YOUR KEY TO UNLOCKING CAPITAL - THE BUSINESS PLAN

Posted on June 02, 2017 by Chris Costello, One of Thousands of Business Coaches on Noomii.

Do you have a great business idea that you’re passionate about? Have you been thinking about what it would be like to be your own boss? Maybe you’ve even started researching what it will take to make your business a reality. The most common question for new entrepreneurs is “Where do I start?”.

If you know what’s inside your head, why is it so important to extract these thoughts and put them on paper? Can’t you simply skip this step and move forward without fussing over drafting a business plan?

The answer is that in nearly all cases, you’re going to need a business plan…especially if you require outside startup funding. It might seem unnecessary and a bit ominous if you’ve never written one, but the effort will be well worthwhile. After starting your plan, you’ll likely find that it’s not as challenging as you’d initially feared. There are many online resources and templates to eliminate the confusion of creating a business plan.

Enlisting the help of a professional guide, such as a business or entrepreneurial coach, can speed up the process and make it that much easier. My background as a successful entrepreneur and business coach has led me to create several business plans. In addition, I’ve helped many of my clients draft their own plans. I’ve also been a finalist in multiple business plan competitions and have occasionally judged student competitions at the university level.

Perhaps the most apparent reason you need a business plan for your venture is access to capital. Unless you’re able to cover all your startup and operational costs from personal funds, you will need either a loan or private investment. Bank loans and angel investments (from private investors) will only be issued if you have a business plan for them to review. No plan, no money. It’s that simple.

The other significant reason to draft a business plan is actually for you and your team (assuming you will have co-owners and/or employees). The process of thinking everything through before you take action steps is very valuable. As you complete each section of your business plan, you’ll essentially be creating a blueprint to follow.

Before you get too overwhelmed, it’s important to note that a completed business plan is essentially comprised of only seven sections. Breaking down the task into specific categories can make the process much more manageable. These seven sections consist of:

Now that you can see the logical flow of a business plan, it’s just a matter of externalizing your thoughts. A completed plan will provide you and your team with a roadmap to take action.

SECTION 1 – EXECUTIVE SUMMARY

The Executive Summary is an overview of your business plan and should be concise (1-2 pages). It’s generally the first thing that will be read and is also the most important. In many cases, a loan officer or investor will form their opinion of your viability strictly from what they read in the Executive Summary. So, it’s extremely important to nail this section.

Although the Executive Summary is the first section of a business plan, it is often best to save it for last. I recommend drafting a rough version initially and wait to finalize it once the other sections have been completed. At that time, you’ll have a very clear idea of how to most effectively summarize each aspect of your business.

Summarize all the important components of your business in the Executive Summary. Keep it tight and remember that it’s an overview. You’ll have plenty of time to go into detail as you complete the other six sections. This is the Elevator Pitch of your plan so it also needs to make a strong impression on the reader. You’ll want to convey your excitement and enthusiasm as you describe your business. The reader should feel your passion and get a clear sense as to why you want to start your business.

SECTION 2 – BUSINESS DESCRIPTION

In this section, you’ll be able to describe in more detail what your company will do. Paint a clear picture and make sure you address some key questions. Who is your target market? What are your sources of revenue? Where will you’re business be located? Who are the owners and what is the legal structure?

Within the Business Description, you’ll be able to discuss the products and services you plan to offer. You will also need to describe your market opportunities. Provide an overview of your growth projections as well (leave out detail until the Financial Projections section).

A key item to include in the Business Description section is your Mission Statement. I recently published a blog about how to craft an effective Mission Statement, so if you need a detailed explanation, here’s the link. You can also tie that into your Vision Statement to give the reader a future glimpse of how things will look once your business goals become reality.

Do you have a personal story that relates to your business? Sharing your story can be a compelling way to inspire confidence in you and your idea. People like to understand why you’re driven to start a particular business. By utilizing your personal narrative, you can infuse plenty of energy and passion into your Business Description. It can create an emotional connection that will help support your branding and marketing efforts as well. A personal story is also an effective way to spread your brand through social currency. Be sure to tweak your narrative if needed to maximize its appeal.

SECTION 3 – MARKET ANALYSIS

In your Market Analysis, demonstrate that you have a deep and precise understanding of the market you’re planning to enter. It’s important to show that you’ve done your research and carefully thought things through. You need to offer support for why your business idea will be successful (citing specific reasons or examples).

