Avoid airy assertions like “every customer needs this” and gobbledygook like “next generation platform”–they mean nothing and undermine your credibility. A good business plan will let you structure your finances efficiently, show potential investors the strength of your business, and focus your efforts on developing your business. A great business plan is not easy to compose, Sahlman acknowledges, largely because most entrepreneurs are wild-eyed optimists. Investment-grade business plans–usually about 20 pages long–are grounded in deep knowledge of an industry and the money-making opportunities within it. It should flesh out strategic plans, develop marketing and sales plans, create the foundation for smooth operations, and maybe–just maybe–convince a lender or investor to jump on board. Few areas of business attract as much attention as new ventures, and few aspects of new-venture creation attract as much attention as the business plan. Putting these plans in writing can hopefully start a healthy business planning process that your business revisits on a regular basis, updates, and revises. Where your entrepreneurial dreams are concerned, you should do everything possible to set the stage for success.
The following pages will help you understand why you should write a business plan, components to include in a business plan, and how to use the plan internally to meet your business goals. In other words, your business plan doesn’t have to be some manicured document in order to make it successful. William Sahlman suggests that a great business plan is one that focuses on a series of questions. It sets direction, facilitates communication and establishes performance metrics. Writing a business plan is a vital first step when starting a business, in order to set out your proposition, your market, customers and competitors. Then, in addition to demonstrating an understanding of the context in which their venture will operate, entrepreneurs should make clear how they will respond when that context inevitably changes. Every seasoned investor knows that detailed financial projections for a new company are an act of imagination. A business plan is crucial to get support for your vision because it shows that you have thought through an idea clearly and aren’t just winging it. With great timing, solid business skills, entrepreneurial drive, and a little luck, some founders build thriving businesses without ever creating even an informal business plan. If outside investment or loans are sought, whether from venture capitalists or bankers or others, a business plan is essential.
For many entrepreneurs, developing a business plan is the first step in the process of deciding whether to actually start a business. For example, I once wrote an entire business plan with a business partner on paper towels. First and foremost, your business plan should convince you that your idea makes sense–because your time, your money, and your effort are on the line.
Advice for small businesses on what it takes to create a solid business plan, including forming an outline, integrating financial specifics, and spelling out your marketing strategy. It can help you describe your product or service, detail your marketing strategy, and lay out your sales and operational forecasts—including the ever important cash-flow projection so as to keep your business on track for profits. Every plan must start with an explanation of the problem the business aims to solve–not a description of the company and product. A business plan–thoughtfully assembled and diligently updated–is the very blueprint for any company. The business planning process will give you a feel for the various elements that will determine your success, from cash flow, to sales forecasting to your personnel structure. Better yet, well-articulated business plans force business owners to constantly weigh the strengths and weaknesses of their operations.
The simple act of writing down your idea and outlining how the business will operate can be helpful to ensure that you communicate your vision and that everyone is on the same page. Determining if an idea fails on paper can help a prospective founder avoid wasting time and money on a business with no realistic hope of success. A great business plan is a living, breathing blueprint for your business that can help you navigate and manage your company while also helping potential investors, partners, lenders, and others understand your business strategy and your chances at success.
For the purpose of financing, you may add certain sections to your business plan, including background and historical information about the business and a description of the management team leading the organization. SubscribeLast week, I discussed the components of a strong business plan and why entrepreneurs should create them, regardless of their venture. For important tips and traps in creating these plans, check out the accompanying slideshow. These questions relate to the four factors critical to the success of every new venture: the people, the opportunity, the context, and the possibilities for both risk and reward. Although an idea is what often gets investors interested, a business plan is definitely needed to get financial support from them. I’ve had experience both developing business plans and reviewing them for potential investments. The first in a comprehensive series to help you craft the perfect business plan for your startup.
Finally, the plan should look unflinchingly at the risks the new venture faces, giving would-be backers a realistic idea of what magnitude of reward they can expect and when they can expect it.