How to Properly Write a Business Plan

The business plan should be written in two sections. The section 1 should be exactly ten pages. Here's what they should cover:

Page 1) Your mission Statement, carefully and thoughtfully prepared.

Page 2) Concept and a general survey of enterprise. Include monetary return expected here.

Page 3) The product description. Include photos, drawings, all necessary data to briefly explain and clearly describe it.

Page 4) Your management team. Just a brief description of them, their credentials and their position. You can go into more depth later.

Page 5) Legal description. How will the company be structured?

Page 6 & 7) Your marketing plan. How will you position the company and sell the product?

Page 8) The operations and production plan. Describe how your product will be produced and distributed.

Page 9) A financial summary of your enterprise.

Page 10) Your spreadsheet to document the financial summary and projections.

PAGES 1 & 2 - THE CONCEPT AND MISSION

PAGE 2 - THE CONCEPT

Forming the concept is the first step in developing the business plan. Your initial concept will change over time as you learn about the market and the economics of the situation. Don't let that bother you. The idea you begin with is not you concept.

The concept is a set of cohesive ideas about how to create and deliver value to the market. "I want to open a restaurant" is an idea. It has no power until it's conceptualized: "I intend to open a restaurant featuring medium-priced Mexican food, with specialty dishes and drinks developed only by our establishment. I want strolling musicians playing Spanish and Mexican music among the diners. I want this restaurant situated in the El Paseo Plaza in Palm Desert."

Before defining your concept, you need to understand the "product" of your product. We call this selling the sizzle and not the steak. People usually aren't motivated to buy your product out of simple worth and need. Many irrational factors motivate them - status, sex appeal, aesthetic effect, glitter, childhood memories, etc. Why do people buy Mercedes instead of a Hyundia? Sunlight dishwashing detergent over Cascade? A borzoi instead of a dachshund? When you realize the essence of what sells your product, marketing becomes easier.

A strategy that's often helpful in developing your concept is to examine the competition. Where is it weak? What are its strong points? Then design your concept while considering them. This isn't necessarily easy; it often takes time and hard work to research the information you need about the competition. But it's worth it to work up a detailed profile of them, including everything you can find out - sales, volume, profits, marketing techniques, and especially any points their customers are dissat isfied with.

What benefits will the concept and mission statement provide for the owner? The greatest value of this section of the plan to the owner/planner himself is that it clearly sets forth how his product will be of advantage to the customer. It carefully describes his product and defines the value the customer will get for the price.

It needs to describe the company as well. What business is he in? What type of company is proposed? Where will it locate? How much growth is expected? What are the goals? It establishes his venture's unique position in the market and explains what niche he will occupy. It also will clearly set the direction of his business - in what way will it grow? What touchstones of progress must be met - so that he can proactively meet his own goals?

This section of the plan is valuable to his employees and associ ates in several ways. First, it is the backbone of the culture employees will work in and contribute to, defining the goals and means of the work as well as the ethics that govern it. If a culture that nurtures creativity and mutual support isn't set up, the company will dissolve into infighting and end up knifing itself in the back. It won't be rewarding to work for.

PAGE 1 - THE MISSION STATEMENT

Secondly, the mission statement defines the value and services to be extended to the customer. It sets forth the business philoso phy and style of the management. Employees will not only know what to expect from the business, but they will also feel part of the team and more motivated to exert themselves.

The third quality it can provide employees is protection. What is the company's commitment to the employees? What is the pro gram for promotion and enhancement of growth? As long as they are fulfilling the job they were hired to do, will employees be secure in it? Assuring employees these benefits supports a stable, productive work force.

Investors will want to know the management's philosophy and style; they will need to know the market count. Investors will want the definition of the product or service; he needs to know the value customers will gain for their money. Another important question they'll want answered is the rate of their return - how will their investment pay off? How soon and how much?

The significance of the mission statement can't be overempha sized. It's your concept in words. It's the constitution of your company, the base form your company's culture. When you've got it in the right words, your mission statement can inspire and sustain you with the importance of what you're doing.

Note immediately for your investors the expected return. This will motivate to read on. Lay out the deal and return clearly - "As an investor in 10% of the company for a $100,000 capital investment, you should receive a $10,000 dividend the first year, $100,000 by 18 months, and your stock worth excess of 1,000,000."

