The first big sale
A business plan is an advertisement for your idea; make sure it reads well
By Robert Grede, for SBT
Recently, I have been seeing more and more entrepreneurs striking out on their own. They have accumulated skills and experience over time and have amassed a fair cadre of friends and acquaintances who encourage their independent streak. So they decide to slap together a business plan and take the plunge.
And I weep for the outcome.
Skills acquired through years of work experience do not often translate well into a business plan. Not for lack of a good idea nor for a perceived need. No, the plans are simply poorly written.
No matter how creative your new product may be, no matter how great the need for your services in the marketplace, you will have difficulty obtaining the necessary funding without a well-written plan.
My brother, Don, is a partner in The Aspen Alliance, a Colorado-based venture capital firm specializing in expansion strategies for the entrepreneur. He reviews, on average, about 30 business plans each week. Most get a cursory glance before they hit the round file.
"The worst are written by lawyers," he says. "But accountants come a close second."
Skip the legalese – too hard to plow through. And while accountants are necessary to assure your pro-forma statements are accurate, they typically lack luster in their prose.
Business plans are an advertisement for your company idea. And while I acknowledge my bias, the best are written by advertising professionals, those who understand how to snag a reader with the primary benefit up front, the supporting data clearly labeled, the call to action at the end.
The well-written plan will garner notice among heavy hitters (those debt and/or equity providers who aren’t funding a friend or brother-in-law). It will demonstrate to the reader how serious you are about your company idea. And it is well worth the investment if your plan gets you the funding you require.
This is not to say your plan will never be funded without professional help. But the odds are longer, that’s all.
When developing your plan, you can cut your expense dramatically if you do most of the legwork yourself. Begin with an outline. I have found that most fill-in-the-blank software is a waste of money, and while many accounting firms have standard formats you can use, they carry an accounting bias, emphasizing the numbers more than intangible factors.
Here is a basic outline I use with my students. It is suitable for any business, whether new or expanding, a manufacturer, distributor or consumer service.
1. Executive summary
A one-page summary with a 25-word (or less) explanation of your product and its primary benefit. Devote most of this page to the financing sought and its payback schedule.
2. The industry, the company, the products
An analysis of your industry and how you fit in it.
3. The market
An analysis of market potential and trends, your target customers, competition, and most importantly, realistic sales estimates.
4. The marketing strategy
Your business begins with customers. How will you get them? How will you position your company in the marketplace, price it, distribute it and promote it?
5. The operations
A brief description of operations, facility requirements, management organization and support services (your accounting and law firms, and any other advisory services). Included in this section is a lengthy description of the management team and their past experience, with resumés.
6. The risks
An analysis of customer risks, labor and raw materials availability, economic factors, changes in technology, and government regulations affecting your company.
7. The financial statements
Pro forma balance sheet, income statement and cash flow analysis. Be sure to include ALL assumptions.
8. The financing
The call to action: the amount of debt and/or equity funding required, it’s use and payback schedule.
"The biggest mistakes I see in business plans are a lack of focus on management," says Ed Vieira, partner in The Aspen Alliance. "We assume your idea is sound. We assume your numbers make sense. We want to know who is going to manage the money."
"We also find many plans lack an end game," adds Grede. "What’s the payback schedule? How will investors get paid out? And when?"
Got a hankering to start a new company or expand your current one? Begin with a well-written business plan, one that advertises you and your company to the debt and equity marketplace.
Robert Grede teaches Entrepreneurial Management at Marquette University. He develops business plans for companies in a wide variety of industries. www.thegredecompany.com
Aug. 22, 2003 Small Business Times, Milwaukee