Warning: Creating default object from empty value in /home1/uscfe/public_html/wp-content/themes/inspire/functions/admin-hooks.php on line 160

1.0 Introduction

HOW TO WRITE A BUSINESS PLAN >> Each section contains key Action Items located within the downloadable Action Guide >> Click to Download Action Guide.

1.1    What is a business plan?

The question’s not as simple as you might think.  While there are plenty of templates on the Internet and books about the right way to do a business plan, it isn’t a document that necessarily follows a specific set of rules.  It can be pretty much any document, formal or otherwise, that outlines a prospective business idea or continuation.  The function of the general document is to establish in writing or numbers, the goals and metrics that relate to an existing or future business model. In plain English, your business plan should do several simple things:

- Explain your business idea and why it’s a good one. Specifically, you should relate what problem or pain in the market your business will address or what your company’s compelling value proposition is for customers.  In other words, why will customers pay for your product or service?  Don’t over complicate your plan.  Maybe there isn’t a sandwich shop in your town, so you’re opening one.  Perhaps it’s that you have invented a device that allows people to lose weight without getting off the couch.  Your value proposition can be that simple.  The basic idea is that you should provide a solid rationale regarding why consumers may want to purchase your goods or service.  One important point to remember: simply saying that you’ll be “better than the competition” isn’t a rationale (it’s your ego) and you have to prove why your business will succeed.

- Describe and set milestones.  Your business plan should set forth expected milestones that you will reach.  This may include things like when the business will break-even financially, what month the business will become cash flow positive, and when the business will become profitable.  Once you’ve determined your milestones, you should also detail when they will be reached, hindrances to reaching them, and what impact reaching those milestones will have financially and on the business’ operations.

ACTION ITEMS: Complete the Action Items in your Action Guide.

Do you have a business idea? What is it? How would you describe it?

Can you explain what “pain” or “problem” in the market your business solves?  Do it now.

Write two sentences explaining why someone may want to buy your product or service.

1)

2)

Remember, simply claiming “because it will be better than my competitor’s product” isn’t sufficient. Give tangible, concrete reasons why a consumer may purchase your service or product.

1.2    The two types of business plans, and which is right for you

On the most basic level business plans can be broken down into two types of plans: internal and external.  An internal plan is a business document of almost any kind that sets goals for a business with the primary aim of providing clarity internally for an entrepreneur, his or her partners, or major shareholders for the company.

An external business plan, on the other hand, is created for people outside the organization, typically for the purpose of securing investments, loans, partnerships, or other interest from someone who’s not currently involved in the business. Since entrepreneurs are typically most interested in starting their business through external funding such as investments and loans, we’ll cover external planning in this tutorial.

1.3    Formatting your business plan

While it’s true that business plans can take on many forms (see section 1.1), an external business plan that’s being used to seek funding should follow a well-recognized format.  Here are the sections that an investor or lender will expect to see in a business plan:

- An Executive Summary: a one-page summary of your business plan, many experts consider this section the most important part of a business plan. That’s because it’s often the only section an investor or lender will read.  On the most fundamental level an executive summary should hit the high points of your business, including what problem in the market your start-up solves, why it represents a real opportunity, and what value it represents for an investor.

- The product or service offering: this section should clearly and concisely describe whatever it is you intend to peddle and why the proposed business will address the market need in an effective manner.  No more, no less.

- A market analysis: this section should include research demonstrating that there is a real market for your product or service, that interest in your industry/product/service is growing, and that you’re capable of snapping up a sufficient amount of market share to become profitable.  We’ll go over this section, which is often one of the trickiest, later on in the tutorial.

- Your strategy for reaching milestones: it is one thing to say that you expect to reach $10 million in sales in your first year, but it’s entirely another to actually demonstrate just how you’ll do that. Show investors that you know what you’re doing by detailing how you’ll reach key milestones and by illustrating that they are realistic.

- Your management team: describe your team’s experience in this section, and why they’re the right people for the job. Don’t think you’re exempt. You must justify why you’re the right person to lead the company too.

- Financial projections: this section includes key calculations such as per unit economics, sales metrics, profit and loss, and cash flow.  Another of the more challenging sections for entrepreneurs, this part of the business plan will also be covered in greater detail later in this tutorial.

ACTION ITEMS: Complete the Action Items in your Action Guide.

Using the list above, write at least one sentence for each section. Don’t worry about format or particulars just yet.  Just get something down on paper.

Executive Summary – What problem does your startup solve?

Product or Service Offering – Clearly describe your product or service in one paragraph.

Market Analysis – Why does your business represent a real opportunity?

Strategy for Reaching Milestones – What’s one realistic reason why you’ll be successful?

Management Team – Why are you the right person to lead your company?

Financial Projections – Describe your basic profit model in one paragraph.

1.4    Why you should keep it short

One of the biggest mistakes most entrepreneurs make when creating a business plan is ending up with a document that’s simply too long. While you won’t find any cap on page numbers on the SBA website or hear about this from your banker, it’s an unspoken rule that a business plan should be short, clear, and concise.  But how do you tell if your business plan hits the mark?

Take a step back from your business as you begin to write your business plan, and consider it from the perspective of an outside reader. While it’s natural for you to find your business model riveting, the hard truth is that investors or lenders probably don’t feel the same way, even if you’ve got the next great idea.  It’s not because you’re idea is a bad one, it’s because investors and bankers don’t want to read a business plan over 30 pages.  Some will cringe if you hand them 20.  It makes sense. Many of them receive and read hundreds of business plans each month. Do them (and yourself) a favor and keep each section as short as you possibly can.  You’ll increase your chances of having them read your business plan and, by proxy, your shot at securing a loan or funding.

This brings us to an important point: something your business plan is not.  It is not a thesis covering every possible contingency, outcome, or nuance of your business.  Instead, start with the assumption that investors and lenders are business savvy.  If there is a business model out there, they’ve probably seen it.  Following that assumption (which is typically true), it’s clear why you don’t need to explain the tiny minutia of your business model.  As a result, a solid executive summary – which should be just one page – is almost all you need to move a reader from ‘what are we talking about?” to “let’s talk about this and my involvement.”

Need an illustration? Here’s an example of two ways you could present the same idea to an investor:

1)    “De-icing airplanes in the coldest place on earth.”

2)    “I am starting an airplane de-icing business that will remove thick sheets of ice from the outside of airplanes.  Often when it’s cold outside, airlines are unable to take off on time, and bad weather can result in serious delays, potential safety issues, and other problems for these companies.  This is a detriment to these businesses and can cost them lots of money.  As a result, I will create a company that will help solve some of these problems.”

Did the investor have to read the entire second example to get the point?

Keep it brief and concise.

ACTION ITEMS: Complete the Action Items in your Action Guide.

Think about your business idea for a minute.  Now see if you can describe your idea, your value proposition, and/or the pain you’re solving with this start-up in just a few sentences:

Next — 2.0 Getting Started »