PAGE 3 - PRODUCT DESCRIPTION

Simply show a sample in a photo. That's the best. If it's a service, show a photo demonstrating the service if possible. Line drawings are okay, but a working model is best.

PAGE 4 - MANAGEMENT AND ORGANIZATION PLAN

Remember, "If the top man is no good, all the people below him will be no good in the same way."

All organizations directly reflect the personality of their leaders. The owner's philosophy and style of management needs to be expanded in detail - not only for his management team, but especially for investors. It's a vital area. Any financier wants to know who is going to do all these fine things described in the plan. Only a fool invests in a concept; experienced businessman invest in the people who will make it a success.

The people behind the enterprise will be either a driving force or a major risk.

Two qualities are especially important in the business's manage ment:

1) Management must have a sense of urgency. If prospects are going to invest in a business, they want it to be in one whose management sees the need to get things done.

2) Honesty - investors look for people who are honest with themselves and with other people.

Communicate this in your business plan by asserting the value of your company objectively and honestly without enthusiastic over statement.

The management and organization plan is necessary also for the entrepreneur's own clarification and record.

The objective of this part of the Business Plan is to demonstrate that the management is competent and fairly compensated. You must also demonstrate that you know the various roles to be filled and that you have a plan for filling them. Most impor tantly, show that you have a clear and consistent philosophy for dealing with your employees.

Nation's Business claims that of all the parts of a business plan, the one most often sold short is management. "Entrepre neurs are so wrapped up in getting capital that they have a blind spot for the organizational dimension," says Peter B. Lester, president of his own executive-recruiting firm in Columbia, MD.

You must persuade the reader that you and your people can do the things you say you can do. Give reasons for the reader to be lieve in you. What are the qualifications of the people on you management team? Do you understand what you will be needing down the line as your enterprise matures? Even though you are impor tant and the success of the venture is largely up to you, you won't be doing it alone. Others will be impressed by the nature of the people with whom you associate as well.

Having the management plan for the employees to study benefits them as well as the owner. It helps them understand the overall structure of the business, its direction and potential growth.

The manager needs to consider how he will share the firm's values and sense of mission. How will he lead his employees? How will he infuse them with the company's ethics?

The employees need to understand their own autonomy: where and how far their responsibility lies. Another important result of the management plan is that it makes the company's ethical stand ards very clear to the employees. Also, the company's human resource management will provide training and development oppor tunities, help with career development, motivation and support. Employees need to understand the company's structure as well as their own job description.

Include the legal structure you will need as well as the rest of the professional support te. Investors are often impressed by people who have worked in large corporations. Such people often have a whole-view perspective of the venture. They are most interested in entrepreneurs with marketing experience, or second ly, entrepreneurs with operations experience.

As you see, management section is crucial to your enterprise.

PAGE 5 - THE LEGAL PLAN

The legal plan should define issues of ownership: Who is at risk and in what conditions? It needs to outline the responsibilities of the principal associates of the business.

Legal planning is also necessary to clarify and document the type of ownership and the structures within which the business oper ates.

If the owner fails to structure his venture legally, the law assumes, first, that the business is a sole proprietorship. This means in the eyes of the law, the business and the owner are legally one and the same; second, that the business uses the owner's legal name as its own.

There are many reasons why this isn't a healthy for the owner. The business's liabilities become the owner's liabilities as well. And in this day and age, he will generally have a lot of trouble raising money.

If the owner doesn't get good legal advice for a solid legal plan, he is setting himself up for trouble - along with his business, investors, and employees.

Employees need to know their future and that the business itself is legally protected. Investors will need to know when and how to expect returns on their shares of the profits.

PAGE 6 & 7 - THE MARKETING PLAN

The Marketing section of your business plan will define the business's position and rate of growth for the owner. It will answer such questions as these: Who is my customer? How many are there? How will I reach them with my product? Equally important is to establish, before you get started, what your niche is. Despite the entrepreneurial truism "Ready, FIRE, aim," you want to be aimed before you fire. Also consider how you're going to expand your business operations to provide more line, to keep the customers you've gained.

Of course, this section may well grow and change along with marketing system, but it provides a blueprint of the system planned for the owner and aims your company before starting.

Employees need to know the customer service procedures they will be following and the standards they will need to meet - just what is expected of them to promote and market the company?

