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Components of a Business Plan

There may have been a day when people read business plans cover to cover. Not any more. When they get close to giving you the money, they might, but first you have to grab their interest and answer their questions. I recommend organizing your business plan like a reference guide allowing readers to turn directly to the information they want. Different people want to know different things; some things are more important to some people than to others. The components of a successful business plan and a brief description of each section are described below.

Title Page
The title page of your business plan provides the name, address, and phone number of your company and the CEO. For your first impression, make a bold, clean visual statement about your company.

Table of Contents
Ideally, your business plan will be a reference guide to your business and not a novel or thesis. Number your pages. I highly recommend starting a new section on a new page. Colored tabs dividing each section makes your plan immediately appealing and easier to use. When I recently reviewed a number of plans during a contest at San Diego State University, I was immediately drawn to the one with the color tabs--the other judges admitted they were too.

Executive Summary
This is the synopsis of your business plan and summarizes the highlights. It is the portion of your plan that will be first read by investors. You had better get to the point and be interesting-explain why your business will make money and is a great investment. (To bankers, it should demonstrate common business sense and that you have the ability to pay back their loan.) If you lose readers here, forget having them read any further.

This is a snapshot of the present stage of your business, plus a brief description of where your business is going and what it will look like when you get there. What is the present situation in the world and how does it affect your business? What is the status of your product or service? Finances? What management is in place? Who do you need to hire? Sales? Do you have any reference customers? (A wonderful indicator of viability!) Write this summary AFTER you have completed your business plan and keep it to no more than two to three pages.

One VC told us he wanted to see a software package that could reduce a business plan to 2 pages!

Vision & Mission
This is the part that, throughout history, has made the difference between great leaders and failures. (Regardless of their purpose, good or evil, selling their vision made the difference.) Your vision comprises your emotional drive to build your business to be something great that others can support and share in.

Objectives
Where are you going, what will it take, and what are you going to do with the money? Investors want to know how and when they'll make zillions on their investment in your business.

Company Overview
This section provides basic information about your company: structure, management, staffing, operations, and business relationships.

Management

What's a nice person like you doing in a business like this? How does your background and that of your management team uniquely qualify you for driving your business to success. Can you really relate to the customers of your business and deliver what they'll really buy? (Corollary: Start a company for which you are a customer.) Can you pull this off?

Who have you hired to do the job? In a way, you are providing a mini-interview with your management team members to assure an investor, banker, or corporate manager that you have lined up the right people to make your project go. This section is one of the most crucial. The only thing that will ensure success is the day-to-day activity of qualified people in the driver's seat following a plan toward a vision.

I recently was a judge for the San Diego State University business plan competition where 20 schools sent teams to pitch their business concepts. As I listened to their presentations and reviewed their plans, I was amazed at how these almost college graduates expected us to believe that they had the management experience and skill to run operations, marketing, and finance of their companies. It would have given them tremendous credibility if, instead of trying to convince us that they had enough experience, they outlined their intentions for hiring experienced managers to run key areas of their businesses. Although this was a college exercise, they were promoting real businesses. Put yourself in an investor's or banker's position. Would you give $50,000 to $5,000,000 to inexperienced people who try to convince you of their experience, or to people who demonstrated the sense to hire competent managers?

Product / Service Strategy
This section reviews your current product or service and what makes it unique and competitive. Your future research and development and production plans are part of your product strategy. Engineer types have a tendency to overemphasize this section-save that for a demo when the investors request it-great products and services have died without a good business model and the right people to run it.

Market Analysis

This section helps you understand and define your market, the demographics and psychographics of your target customers, competitor's products or services, and both business and environmental risks. Here's a quick VC Rule of Thumb - how big is 1% of your market? What kind of revenues would you be doing if you captured 1% of the space? Who are the people out there who will buy from you? Why will these customers buy from you vs. your competitors? Find 10 people/companies who are prospects and find out what they need/what problems they are having.

Marketing Plan

The world will "beat a path to your door". . . only if they know who you are, what you've got, and where to reach you. This section includes your advertising and promotion, pricing and profitability, selling tactics, distribution, public relations, and business relationships. How will you use an investor's money to efficiently sell to your customers? This should not be treated as something you'll work on later. It's a key component of your plan that affects everything you do throughout your business.

Financial Projections

This section addresses your ability to make money in your proposed business and how much money you'll need. Your company's capital requirements and the profit potential are analyzed and demonstrated here. The supporting financial statements include the following:
· Revenue and Expense Assumptions
· 12-Month Budget, including your Start-Up Requirements
· 12-Month as well as a 5-Year Income Statement
· 12-Month as well as a 5-Year Cashflow Projection
· 12-Month as well as a 5-Year Pro Forma Balance Sheet
· Break-Even Analysis
· Sources & Uses of Funds Summary
· Sensitivity Analysis showing Pessimistic, Planned and Optimistic scenarios
· A projection of your company's value after five years is also very useful.
(It's also amusing to see what your company will be worth after five years of hard labor.)

Are your financials believable? I've never met an investor who believed in anything beyond five years-their financial attention span is fairly short and they want to be out with their profit in less than five years. Investment performance, measured in return on investment, takes time into consideration-the more the sooner, the better they did. The idea is to get 'em in, make 'em rich, get 'em out.

Your reader's perspective

In addition to providing a large amount of data, you must show your personality and spirit, and those of your management team. You're attracting interested people who can help you. The tone and credibility projected in your business plan will determine their response. How will your reader perceive you and your business and take action ($) on that perception? Remember this and be prepared.

Investors are often heard telling one horror story after another about a business plan "stubbing its toes" on its way into their office. One opportunity is usually all you'll get to demonstrate your competence and the feasibility of your project to your investors, senior executives, or clients. These are influential and powerful people. Don't waste their time, bore them, or leave them feeling dissatisfied with your work. Show them that you know what you are doing. Think in terms of return on investment. Show that you can project your company's earnings. Prove that you can execute your plan.

Notes

• You must proceed down the path to attract the opportunities you need.
• A business plan is a comprehensive brochure that sells your ideas.
• A business plan takes your nonlinear thinking and coordinates it into a logical progression of concepts following one after another.
• The description of your business, market, competitive position, and so
  on all provide credibility for your financial projections.
• The deal is won or lost in your assumptions and your ability to sell them.

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