What makes a good business plan? Here are seven points that you must remember when you prepare your own business plan.
1. Clear, realistic financial projections
Financial projections provide the reader an idea of where you think the business is going. It shows your intrinsic good sense and understanding of the business cycles your company may face. The financials must be in standard format and presented clearly, with assumptions spelled out for all significant line items. Avoid the “hockey stick” approach to forecasting; that is, little growth in sales and revenues for the first few years followed by a sudden upward surge in sales with unrealistic profit margins. Make your justifications for the projected sales figures convincing.
2. Detailed market research
You must demonstrate that you know your customers and the needs that your product or service is addressing. You must show the size of your market and know its trends. Forecast how your market will grow or change over the next few years. Brief descriptions of market research studies and projections by industry experts might be included to substantiate your projections.
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3. Detailed competitor research
Everyone has competitors, even for a one-person home based company. Even if you are in the rare position of addressing a brand new market where no competition exists, your readers will still have questions about companies they suspect may be competitors.
To run a company effectively, you have to know your competition and respect them. Develop a list of competitors by talking to customers and suppliers, checking with industry groups and reading trade journals.
4. A strong management team
Organization and management is an extremely important section of every business plan. People are, after all, a company’s most important asset in many cases. Be sure that you have identified the key skills that are needed, and that you have first-rate players covering these fields. If you have holes in your ability in your management team, start lining up people ready to come on when financing comes in, and include them in your plan. Include a short description of their background, with the more detailed resumes in the appendix.
5. Proof of forethought in every category
You must show that this really is a plan for running your business. Demonstrate that you know how to sell and distribute your product, demonstrate that you have thought through the hiring needs that come with growth, and demonstrate that you have thought about the kind of company you want to grow, and how the investor fits in.
6. An executive summary
Your Executive Summary must capture the entire essence of your business in 1-3 pages. Start with a simple statement of what the company is seeking and continue with a clear, upper-level description of your market, management, and product or service. Devote considerable amount of time preparing this section; this may be the only part other readers will read.
7. Excellent formatting
Make your plan inviting to read — leave white space on the pages, use reasonably large type, write in short paragraphs, and use bullet points whenever applicable. You have five minutes or less to interest the average capital provider, and if he or she cannot immediately understand your plan, the prospective investor will pass it over.
Recommended Books on Writing a Business Plan:
- How to Write a Business Plan: Create Your Strategy; Forecast Your Finances; Produce a Persuasive Plan (Sunday Times Creating Success)
- The Right-Brain Business Plan: A Creative, Visual Map for Success
- Writing a Convincing Business Plan (Barron’s Business Library)
- The One Page Business Plan for the Creative Entrepreneur
- How to Raise Money to Finance a Franchise
- Myths and Realities of Business Plans
- Why Business Plans Fail
- How to Market Your Wedding Photography Business
- 10 Common Mistakes in Writing a Business Plan