Everyone involved with marketing needs to remember these proce dures are in place to benefit the customer. Remember what Charles Revlon said, "In the factory we make cosmetics. In the drugstore we sell hope."

This segment of the plan will enable employees to understand the underlying rationale of their work. Being able to see the whole of the marketing plan helps them to visualize the owner's busi ness vision.

For the investors, this section will define the promotion plans, sales and pricing system. Expanding upon the marketing system in detail helps them to evaluate the business's success potential and determine its competitive advantage.

The marketing plan is critical to prove a market for you concept. Your market may be so large and obvious that little needs to be done other than to prove its size. At this stage in the plan, it is enough to prove that sufficiently large market exists for the concept that further investigation of the opportunity is warrant ed.

People are often intimidated by the need to prove there's a market for their ideas. Your marketing plan should demonstrate that you understand the market, that you can penetrate it, and that you are in control of the critical success factors which will enable the company to reach its sales goals

Above all, you want to prove customers want your product. You should also explain specifically how you will enter the market, obtain a niche, maintain market share, and achieve the stated financial projections.

To do this, you must first understand what defines your target market. After all, everyone won't want your product , nice as it may be to think they will! The better you can identify the people who do want it, the more profits you'll make. US Venture saw a need for specialized sport shoes. They invested $740,000 to develop VS Sport Shoes. Later, they sold the company to Reebok for $180 million.

Suppose you're in the microcomputer software business. You're naturally restricted to the number of computer owners in homes and business. If your programs are developed for IBM and compat ibles, your market is further limited. If the type of software you are developing is investment programs, your market shrinks still further to those who use their home computers for invest ment purposes. Since your program is aimed at aggressive traders who use their computers frequently, the market is limited to a small target market. Not only this, but 50 other companies are writing programs aimed at this same segment of the market. But you need to know this before you begin!

Your overall plan for bringing your goods to market is important to your marketing plan. Consider your market penetration goals. These touchstones which help you evaluate your accomplishment in the market and whether it's proceeding according to your plan. Set your specific marketing goals: By ________ (date), I plan to have ____% of the market. What are your pricing and packaging strategies? Too often, there's a tendency to either underprice or overprice, and underpricing is more common as the seller strives to compete. How much will the market pay for your con cept? The profits of your enterprise depend heavily upon the price you can get for you output. Price is the single most important factor determining the profitability of you enterprise.

Sales and distribution also need consideration. How will the product be distributed - retail, wholesale outlets, by mail? Will you be the sole distributor? How will you control distribu tion?

Who is going to sell the output? Agents or your own sales force? Someone must sally forth into the marketplace and bring back some orders. How is this going to happen?

What about promotion? Advertising, publicity, trade shows, literature, and much more must be planned for. Somehow, the market must become aware of you offer and the package of benefits you have assembled for you customers.

PAGE 8 - THE PRODUCTION AND OPERATIONS PLAN

The operations plan demonstrates the effectiveness of the owner's business sense to both the employees and the investors. It also dissects the effectiveness of the various parts of the company for the owner/manager so he can put the parts together for a greater whole.

What raw materials do you need and where will you get them? What are your manufacturing and labor requirements? Depending on the exact nature of the owner's proposed business, he should include a certain amount of material on the product or service being proposed.

Some will want more technical detail, and the owner should pro vide details of these underlying technical matters in a separate document or presentation. He shouldn't bog down the business plan with lots of technical details but rather show that he has analyzed the important factors of producing his product suffi ciently to prove it is feasible and ready to go. If he does so, it will demonstrate both the company's efficiency to the inves tors and his own effectiveness as a manager.

Investors want to know if the owner is efficient. They also want to know if the company will be cost effective and profitable.

The operations and production plan should outline the social and technical design of the workplace. In doing so, it will give employees an idea of the quality of work life they will receive.

The production plan is easier for those who have a concrete commodity, a product to sell. The objective of the production plan is to explain how you will produce your product in a cost- efficient way and ready it for the market. Depending upon the exact nature of your proposed venture, you must include a certain amount of material on the product or service being proposed.

Do not inundate the reader with technical gibberish which may be a particular hazard among technically oriented entrepreneurs. For those who want to know the technical aspects underlying your venture, be ready to provide them in a separate presentation. But don't bog down your business plan with lots of technical details. Show that you have analyzed the important factors of producing your product sufficiently to prove it is feasible and ready to go. It's not easy to know exactly how much detail to include. The important question is "Will the reader need to know this to understand the appreciate the venture?" However, there are important factors you need to analyze in the plan:

Identify the difference between fixed and variable costs of production.

