Mapping Your Route
Starting a business without a plan is like trying to repair a flat tire with your teeth. It may be possible, but you sure make it hard on yourself.
Make your business start-up easier by formulating a plan. While some people will tell you a business plan is necessary only if you need cash for your launch, most small-business experts believe every entrepreneur can benefit from writing and using a plan. A plan requires you to evaluate every aspect of your business. In writing it, you'll refine your goals, identify potential risks, organize your thinking, and set priorities.
Business plans are flexible documents. The best of them offer information in a form that is easy for readers to grasp. Business plans should not be so long and cumbersome that they will turn readers off, according to Ron Christy, associate director at the Center for Entrepreneurship at Wichita State University.
"As a consultant, I've done between 300 and 400 business plans," Christy says. "When I first started, they weighed maybe four, five, ten pounds each. I was so proud of myself. But no one could get through them."
Christy suggests that the body of the plan run 20 to 30 pages, including summary financial statements. Additional material--such as extensive financial projections, resumes, and market research documentation--belongs in the appendix. "It should take less than an hour to read your plan," he adds, "and in that time, readers should be able to understand the entire concept--where you're going, and how you're going to get there."
The idea of preparing a business plan can be overwhelming, and while it is possible to hire help, be cautious. Like a student who has someone else do their homework, you may get an "A" on your paper; but if the teacher asks you a question about "your" work, you're in trouble. "Too many people who outsource their business plans don't really understand the plan. The businessperson needs to be able to explain every aspect of the plan and answer sometimes complex questions posed by bankers and investors. If they've not put it together themselves, that can be difficult," says Cheryl Faria, assistant director of the Rhode Island Small Business Development Center (SBDC) in Smithfield.
On the other hand, if you've got the knowledge and understanding, but not the time, help is available. Look in the Yellow Pages under "Business Consultants," contact your local SBDC, or try the Small Business Advancement National Center (501-450-5300), a clearinghouse for colleges that offer help with all kinds of business issues. Through the Center, you might find a college where an MBA class would be assigned to create your business plan.
Business plans require research and thought. If you've never written a business plan, start by finding some samples to study. You can call your local Small Business Administration (SBA), SBDC, chamber of commerce, college business school, or local library and ask if there are plans available for review.
Aside from studying plans, you can get help from the groups named above or from your banker. Don't forget to check out the business sections of online services like CompuServe and America Online, in addition to books and software programs. (See the resource box below.)
Steve Sibulsky, whose Coeur d'Alene, Idaho company, Steve Sibulsky Productions, produces message-on-hold phone announcements, used Business Plan Master, a shareware program that offered suggested text and spreadsheets. ("Shareware" is free software you can obtain on a trial basis from online services, user groups and computer bulletin boards. To continue using the programs after a trial period, you must pay a fee; however, this works on the "honor system.") Sibulsky modified the templates to create a business plan that won him a $15,000 loan.
Sibulsky had difficulty with two aspects of his plan. "I found the financial forecasting hard," he says, "but spreadsheets were invaluable. I could plug in different numbers and see the results instantly. Also, I'm a conservative person, so it was hard to talk about myself in the glowing terms a business plan requires."
Once you've studied a few plans and done some reading, you'll probably have to spend time researching and gathering information. You might need to conduct some market research or scrutinize industry financial data.
Parts of the Plan
When you've gathered all the background material, it's time to write your plan. While plan formats differ, most share common elements arranged in logical order. Sections usually include the following:
1. Executive summary. Gives an overview of the business. Explains the company's position (or proposed position) in the marketplace. States the purpose of the plan--for example: To attract investors who will put up the money to purchase equipment, inventory and property.
2. Business description. Explains your business, including its location, the product or service sold, hours of operation (if applicable), and history, as well as your personal work experience as it relates to the business and growth potential. This is a good place for you to emphasize the quality of your operation and your vision for the company's future.
3. Marketing analysis. Includes a description of the industry, its historic size and future growth potential. Delineates target markets, explains their characteristics and how you propose to reach each one. Lists demographic, geographic and seasonal activity. Includes pricing strategies and gross margin targets, media purchases, market test results, competition (advantages and disadvantages of each competitor), barriers to entering the market, and regulatory restrictions.
