What is a Business Plan?
A business plan is a document that serves as a guide to your company and conveys it's prospects and growth potential. In order to obtain financing, one must have a sound, well written business plan that can clearly and concisely articulate the business model and present a complete story about the business. It must demonstrate that you have given considerable thought to various details that impact and contribute to the success of the business. The reader must come to understand the business and feel confident that the plan's objectives are achievable.
Purpose of a Business Plan
Some reasons for preparing business plans include:
To obtain equity funding.
To support a loan application.
Strategic planning.
SBA loan programs.
SBA business development and Small Disadvantaged Business Certification programs.
To support a lease application.
For a real estate development project seeking funding.
For purchasing commercial real estate.
To pre qualify as a vendor or provider of services.
For arranging or seeking potential strategic alliances, joint ventures or partnerships.
Performance measurement tool.
Evaluate a new product, expansion or new business.
A business plan is one of the most important documents a business needs to obtain funding because the majority of lending institutions and potential investors want to see one. A business plan enables them to evaluate the company and assess the risks and prospects for return on their investment. The business plan must be able to pass the intense scrutiny of sophisticated lenders and investors.
A business plan is not only a tool to obtain funding. Preparing a business plan helps clarify your company's status, direction, goals and vision to certain business organizations, potential partners or customers and members of your organization so that they are all working together towards the same objectives. It forces management to think through the business in detail, to stay focused and to set objectives.
If used properly, business plans can serve as a basis for performance measurement. A business must have a method to evaluate how well or poorly it is doing and a business plan serves as a mechanism to monitor performance and provide the basis for any required corrective actions.
Writing a business plan can provide answers, backed up by sound reasoning and analysis, to evaluate a new business, product or expansion of an existing business before making the big step and avoid potential pitfalls. It helps in the decision making process to determine whether or not to proceed and if the business is worth pursuing.
Main elements of a Business Plan
Although each business plan is unique in its content, following are some common main outline elements that are normally addressed:
Executive Summary. Features the highlights of the business plan in one or two pages.
Company Description. A factual description of the company, ownership and history.
Products and/or Services. Describes the products and services and how they stand out from those of the competition.
Market Analysis. Provides details of typical customers, competitive landscape, market size and expected market growth.
Marketing and Sales. Describes how you will sell your product, how you will put the plan in action and establishes milestones.
Management Summary and Organization. Provides background on the management team and describes how the company is run.
Financial Plan. Contains three years forward financial projects such as income statements, balance sheets, cash flow, break even analysis, assumptions and business ratios. In addition, existing businesses should provide financial statements for the past three years.
Although business plans often include a standard set of components and elements, there is no standard type business plan. Each business plan should be custom made to suit the particular business and the audience it is directed at. Make sure that the business plan is well organized, clear, focused and to the point, realistic, and that you have the tools, talent and team to make it happen.
Size of a Business Plan
Most lenders and investors have a mental checklist of a half dozen or so specific main topics that they look for in a business plan. The last thing they want to do is wade through pages and pages of tedious, extraneous or irrelevant narrative.
Come straight to the point in a clear and easily understood manner. Your objective should be to focus on the key elements of the business plan and make your case as succinct and as straightforward as possible. Extensive data, analysis, surveys, research data and information can be included in the back of the business plan as an addendum and you can reference it in the body of the business plan.
Just as too much detail can bore or confuse the reader, too little detail can potentially give the reader the impression that you have not properly thought through the business planning process or that you have hastily prepared it and leave him with a lot of issues that have not been properly addressed.
So the middle of the way approach, not too long and not too short, is usually the best for most situations. Some types of businesses will, however, justify an extensive and lengthy business plan. The business plan must include enough information to enable an investor or lender to make a decision, but should not be overloaded with superfluous or irrelevant detail.