Evaluate the lead time you'll need for acquiring materials and for the actual production process. Evaluate any regulatory restrictions and the product liability you'll need to meet. Pharmacists, for example, work with the government right on their tail. You need to anticipate those restrictions. Insurance costs can be a real eye-opener as well! In a time when ice- skating rinks are getting sued for having ice that's too slip pery, you need to be covered. Some businesses are more vulnera ble to being sued than others. What are your needs?

Also, evaluate your labor requirements. What help will you need? How will you hire and train them? How skilled will they need to be, and how long will it take to train them? What is the average turnover of personnel is businesses like yours? These questions are all difficult to pin down but necessary for projecting your business clearly. Consider the equipment your personnel will use: Will you lease, buy or rent? What are the advantages and disadvantages of each?

After you analyze the production factors involved, develop your strategy for production. Explain how you will manufacture your product in the most efficient manner. Will you use subcontrac tors or will you do it all in-house? What's the cost of the raw materials? What supply problems - everyone runs into late deliv eries - can you foresee?

PAGE 9 & 10 - FINANCIAL PLAN

The financial part of the business plan is obviously significant to everyone concerned. Although this portion is critical, we place it last. The investor will spend the most time on it, but it only makes sense if he understands the context presented by the previous 8 pages.

What are your money needs? How will they be met - debt or equi ty? What is your break-even point, and when will it be reached? This outlines the basic profitability and stability of the organ ization for the employees as well as the investors. Showing that the business is effectively planned increases investment possi bilities as well as chances of success.

A strategic financial plan reassures employees about stability - stability in the growth of the company and the stability of their position. It makes life easier for the owner or manage by en couraging investment in the company, both credit and cash. It reassures investors by projecting the business's cash flow and income and balance sheets.

Detailed and documented financial planning paints an accurate picture which is useful to both the owner and the investors in many different ways. It must follow the other segments of the plan to have any meaning because the amount of money needed depends on what the owner plans to do.

The financial plan should document past financial performance for interested investors and provide income statements, balance sheets, cash flow, and future projections (proforma statements about income and cash flow), as well as a break-even analysis.

Cash flow is crucial. That's the reason why the central part of the financial plan focuses around the development of the cash flow plan. All the cash flowing into and out of the firm should be planned. The net result is an estimate of how much money will be needed to start the venture and how much money will be needed down the line. Thin the investor can see a point at which he can begin to retrieve his investment and get a return.

The objective of the financial section is to demonstrate that the business is sound and profitable. Also, it can describe the type of financing desired, the amount, payback terms, and the poten tial return on investment. The writer needs to analyze receipt of revenues and payment of costs and to anticipate any cash- flowing problems. It's important to show that the owner under stands the important difference between income statements and cash-flow statements. Cash-flow is important; it will tell you just what's happening to your bottom dollar and where it is.

The financial plan should set forth the suppliers' policies on collections and payments. How and when do you plan to pay the bills? Also, explain the cost and availability of funds from banks, limited partners, venture capitalists - wherever you are planning to get money. Also, here is the place to consider any assets' costs you haven't developed in previous sections.

Analyze your financial strategies: What is your funding request? As a result of - and supported by - the business plan's analysis, how much will you need? Consider the break-even forecast's predictions and what must happen to meet this prognosis. Include one, three, and five-year projections, your profit-loss ratio, and your balance statement.

Don't forget to include underlying assumptions which will affect your projections. There are always taxes, even without death. Your loan repayment schedules need to be included in your analy sis. How much cash will you need to cover accounts payable? With a new business, people want cash up front. Credit can come later when you've established yourself.

Almost any other mistake in business can be remedied in one way or another. But when you run out of cash, they take you out of the game.

EPILOGUE

No one claims writing a business plan isn't hard work. But it's worth it. A study of what it is that causes business failure, and it's not because the owner couldn't make pizzas or clean carpets or whatever, found the problem is he didn't know how to run a business. Only one in a hundred, at best, has a reasonable business plan; however, 80 percent of the business failures could have been avoided if they had planned properly.

Section 2 of your business plan is just like section 1, but in more detail.

Remember, success is "The progressive realization of a worthy ideal."