Launching a new business sets off an entire range of thoughts and emotions. You are excited, focused, nervous, and, yes, a bit fearful. After all it’s a risk. And you have your goals and plans, at least in your head.
Of course, all of the goals and plans will be for naught if you do not have the funding. And unless you have the proverbial “rich uncle,” you will have to look for an investor, maybe more. Your little rough business plan will probably not cut it. You’re going to have to put your head down and develop a full and detailed business plan that will convince investors that you know what you are doing. This is not a fun task, to be sure, but there are ways to make it easier on you. What follows below is a brief explanation of the components of a solid business plan — one that potential investors will want to see. This should ease your pain somewhat.
1. The Executive Summary
This is the “down and dirty” brief picture of your business. It should be no more than about two pages, but you have a lot to pack in them. Because it is the piece that will be read first, it must reflect strength and confidence, as well as a very clear picture that you know what you are doing. Here are the elements:
1. The basic idea of your business and a justification for its existence. What problem does it solve in the marketplace niche? What is the consumer need you will fulfill?
2. A projection of how much funding you will need and what it will be used for.
3. A timeline for return on investment and at what rate or percentage of profits.
4. Ownership Explanation. If you have a partner is it 50-50? Are you looking for an equity investor? If so, what percent equity?
Your confidence and enthusiasm should shine through in your executive summary. Investors want to see someone who is excited and committed.
2. The Management
Who is running the business? Obviously, you are right now. Even if you are only a staff of one, you will need to project what management positions you will add as you grow. And if you are a partnership, then you need to spell out in detail which functions of the business each of you will be responsible for. This only becomes a large section if you already have a full management team in place. In that case, you’ll have to provide the background and expertise of each team member.
3. The Product/Service
What are you selling? You will need what is called a complete product/service description. In that description, you will need to:
- Prove that it will meet a need or strong desire of your target audience. What problem will it solve for a customer? How is your product unique or better than that of your competition?
- If it is a product, how is it made and how easy or complex is the production process?
- If it is a service, how will it be delivered and who will deliver it?
- Address any liability issues. Your product/service may have no liability. If, however, you are making a new and unique children’s scooter, you will have liability. How will you protect the company, the team, and any equity investor? It would be wise to set up a Limited Liability Company (LLC) or consulted a lawyer prior to developing your plan, so that you have details on coverage and cost.
A sample product description might look like this:
“ABC Security is a new home security system that will provide a higher level of protection and response. In addition to the security system being activated manually, a homeowner can activate or deactivate with his iPhone app and a code that notifies us that it is the customer engaging in that activity. If the alarm is activated, our interior and exterior cameras immediately are activated as well, and the customer also receives notification on his/her phone. Thus the customer will not have to wait for us to contact him first. If he knows that it should not have activated, he can call 911 immediately. There will also be a camera feed available on the customer’s phone, which he can forward to the 911 dispatcher. This new technology engages all parties simultaneously and provides the customer with more control.”
You have described the product and pointed out the benefits that make it an improvement over competitors’ models.
4. The Industry
You will have to provide a full analysis of your industry niche. Any investor will want to know the following:
- Is the industry still growing? Do expert forecasters predict continued growth in your niche?
- What were total sales over the past two years?
- Who are your competitors? How will you compete and get a share of the market?
- How will you market your product? How are your competitors marketing?
- What are the average profit margins in the industry?
- What industries or demographic conditions might impact your business? In the case of the home security system, for example, what will a slowdown in the housing industry mean? You must be honest, and your figures must be accurate. Otherwise, you either look stupid or deceitful.
Obviously, for this section, you will be doing some research. Hopefully, you did some of this before you launched. Fortunately, however, you will not have to do a great deal of legwork — the background research you need is all online.
Don’t downplay risks with the industry or risks to your business specifically. Be honest.
5. The Marketing Plan
Every marketing plan will be unique because of the business/industry, but all plans include product, price, place, and promotion.
You will need to identify the features and benefits your product/service that will be most attractive to your target market, specifically how you are better than the competition or what new features you are offering. You will also need to define your target market. Develop a “persona” of that person most likely to purchase your product or service and the size of the population in your sales area.
What platforms will you use to promote your product? Will you use either online or traditional marketing, or both?
You will need to determine a price per unit and justify it. What will be the profit margin at the price you have determined? Where is your pricing in comparison to your competitors?
Will you sell in a physical location, online, or both? If you will have a physical location, where will it be, what is around it, and how close is your target market? If you will have an online presence, show that you have a well-designed site, a blog, and a presence on several social media platforms.
Here you will need to list as many of the planned marketing activities and strategies as you can that will promote your brand. If you have both a physical and an online presence, divide these strategies by place.
6. The Financials
If you do not have the expertise, get an accountant. This section will be one that a potential investor will pore over, and you want to get it right. You will need to present at least three documents: an income statement, a balance sheet, and your cash flow statement.
This document shows gross sales, all costs, and the resultant net profit for a specified period of time. If you have been in business for a year, just show the last three months.
If you are in the startup phase you will obviously not have an income statement, or the other two documents either. The best alternative is to use stats from a competitor to give an investor what percent profit you are expecting after a given period of time.
The balance sheet shows what you are worth. It takes all of our assets, subtracts your liability, and provides a net-worth figure. Again, unless you have specific expertise in accounting, you may not know what falls into these categories. You don’t want your financials to look shoddy and haphazard.
Cash Flow Statement
This is best described as “flow in” and “flow out” in terms of money. It is usually provided for a specific period of time, depending on how long you have been in business. Obviously, if you are just launching, you will not have a cash flow statement, but again you can use stats of a competitor if you can get them.
Writing a business plan is not something you do overnight, obviously. It takes a lot of planning, research, usually some outside expertise, and absolutely impeccable writing. Impressing potential investors is too important to leave any of your plan to chance. If you are committed to doing this on your own, then you should pull up a few samples of good ones and read through them. This will give you an idea of style, tone, and wording. And do not put that plan in a binder until an English expert has proofread every single page.