A great way to start your Market Analysis is to describe the competition and current state of the market or industry you’ll be entering. Where does your business fit into the market? What are some of your competitive advantages? Have you noticed any trends in your industry or local market? How will your business be positioned to benefit from any such trends or present conditions?

If you already have a location in mind, make sure to describe the competitors in your specific area. Illustrate what they do well and what they could do better. Will you be trying to capture some of their market share, or will you have your own unique niche market? It’s important that the reader understands why you selected your location and how that will ultimately benefit your business.

Within the Market Analysis, make it clear that you know your target market. Describe your customer and explain why you believe they will support your business. Back up your beliefs with hard data relating to your core target market. If you have market research or profiles of your ideal customer, this is the section to showcase that knowledge. The more clearly you know and understand the customers you plan to serve, the greater the likelihood for success. Let the reader know that you’ve done your homework.

SECTION 4 – ORGANIZATIONAL MANAGEMENT

In many cases, a great idea can be fail due to a weak team. Highlight the qualifications, expertise and complimentary fit of your team members/co-owners. As you go over each individual, don’t be modest. Potential lenders and investors will be heavily scrutinizing your management team. It’s your job to present information that will really showcase relevant experience and strengths.

At this point, be sure to consider what weaknesses others may see and figure out how to offset or overcome any major shortcomings. Going forward without a capable team is extremely risky and can also put too much strain on a single person. It often results in early burnout and can quickly take away the joy of ownership from a hardworking principle.

When it comes to co-owners, choose very carefully. Your best friend may not stay your best friend after the dynamic shifts to business partners. Family members can be great, but a working relationship can be detrimental to even the strongest familial bonds. Open communication is paramount to a successful organization. Keep that in mind as you select your management team and co-owners.

Let the reader know how your chain of command will work. What type of hierarchy will you operate from? How will all the pieces fit together? Describe your vision of how your operation will work internally. What are the primary roles and responsibilities of each key team member?

SECTION 5 – SALES & MARKETING STRATEGY

Most entrepreneurs are passionate about their ideas and dream of achieving great success. It’s normal to have optimism and belief in your business. Regardless of your confidence, make sure you have a strategy that will help you achieve your sales goals. Do you have a plan for how to effectively monetize your business? What will it take for you to turn a profit?

Branding and marketing have evolved with changes in technology and consumer behavior. What worked yesterday won’t necessarily work tomorrow. You need to plan your strategy very carefully with an eye toward the trends of the future. Social media has become an increasingly important realm for marketing. Make sure you know how to reach your customers online and if you don’t, find someone who can.

What is your brand reflecting about your company? What makes it attractive to your customer? Do you have a plan that will raise your brand awareness? Think carefully about what you want your brand to be. Review my recent blog about branding to gain deeper insight (link here).

Your pricing strategy is a very large part of your sales strategy. Depending on how you compare to the competition, pricing can be the most obvious indication of your brand. It might be wise to start with a more conservative pricing strategy initially as you build a customer base.

This is also where promotions can be very helpful. Think about providing an initial incentive to try your product or service by use of promotions. You need to get the ball rolling to generate word of mouth and attracting customers with promotional offers or deals is a great catalyst.

Once you have a promotional strategy in mind, decide where you want to advertise. There are numerous options with varying price points, so decide what will be most effective for your brand. You may have to try a few things to see what works best to reach your target market. Your options include print media, online sponsored ads, social media, radio, television and websites like Yelp or Thumbtack. Be wary of deep discounting sites like Groupon.com. Sometime businesses offer such large promotions that they end up losing too much money on the deal. Groupon is also not the best place to grow repeat customers, as its users are often looking for the next great deal rather than supporting your business after the promotion is gone.

Don’t overlook free advertising opportunities within your business. Set up an email list (MailChimp is great) that will communicate your brand and promotions. You can automate it to an extent so the process will take very little of your time.

Whatever your business, chances are you’re going to need a website. These days, the process of building a website has become much less intimidating. Sites like Squarespace, Wordpress and GoDaddy have made it easy and economical for you. You can also hire a web designer if you need help or have more substantial plans for your site.

One thing you should definitely consider is your website’s S.E.O. (Search Engine Optimization). You could have the slickest looking site, but if it doesn’t show up in a Google search, it’s a wasted effort. Ensuring your customers can find you online is why you need to invest in S.E.O. There are plenty of companies and freelancers that specialize in optimizing your site for search engines. Unless you really don’t care about your website being found, it will be worth the expense.

