This article talks a little bit more about Chapter 3 of Tarby Bryant’s book, “The Entrepreneur’s Guide to Raising Capital from Angel Investors”.
Learning more about the importance of an entrepreneur business plan…
The business plan is paramount in any new business venture. It should be at least 25 to 35 pages long, and should be created by the entrepreneur who owns the business… probably you!
While it is true that many people hire professional writers and business specialists to produce business plans for them, this is not a good idea. A committed entrepreneur will develop the business plan, even if it takes a very long time to do. This is because a successful entrepreneurial business plan will come from both the head and the heart of the person who has the business vision. You can ask a professional to proofread the finished article and correct spelling and grammar, but you cannot ask anybody else to create the concept. Well you can, but it isn’t going to work.
In the previous chapter that discussed angel investors, we stressed the importance of business plans. We also mentioned the executive summary that is part of every business plan. If an entrepreneur hasn’t got a well-crafted business plan, with a concise two to three page executive summary the business will likely remain a pipe dream. The new venture might be based on the most brilliant innovative ideas, but until the business plan is formulated on paper, it is meaningless to prospective investors. In fact, without a business plan, no new business is likely to succeed and thrive.
Why do I need to write a Business Plan?
The business plan is essentially a blueprint for the business. You can compare it to a road map that helps you get from one place to another, or to an architect’s plan that shows how to build something. Amongst other things, a business plan indicates how you will get customers and clients; who will be needed to run the business; and how seed and early stage capital will be raised. It will also state how much money is needed to start the business, and will forecast how long it will take to make a profit.
When an entrepreneur approaches investors for capital, one of the first questions they are inevitably asked is, “May I see your business plan?”
A good pitch and video or PowerPoint presentation will help an entrepreneur gain investor interest in the project, and it is essential to include these. But unless there is a carefully thought out, well-crafted business plan, in writing, even the most interested investors are likely to back off.
Both angel investors and venture capitalists will study the business plan before agreeing to invest. They might even re-write portions of the plan and adjust projections, sometimes discounting them by up to 50 to 75 percent before agreeing to write a check or issue a term sheet.
But the business plan is more than just motivation for investors to lend you money. The business plan defines the business and explains how it will work and what will make it successful. Once the business starts to operate, this will form essential guidelines for running the business. It should remain an accessible reference guide for everyone involved in the management of the business, as well as those who agree to invest.
Where can I find help and assistance in the creation of my Business Plan?
Many professionals advertise their services to write business plans and grant applications. Some even “guarantee” the success of their documents in terms of acquiring seed and early stage capital. But there are two problems:
- No outside party can guarantee investment
- Entrepreneurs should always write their own business plans
An alternative to hiring someone to write your business plan for you is to use the services of an external consultant to advise and assist. However, even this can result in a more generic, less entrepreneurial business than the one you have conceived in your head.
One vital aspect of business plans that entrepreneurs often struggle with is the financials. This is one part of the business plan that might need the input of a professional accountant – to compile financial documents from information supplied by you, or to review the finished statements.
But on the whole, the best solution for any dedicated entrepreneur is to go it alone, starting with a professional template of sorts. There are sample business plans on the Internet as well as excellent software that will create business plan templates for different industries. There are also many good books that provide comprehensive guidelines that outline what should be included in a business plan, and how it should be structured. Books also give thorough guidelines on how to write business plans.
The seven basic parts of a well-drafted business plan are discussed in the next section. There’s enough information here to get you started.
What are the seven basic parts of a well-drafted Business Plan?
The basic structure for any business plan is the same, even though there will be differences in content, depending on the specific industry the business fits into. For example, if the business offers services, the business plan will not include a production plan, but if it is going to be involved in manufacturing, it will.
In addition to a cover page and executive summary, these are the elements that should be covered. Some can be split if need be.
- Business description that explains the purpose of the business including the products and services that will be offered.
- Market analysis that includes research and analysis of the market the business is aiming at, including its size, the potential market share, competition, and marketing strategy.
- Location and production plan that gives reasons, including advantages for the location chosen for the business. This might include zoning and access to suppliers, particularly if production is part of the plan.
- Management profile that indicates the corporate structure of the business as well as roles and information about those already in the management team. Legal structure of the business, as well as shareholding and others agreements should also be included.
- Financial planning that includes as much paperwork as you can put together. In addition to information about capital required, there should be projected income and cash flow statements, as well as a projected balance sheet and break-even analysis. One-, three-, and five-year profit and loss projections should be included along with a snapshot of financial summaries and anticipated margins. Angel investors will also want to know how their funds will be used, so include this information.
- Critical risk assessment that includes potential problems, obstacles and possible weaknesses that should be addressed right from the start. This should include both business and market risks.
- Exit strategies for early investors are important when angel investment is required. Possibilities should be explored and milestone schedules given.
While every business plan needs to be transparent, reasonable and believable, it is important for it to be positive and compelling. A SWOT analysis could be included as part of the business plan as it would give strengths and opportunities as well as weaknesses and threats.
It is vital that all components fit together and are strengthened by a relatively short but well-structured executive summary.
Is a Business Plan a “cast in stone” document?
No business plan should be “cast in stone.” Rather it needs to be an ever-evolving document that grows and changes as the business evolves and grows.
Even though the business plan is considered to be a vital planning instrument for any new business, to remain meaningful it needs to change as elements of the business change. Since no business can function in isolation from market trends, economic factors, political issues and so on, change it will. These changes might be due to financial or economic pressures, or they may be because of innovations in your particular industry. They may even be a result of new management personnel or additional partners who join the business and see things slightly differently, and suggest changes.
In today’s technological age, it is easy to update the business plan as often as required. There should be a master copy on your computer, and when it is updated, it should be saved as a new version. This way you can keep track of changes made, and can revert to earlier versions or even the original if need be.
Why should I not hire someone else to write my Business Plan?
Anyone who comes up with a feasible business idea and has the survival skills to become a successful entrepreneur, and make the idea viable, should be able to structure a business plan. It’s going to take time, discipline and personal commitment to complete a good business plan, but undoubtedly it’s the person who conceived the plan who will do it best.
This said, even the best writers benefit from someone else reviewing their work. At very least get others involved in the business to check and critique what you have written. You could also hire a proofreader, on the understanding that none of the content is changed. If necessary, the same person might be able format, or check the formatting of the document for you, to ensure it looks absolutely professional.
There is a well-known saying, “If one fails to plan, one plans to fail.” Nothing could be truer when it comes to establishing a new business. Ultimately a well-crafted business plan paints a picture of how the entrepreneur will succeed. The best person to paint this picture is the entrepreneur.