmed in the face of an Internet’s worth of numbers, figures, and charts.
One of the best ways to get started with research is to consider what exactly it is that you’re trying to prove. Is it that you’ve got a large market of potential customers in your area? Or is it that people have a real, genuine interest in what you’re trying to sell? If you’re opening a sandwich shop, for instance, the former question is probably more significant than the latter. Nail down the basics that you need to address and use that to narrow and focus your research. We’ll go into more detail about research, and challenges you’ll face along the way in the next section.
ACTION ITEMS: Complete the Action Items in your Action Guide.
What specific facts do you need to prove to an investor that your idea is viable and that it has the potential for profitability? Write them down now.
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