How to Find the Purpose of Your Business Plan
In the book, Write Your Business Plan, the staff of Entrepreneur Media offer an in-depth understanding of what’s essential to any business plan, what’s appropriate for your venture and what it takes to ensure success. In this edited excerpt, the authors explain how your business plan will differ depending on what you plan to use it for.
Your business plan can be used for several things, from monitoring your company’s progress toward goals to enticing key employees to join your firm. Deciding how you intend to use yours is an important part of preparing to write it.
Do you intend to use your plan to help raise money? In that case, you’ll have to focus very carefully on the executive summary, management, and marketing and financial aspects. You’ll need to have a clearly focused vision of how your company is going to make money. If you’re looking for a bank loan, you’ll need to stress your ability to generate sufficient cash flow to service loans. Equity investors, especially venture capitalists, must be shown how they can cash out of your company and generate a rate of return they’ll find acceptable.
Do you intend to use your plan to attract talented employees? Then you’ll want to emphasize such things as stock options and other aspects of compensation, as well as location, work environment, corporate culture and opportunities for growth and advancement. If you’re a high-tech startup, top employees are likely to ask to see your plans for attracting venture capital and later selling out to a bigger firm or going public so they can realize the value of their stock options.
Do you anticipate showing your plan to suppliers to demonstrate that you are a worthy customer? A solid business plan may convince a supplier of some precious commodity to favor you over your rivals. It may also help you to arrange supplier credit—one of the most useful forms of financing to a small business. You may want to stress your blue-ribbon customer list and spotless record of repaying trade debts in this plan.
Do you hope to convince big customers that you'll be a dependable supplier? Then you’ll want to emphasize your staying power, innovation and special capabilities. In this plan, unlike the supplier-targeted one, you may want to play down relationships with other big customers, especially if they're foes of the one you’re wooing.
Do you expect to use your plan only for internal purposes? Then you’ll want to build in many milestones, benchmarks and other tools for measuring and comparing your future performance against the plan. Such things may be of little interest to a banker evaluating your loan-worthiness but could make all the difference between a useful plan and one that’s no good at all for monitoring corporate performance.
These distinctions are not merely academic. A plan that’s well-suited for internal purposes would probably be completely wrong for taking to a potential Fortune 500 customer. Actually, the marketplace of business plan consumers is even more finely segmented than that. A plan for a bank, for instance, wouldn’t accomplish much by including a strategy for selling the company to a large conglomerate several years down the road, whereas a venture capitalist would look for your exit strategy very early on.
Think about all this, and keep it in mind as you create your plan. Along the way, you’ll have to make many decisions about what to include or leave out and what to stress or play down. Setting some direction now about how you intend to use your plan will make those later decisions faster and more accurate.
Because many entrepreneurs utilize business plans for various purposes, you’ll want to have several versions available. By carefully editing and rewriting certain sections with your audience in mind, you can have plans ready for different occasions. The plan for raising funding will likely be more extensive and detailed than the plan for attracting new employees, who may not want to read as much but will want some answers to the question, “Why should I work at your company?” While the business plan is the sum of various sections, how you massage and edit those sections can help you utilize it for a variety of purposes.
Consider that once you’ve created a good business plan, you should use it in as many ways as possible, including self-motivation and guidance as you make business decisions and undergo changes.