business plans

Your Easy Guide to Creating a Business Plan To Attract Investment

The following questions will help you answer what you need for your business plan.

I. What business are you in? What do you do? Many organizations have a brief mission statement, usually in 30 words or fewer, explaining their reason for being and their guiding principles. Goals are destinations, where you want your business to be. Objectives are progress markers along the way to goal achievement. For example, a goal might be to have a healthy, successful company that is a leader in customer service and that has a loyal customer following. Objectives might be annual sales targets and some specific measures of customer satisfaction.

What is important to you in business? To whom will you market your products? Is your industry a growth industry? What changes do you forsee in the industry, short term, and long term? How will your company be poised to take advantage of them? Describe your most important company strengths and core competencies. What factors will make the company succeed? What do you think your major competitive strengths will be? What background experience, skills, and strengths do you personally bring to this new venture?

Legal form of ownership: sole proprietor, partnership, Corporation, Limited liability corporation (L.L.C.)? Why have you selected this form?

II. Write your Executive Summary section last. Make it two pages or fewer. Include everything that you would cover in a five minute interview. Explain the fundamentals of the proposed business. What will your product be? Who will your customers be? Who are the owners? What do you think the future holds for your business and industry?

Make it enthusiastic, professional, complete, and concise. If applying for a loan, state clearly how much you want, precisely how you are going to use it, and how the money will make your business more profitable, thereby ensuring repayment.

III. Now outline a marketing strategy that is consistent with your niche. How will you get word out to customers? What media, why, and how often? Why this mix and not some other? Have you identified low-cost methods to get the most out of your promotional budget? Will you use methods other than paid advertising, such as trade shows, catalogs, dealer incentives, word of mouth (how will you stimulate it?), and network of friends or professionals? What image do you want to project? How do you want customers to see you?

In addition to advertising, what plans do you have for graphic image support? This includes things like logo design, cards and letterhead, brochures, signage, and interior design (if customers come to your place of business). Should you have a system to identify repeat customers and then systematically contact them?

How much will you spend on the items listed above? Before startup? (These numbers will go into your startup budget). Ongoing? (These numbers will go into your operating plan budget). Explain your method of setting prices. For most small businesses, having the lowest price is not a good policy. It robs you of needed profit margin; customers may not care as much about price as you think; and large competitors can under price you anyway. Usually you will do better to have average prices and compete on quality and service. Does your pricing strategy fit with what was revealed in your competitive analysis? Compare your prices with those of the competition. Are they higher, lower, the same? Why?

How important is price as a competitive factor? Do your intended customers really make their purchase decisions mostly on price?

IV. Products and services need to be described in depth on your products or services (technical specifications, drawings, photos, sales brochures, and other bulky items belong.

What factors will give you competitive advantages or disadvantages? Examples include level of quality or unique proprietary features. What are the pricing, fee, or leasing structures of your products or services?

 V. No matter how good your product and service, the venture cannot succeed without an effective marketing plan. And this begins with careful, systematic market research. It is very dangerous to assume that you already know about your intended market. You need to do market research to make sure you’re on track. Use the business planning process as your opportunity to uncover data and to question your marketing efforts. Your time will be well spent.

There are two kinds of market research: primary and secondary. Secondary research means using published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles. This type of information is available in public libraries, industry associations, chambers of commerce, from vendors who sell to your industry, and from government agencies. Start with your local library, and our favorite “librarian” Google. Your chamber of commerce has good information on the local area. Trade associations and trade publications often have excellent industry-specific data.

Primary research means gathering your own data. You could not do your own traffic count at a proposed location, use the yellow pages to identify competitors, and do surveys or focus-group interviews to learn about consumer preferences. Professional market research can be very costly, but there are many books that show small business owners how to do effective research themselves.

In your marketing plan, be as specific as possible, give statistics, numbers and sources. The marketing plan is the basis, later on, of all the all-important sales projection. You need to define the economics and facts about your industry as well. What is the total size of your market? What percent share of the market will you have? (This is important only if you think you will be a major factor in the market).

