by Michael Mohajery, Counselor
Most people think that the primary purpose of a business plan is to raise capital for a business via conventional bank loan, “angel” investor, sale of stock and/or any other of the myriad ways of raising money. While this is absolutely true, a well-researched, well-constructed business plan will serve another, and perhaps even more important, purpose; i.e., the “playbook” for running your business successfully. As conditions change and new data is generated, you may replace assumptions that you made about that data in the business plan with the factual data you now have, update your projections, and continue to use your up-dated business plan to run your business.
While the business plan starts with the “Executive Summary”, that is not where you start! Preparing a business plan is a little like preparing your income tax return; i.e., with your income tax return, you prepare the schedules first, and then all of the information from the schedules is summarized on the first two pages of your return. Similarly, you gather first all of the data and information outlined in the following paragraphs, and only then do you write an Executive Summary that provides a synopsis of your business plan in hard-hitting fashion so that you pique the interest of the reader enough that he or she is motivated to study the body of your plan.
So, what do you have to put in your business plan? What are the minimum requirements? The task of preparing a business plan can seem daunting. At the very least, your business plan must define:
- Your business;
- You; i.e, why you are uniquely qualified to run that business;
- Your experiences, and how will your business capitalize on them; (
- Your product or service offerings;
- Your competition; i.e., their strengths and weaknesses and how you can effectively compete in the marketplace; and (
- Your clients and/or customers; i.e., who they are, where they are, their consumption patterns and how your product or service will fit their needs.
- Units sold;
- A pricing formula to well-position you in the marketplace;
- Anticipated revenues to be generated; and
- All the costs associated with providing those revenues.It is critically important to state all of the assumptions you use in these projections.
When preparing your business plan, therefore, it may be helpful to keep the following in mind:
While, ideally, you would like to have positive cash flow from the beginning, it is far more likely that it will take some time before you will start to see positive cash flow; thus, your borrowing needs should not only address the initial capital requirements for starting your business, but should account for these shortfalls as well.
A good business plan should be supported by factual data, if such data is available. If factual data is not available, you will need to make projections that are based upon defensible assumptions. While future events are never certain, the lender should be able to gain a very large degree of confidence that your business is capable of generating the cash flow necessary to service the loan and still prosper.
Oftentimes, you will be required to support your business plan with lots of data. To improve your presentation of this data, you can summarize the data and the resultant projections in the body of your business plan, but make the underlying figures available in appendices to your plan.