Before you officially open your business, create a press release that you can send to various media outlets. If they choose to publish it or make mention of it, that’s very valuable free adverting for your business. Find a strong writer if you’re not up to the challenge. Send out an unprofessional looking press release and it will likely be ignored. If members of the media favor your business, it can drive sales and inflate your brand to cult-like status. A wave of hype can last for years, allowing your business to thrive during the most vulnerable stage of its lifecycle.

SECTION 6 – FUNDING REQUIREMENTS

An undercapitalized business is almost certain to fail. Do your homework carefully to determine what you think you’ll need. Be as realistic as possible, because banks and investors will be heavily scrutinizing your financial requirements. You can even use multiple forecasting scenarios at different funding levels. That way, if a lender or investor is willing to provide startup capital, they know you have looked at all the possibilities.

Be sure to discuss why you’ve decided on the $ amount that you think you’ll need. You can do this by comparing your funding requirements to other similar operations. Where does your budget stack up against the competition? How much of your own money will be injected into the business? Are there any unique startup costs that you need to explain?

Lenders & investors will want to know what type of margins/profits that will result and when you think you’ll break-even as a result of securing startup funding. Demonstrate a timeline to illustrate various steps during the startup and initial phase. Specifically, how will the startup funds be utilized? Do you have sufficient collateral or a guarantor that can co-sign on a loan? Would you offer shared ownership to an interested investor? These are all things to consider.

SECTION 7 – FINANCIAL PROJECTIONS

The final section of a business plan is where you can let the numbers do the talking. If you’ve done your research and looked closely at comparable business models, you will be in good shape. Conversely, if you’re overconfident and project huge numbers right out of the gate, it will invite greater scrutiny of your entire business plan.

The temptation for a lot of entrepreneurs is to show incredible sales and profit growth to inspire confidence from lenders and investors. It’s a very common mistake that can hurt your effort to gain access to startup capital. The best advice I can give is to keep your financial projections on the conservative side. Make it look more realistic. If you go out and crush those sales targets, that’s great! It’s a much better scenario than coming up short on your projected numbers.

Your financial section should include any startup expenses incurred up to that point. If you have any previous cash flow history as a business owner, I would recommend having that information available as tangible evidence that you’re personally investment worthy.

As I mentioned in the Funding Requirements section, you may want to have a couple of startup scenarios projected. It might be that you have to scale down your plan initially to get the business off the ground. Be sure to provide financial projections for both the larger and smaller scale iterations of the startup funding you seek.

Don’t expect your projections to be perfectly accurate…they won’t be. There’s no way to know exactly how much you’ll make and foresee all the costs of doing business. The point here is to get as close as possible to what seems reasonable. Use information about market trends or comparable businesses. Lender and investors want to see that you’re thinking it all through ahead of time. As you gain new information, use it to update your Excel or Quickbooks spreadsheets.

The process of showing financial projections helps to identify potential problems so you can plan accordingly. A substantial surprise expense can put a big pinch in your working capital during your most vulnerable period as a young business. Dig as deep as possible to uncover all the expenses that you’ll face. Once you’ve exposed these startup and operational costs, you will know more closely what amount to request from a lender or investor. You’ll also have a clearer picture of what it will take to turn a profit.

CONCLUSION

Now you know what goes into creating a business plan. It is definitely worth the time and effort required. In fact, evidence suggests that simply completing a business plan will increase your chances of success and lead to higher sales and profit. You will be more organized and better prepared for unforeseen challenges.

You may feel like you know your idea well enough without drafting a business plan. The reality is that it’s easy to romanticize as you imagine a new business. Going through the process of completing a business plan will ensure that you see more than the 10% of the iceberg shimmering above the water. The other 90% hidden from sight makes up the majority of the iceberg. A business venture can be much like an iceberg. Don’t fall in love with what’s easier to see. Once you take the time to really understand each aspect of your business, you will be in a better position to evaluate if going forward is the right decision. It’s much better to ask the tough questions before you’ve put too much of your money and energy into something. If you still feel passionate about your venture after finishing your business plan, then you know it will be worth the risk.

So, what are you waiting for? The sooner you get started, the sooner you’ll have access to startup capital. If you need help through this process, I am ready to work with you so you don’t have to go it alone. A solid business plan can make all the difference between success and failure.