What is the current demand in your target market? What are the growth trends, trends in consumer preferences, and trends in product development? What’s the growth potential and opportunity for a business your size?

What are the barriers to entry that you face in entering the market? Typical barriers include high capital, production, and marketing costs, consumer acceptance and brand recognition, training and skills, unique technology and patents, unions, shipping costs, and tariff barriers and quotas. How will you overcome the barriers? How could change in technology, government regulations, economy, and industry affect your company?

VI. Explain the daily operation of the business, its location, equipment, people, processes, and surrounding environment. How and where are your products or services produced? Explain your methods of production techniques and costs, quality control, customer service, inventory control, and product development. What qualities do you need in a location? Describe the type of location you’ll have: your physical requirements such as amount of space, type of building, zoning, power, and other utilities.

Is it important that your location be convenient to transportation or to suppliers for access? Do you need easy walk-in access? What are your requirements for parking and proximity to freeway, airports, railroads, and shipping centers? Include a drawing or layout of your proposed facility if it is important, as it might be for a manufacturer.

VII. In your products and / or services section, you described your products and services as you see them. Now describe them from your customer’s point of view. List all of your major features and benefits. Describe the most important features. What is special about it? Describe the benefits. What will it do for the customer?

Your bottom line is your revenue, cost and expenses over the investment amount.

VIII. Who will manage the business on a day-to-day basis? What experience does that person bring to the business? What special or distinctive competencies do they have? Is there a plan for continuation of the business if this person is lost or incapacitated? If you’ll have more than 10 employees, create an organizational chart showing the management hierarchy and who is responsible for key functions. Include position descriptions for key employees. If you are seeking loans or investors, include resumes of owners and key employees.

List your professional and advisory support including Board of Directors, management advisory board, attorney, accountant, insurance agent, banker, consultants, and mentors or key advisors.

VIV. Include personal financial statements for each owner and major stockholder, showing assets and liabilities held outside the business and personal net worth. Owners will often draw on personal assets to finance the business, and these statements will show what is available. Bankers and investors usually want this information as well.

You will have many startup expenses before you even begin operating your business. It’s important to estimate these expenses accurately and then to plan where you will get sufficient capital. The more thorough your research efforts, the less chance that you will leave out important expenses or underestimate them.

Even with the best of research, however, opening a new business has a way of costing more than you anticipate. There are two ways to make allowances for surprise expenses. The first is to add a little “padding” to each item in the budget. The problem with this approach is that it destroys the accuracy of your carefully wrought plan. The second approach is to add a separate line item, called contingencies, to account for the unforeseeable. This is the approach we recommend.

Talk to others who have started similar businesses to get a good idea of how much to allow for contingencies. If you cannot get good information, we recommend a rule of thumb that contingencies should equal at least 20 percent of the total of all other startup expenses.

Explain your research and how you arrived at your forecasts of expenses. Give sources, amounts, and terms of proposed loans. Also explain in detail how much will be contributed by each investor and what percent ownership each will have.

Judging Business Plans

Most business plans would benefit from a more thoughtful and sophisticated approach to analyzing the company’s competition.  The issue is not, “Who are your competitors?”  Nor is it “What features do you have that your competitors don’t have?”  The important questions are:
  • What are the competitive dynamics in your industry?
  • What is the basis for competition?
  • Who are the dominant players, and how do they compete?
  • How do customers decide which product to buy?
  • How do you intend to position your company within this industry?
  • How do you know that your competitive position will be “enough” better to compel customers to buy?
  • What will you do to achieve your positioning?
  • What “alternative solutions” might compete with you, even though they are a different product?
  • What companies might enter the industry in the future?
If you want to write a really good section on “Competition” read the classic by Michael Porter:  Competitive Strategy, Free Press, New York, 1980.