When seeking investment for your startup, most investors will want to see a business plan. Typically, entrepreneurs begin to write a 20-page document that covers everything they can imagine. A more sensible approach is to look at the business plan from the investor’s perspective and provide them a shorter, high quality version of what they really want to read.
The main points an investor will want you to cover are something like this outline:
- A general description of the business concept
- How much money is needed?
- How much money is expected to be returned?
- How long does all this take?
- How are you going to make it happen?
- Why is your plan believable?
For the general description, write something like an executive summary. Provide some history, your reasons for wanting to pursue this opportunity, and enough information about the business idea that would allow someone to “get it” in a few paragraphs.
To write about the money that is needed, you’ll just have to do some deep thinking about the expenses that lie ahead. I use a spreadsheet and lay out each month for the first two years. The common business expenses, such as Web hosting, office rent, and accounting are likely to be in the list. Each business has its own particular expenses, too, related to the actual business activities. A company with products, for example, will likely incur photography costs so the items can be displayed in marketing materials and on the Internet. Total up the cash needed to get the business through the “proof of concept” phase and list that as your money need.
Similar projections should be done for the amount of money returned. Plan out the first two years on a monthly basis, and then the next three years after that in summary form. If you don’t already have figures for the number of clients or amount of sales that should be generated during this timeframe, try building the figures from the ground up. If your business is a services firm with contracted clients, for instance, then you can build your numbers from your projected expenses. If you have one salesperson on staff, ask yourself how many clients that salesperson can gather in the first two years. Be reaslistic and then discount it by 25%. How does it look? You should still be able to make money with less-than-desired sales levels. When you’ve gotten a grip on the projected revenue, see if you make or lose money based upon your expenses. If you make money, highlight this fact in the “amount of money returned” section. If you lose money, call this out in your writing along with a description of how that will be remedied when the business has fully ramped up. If you can’t make it work past the 2-year mark, consider whether you are just being optimistic about this business opportunity and go back to square one.
The “how long it should take” section is all about projecting a timeline and placing key activities on the timeline. Predict the future by looking at the major steps that will need to be covered as the business launches and operates. Don’t get into too much detail or your timeline will be unreadable. Keep it simple so an investor can see when you are executing certain “big picture” plan steps. Your investor will likely see these milestones as a way to plan the investment. Most investors will make an agreement to distribute funds to your business based upon success at points in the timeline.
To describe how you are going to make it happen, break this section into topical areas. Cover marketing, sales, construction / development, technology investment, intellectual property filings, and so on. This can potentially be a very large section, so try to summarize instead of listing low-level details. The point is to know how you are going to get the business off the ground and explain that clearly.
When explaining why your plan is believable, you are going to need outside information. Point out similar businesses that have been successful with your operating model. List some research figures about your market, and be sure to list whether it is growing or not. Check yourself against the research. If your market is 1,000 potential clients and you need to have 300 of those in order to succeed, you may be in trouble. Can you really get 30% of the entire market? Perhaps, but that is what your investor will be asking so be ready to defend why your business is going to be so overwhelmingly popular. You’ll also want to describe the operating team in this section. If your team is not fit to run the business, it will show. Talk about why you are the right person to pursue this venture. Cover your competitors and suppliers, too.
Business planning is about knowing what you are going to do, when you are going to do it, and why it is important. The real world of operating the business will not follow the plan, so you shouldn’t spend so much time on it that you delay starting up. You shouldn’t start working very much without a solid plan, though, either. Fit yourself in the middle and make a solid plan that avoids time-consuming writing about the accounting software you are going to use or the bank you are going to select to hold the business funds. That material is like writing “first, get in the car and turn the ignition” when you are giving someone directions to drive to your house. It’s already understood so avoid listing it and just focus on the topics here.
To put a framework around what you are writing (and speed things up), you also may want to try business plan crafting software. A good example is Business Plan Pro by Tim Berry’s company, Palo Alto Software. You can find it at www.paloalto.com
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