People often ask “What makes a good business plan?” Or, “How do I make my plan attractive to lenders and investors?”.
The simple answer is that lenders and investors (I’ll call them “readers” from here on out) are looking for “good deals”. A “good deal” is one that offers the reader a reasonable rate of return for the risk assumed. The complete answer is that you should write a plan that a reader will want to read and then get it to reader(s) who are looking for your type of project and levels of risk and return. This article deals with the first part of the equation – how to write a business plan that readers will want to read.
Readers want plans that clearly, accurately and completely allow them to make an initial determination about the project. Here are the steps needed to write that plan:
To borrow from the real estate industry, the three most important things about a business plan are research, research and research. While other things are important (even critical), ultimately your plan will live or die on the quality and completeness of your information. For that matter, you’re about to risk your time and financial future on a project – how much information do you want to have? Step one:
1. Become expert in your project. Learn everything possible about:
a. The customers to whom you will sell (your market).
b. The competition.
c. The actual costs of operating your business (get quotes).
d. The actual results of similar projects.
e. Your industry.
f. The project’s physical location(s) and it’s impact (if any) on the project.
g. The people who will be key to the project.
If you’ve followed the above, you’ve now got a mound of research – sticky notes, web pages, reports, quotes, etc., etc. But, what does it all mean? Step two:
2. Analyze. (Hopefully) when you first got the idea for your project there was a sense of excitement and a feeling that “this is a sure winner”. Now is the time to see if your feelings were well founded. With a critical eye, do a “SWOT” (strengths, weaknesses, opportunities, threats) analysis on your project. Determine what you are able to do to capitalize on the S and O and minimize the W and T.
Steps one and two may have changed somewhat your “sure winner” feelings – which is good. (If not, you either have hit upon the next “sliced bread” or you need to redo the preceding steps). Presuming that your research and analysis shows a worthwhile use of your time and money (and that of your readers) move to step three:
3. Forecast. This is where the “rubber meets the road”. Using your research and analysis you will now tell your readers that “this is what will happen to the money”. You’ll do it with accounting forecasts called “pro forma” statements. Provide either three or five years of statements with (generally) the first year done monthly, the second and third done quarterly and (if included) the last two years done annually. In all events, include:
a. Operating statements.
b. Cash flow forecasts.
c. Balance sheets.
d. Various ratios (loan to value, debt service coverage, etc.)
In addition to the above, you should usually include a “Source and Use of Funds” showing where the source of the initial capital and on what it will be spent.
By this point you’re either sure you have a winner (differing from “a sure winner” in that you recognize the obstacles but are prepared to work through them) or you are going back to the drawing board to rethink your project. If you “have a winner”, step four is:
4. Write the plan. Obviously, you need to be able to use good grammar and spelling. You should be clear, concise and complete. Fill your plan with compelling facts gleaned from your research. Do not avoid the W and T from your SWOT analysis, rather, describe in detail how you will deal with them. Avoid platitudes and your own opinions – everyone knows that you like the idea, readers need facts to determine if they like it. Try to keep your answers as short as possible while still giving complete information. With the exception of the Executive Summary, keep your answers somewhat dry and factual – “short, sweet and to the point”.
The Executive Summary, on the other hand, is where you “sell the sizzle”. It is here that you make the claim that yours is a dynamic project that deserves full consideration. You need to compel your reader to read your plan and tell them why you are excited about the project.
There are likely as many ways to compile a business plan as there are authors of them. A sample outline is at http://www.fundableplans.com/sample_business_plan.pdf . (It requires Adobe Reader to view and includes our logo which is not included in our plans.) You will want to attach to your plan copies of documents referenced in it and historical data on the business (if it is not a startup).
You’ve now done the lions share of the work leaving only step five:
5. Review and revise. The review should be first by the author(s) and then by trusted advisors – the more people that you can get to review your plan the more likely you are to find any problems before they are found by a reader.
Follow the preceding steps and you will have a business plan that will get read and, hopefully, funded.