People often ask "What makes a good business plan?" Or, "How I can make my plan attractive to lenders and investors?".
The simple answer is that lenders and investors (I'll call "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 taken. The complete answer is that you should write a plan that a reader will want to read and then get the reader (s) who are looking for the type of project and levels of risk and return. This article is 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. These are the steps needed to write that plan:
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 to live or die on the quality and integrity of their information. Otherwise, you're about to risk your time and financial future on a project – how much information do I want to have? Step One:
1. Become expert in your project. Learn everything possible about:
A. The customers to whom they will sell (the market).
B. The competition.
C. Actual costs of running your business (get quotes).
D. Actual results of similar projects.
E. Its industry.
F. The physical location of the project (s) and impact (if any) in the project.
G. People who are key to the project.
If you followed the above, you now have a lot of research – sticky notes, web pages, reports, quotes, etc., etc. But what does all this mean? Step Two:
2. Analyze. (Hopefully) the first time I had the idea for the project was a sense of excitement and a sense that this is a sure winner. Now is the time to see if your feelings were well founded. With a critical eye, make a (strengths, weaknesses, opportunities, threats) SWOT analysis on your project. Determine what they can do to capitalize on the S and O and minimize the W and T.
Steps one and two may have changed a bit their winning feeling safe – which is good. (If it is not, nor has it given to the next sliced bread or if you need to do the steps above). Assuming that your research and analysis demonstrates a valuable use of your time and money (and your readers) move to step three:
3. Forecast. This is where the rubber meets the road. Using your research and analysis that your readers now says "this is what will happen to the money." What will you do with accounting forecasts called pro forma. Provide three or five years of statements with (generally) the first year done monthly, the second and the third conducted quarterly and (if included) the last two years made annually. In any case, they include:
A. Operating states.
B. Cash flow forecasts.
C. Balances. Optionally
D. Various ratios (loan to value, coverage of debt service, etc.)
addition to the above, must be included usually a Source and Use of Funds showing where the source of the initial capital and what is It spent.
This point is well that you have a winner (differing from a sure winner 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 and . If you have a winner, step four is:
4. Write the plan. Obviously, you have to be able to use good grammar and spelling. You should be clear, concise and complete. Fill your plan with compelling facts obtained from research. Do not avoid the W and T from your SWOT analysis, rather, it describes in detail how you will deal with them. Avoid platitudes and your own opinions – everyone knows you like the idea, readers need facts to determine if they like. Try to keep your short as possible while still giving complete information responses. With the exception of the Executive Summary, keep your somewhat dry and actually answers – short, sweet and to the point.
The Executive Summary, meanwhile, is where the sizzle sells. This is where you make the claim that yours is a dynamic project that deserves full consideration. It is necessary to compel the reader to read your plan and tell them why you are excited about the project.
There are probably as many ways to compile a business plan as there are authors of them. A sample scheme is http://www.fundableplans.com/sample_business_plan.pdf. (Adobe Reader is required to view and includes our logo which is not included in our plans.) You must attach copies of plan documents referenced in it and historical data on the business (if not initially).
You have now done the lion's 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 you can get to review your plan the more likely you are to find problems before they are found by a reader.
Follow the above steps and have a business plan that will get read and, hopefully, funded. If you have any questions about business plans, please feel free to contact us at [email protected]