4. Management and ownership. Uses an organizational chart to show the management structure of your business, usually taking the form of a flow chart with the owner(s), board of directors or CEO at the top (depending on how your business is structured), followed by your vice presidents, then department managers. Under each department manager, list the job title of anyone reporting to that manager. Along with this graphic representation of your company's organizational structure, include a narrative description of each position. Lists key personnel (resumes and curricula vitae belong in the appendix), compensation amounts, skills they bring to the company, and primary responsibilities. Includes legal structure of the business, and lists the board of directors.
5. Financial plan. Gives historical and current financial data, five-year funding projections, and analysis. This would include your income statement, balance sheet, and statements of current and projected monthly cash flow. It should cover your current funding sources, projected start-up costs (for a new business), a break-even projection, and yearly expected profit or return on investment. Include comparisons between your business and industry standards, both current and projected. Assuming your goal is to secure a loan, describe why the loan is necessary and explain specifically where you've targeted the money. If you use professional outside advisors, mention their level of involvement.
A hint for new entrepreneurs: If the financial side of the business is a weakness for you, seek help. Without accurate data and realistic projections, you're unlikely to land the financial support you need. It's even more important that you learn what the figures mean. Remember, you are the one who will be responding to bankers' or investors' questions, not your CPA.
6. Appendix. Includes resumes of company officers and key personnel, photos of products, market studies, articles, book references, patents, contracts, detailed financial information and charts, product information sheets, price lists, brochures, newsletters, technical drawings, operations and technical manuals, and any other materials that support the narrative portion of the plan.
Dress Your Plan for Success
The easier your plan is to read and use, the more likely it will bring the results you're hoping for. Follow these guidelines for a useful plan:
1. Writing. Write in a conversational style. Use short sentences and avoid cluttering them with adjectives. Use bullets, rather than commas or semicolons, to itemize points in lists. Include only essential information. Avoid slang and explain any industry-specific terms. Stick to the facts. Avoid generalizations. Ask someone who knows business writing to edit your work.
2. Artwork. Using charts and graphs can make your plan user-friendly, but don't insert them just for the sake of including something other than text. Good bets for charts and graphs are financial data and organizational charts.
If you have a logo or photos that would enhance your readers' understanding of the business, feel free to include them in the appendix, but avoid gimmicks or anything that would undercut a professional image.
3. Overall presentation. If you're selling a unique product or service, don't be afraid to present it in a distinctive way. Sibulsky provided two audio tapes and a cassette recorder along with his written plan. The professional quality of the tapes supported the assertions he made in the written document and provided an immediate understanding of message-on-hold for people unfamiliar with the concept.
But be careful: While audio or video tapes can be helpful, they must be professionally produced and linked directly to some aspect of your plan.
Whatever the format, your business plan should be as perfectly dressed as you would be if you were walking into the bank to ask for a loan. At the same time, cautions Christy, don't go overboard. "You can spend considerable money on a bound presentation that's gold-plated," he says, "but that may send the wrong message to the lender or investor: It says you may not be using your money in a prudent way."
Use plenty of "white space" surrounding your type. One-inch margins work well. Be absolutely certain there are no typographical, grammatical or spelling errors.
The cover can be simple, but should carry the company's name and logo, if possible. Bind the pages in some way other than using staples or paper clips. (Most major office-supply outlets offer binding services for a reasonable fee.)
You'll never outgrow your business plan if you continue to update it as conditions change. Sibulsky reviews his plan every few months. "Looking over the financials," he says, "seeing where I am, compared to where I projected I would be, helps me continually refine my goals."
Faria agrees. "The business plan is a tool by which entrepreneurs should manage their businesses," she says. "But it's only a valuable tool if they use it."
- BizPlan Builder, for Macintosh or Windows, $99 plus S&H, (800-346-5426).
- Plan Write, for Windows, $129.95 plus $5 S&H, (800-423-1228 or www.brs-inc.com).
- Business Plan Toolkit, for Macintosh, $99.95 plus S&H, (800-229-7526).
- Business Plan Pro, for Windows, $99.95 plus S&H, (800-229-7526).
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