Writing a business plan can be a daunting task for a young entrepreneur. After completing my first business plan for a class at Bradley University several years ago I realized how difficult it was to please particular readers and how everyone has different advice on how to best get your business idea across. I used my knowledge and research to win the 2010 Bradley University Project Springboard Business Plan Competition and have constructed several other highly effective business plans since the competition in April. Here are several tips that are valuable regardless of your reason for writing the business plan.
Know Your Audience
Entrepreneurs who are serious about launching a new venture will often have several versions of their business plan. You must cater your writing to fit the expectations of the reader. A professor is going to expect different things than a banker who is considering whether or not to give you a small business loan. Do research on who you are writing the business plan for and in many cases it is perfectly fine to ask the party what they expect. A banker is going to look for a solid business plan that will guarantee that you can repay the money while a professor is looking for solid understanding of each section of the plan and an original idea and strategy.
Many investors will only read the executive summary or decide whether they will read the rest of the plan based on this portion. The executive summary is simply a summary of each section in your plan, but is very important to the overall success of your business plan. You want to include positive forward looking statements that highlight your idea, show the customer pain and how your will solve it, show why it is unique, and why you cannot fail.
Your revenue model is how you make money, if the reader doesn’t like your revenue model, they don’t like your business idea. Revenue Models are even more crucial when the business is an Internet based company. If you are pursuing an online only business, do not expect the reader to believe an advertising revenue only idea will be successful. Several potential streams of revenue are fine, but make sure you have at least one that is very solid and can sustain the business if all other potential sources of income fail.
The financial statements must be solid for any business plan. If your balance sheet doesn’t balance, don’t even bother letting anyone view it. Many accountants are willing to help with financial statements, don’t be afraid to seek outside help if needed. You should have statements for at least the next three years and use an industry standard growth rate. Be very careful with your assumptions as they will be scrutinized and in most situations you will have to explain why you chose the numbers and growth rates you are using.
Nothing will get you laughed out of a room full of investors quicker than having an outrageous valuation for your business. If you are asking for a $100,000 investment and will give up 10% equity in your company, that means you are valuing you company or business idea at million dollars. Be sure to have assets including patents and evidence of previous sales or future contracts with companies that will purchase your business or service if you are going to make a high valuation of your business. An unprotected idea is worth nothing, have a reason for why you think your business is worth investing in.
Investors will often invest in a great management team with a good idea over a good management team with a great idea. Your idea will only go as far as you and your management team can take it. Previous experience and expertise will go a long way in giving you and your business credibility. Even if you have previously failed, investors are interested in how you have learned from earlier mistakes and what you will do to change those mistakes into a success.
How are you going to pay off the bank? How are you going to make an investment worthwhile to investors? An exit strategy should be a detailed account of how you will get the investors a significant return on their investment. If you are writing the business plan for a class or for your personal use, still include an exit strategy that includes at least an Initial Public Offering or sale of the company.
Always be realistic when writing a business plan. It is important to not be too over optimistic but at the same time a conservative business plan and financial projections will not go over well either. Follow these tips and have several people proof read your plan to look for mistakes and grammar errors.