In my experience (at least with the small businesses I’ve worked with), a business plan is often considered an “unimportant” waste of time, and many small business owners forego creating one. The truth, however, is that a Business Plan can be incredibly beneficial for a business. Not only can a business plan create a “Guide” for a company and its employees, but a good plan can also be taken to the bank in order to try and raise funding for a small business. It can attract investors as well, and it can help focus a business owner’s vision in order to make the business as profitable as possible.
While there are tons of business plan models on the internet today, I can’t help but want to throw my own cap into the ring as well. There are the business plans that a lot of general businesses use to satisfy mentors (or spouses), and then there are the types of business plans I’ve worked on, the type that big businesses pay tens of thousands of dollars (and hundreds of thousands) of dollars before they ever so much as sign a rental-lease agreement.
The difference between a “General” Business Plan and a Business Plan that Makes Money comes down to one very important thing…Research.
When a small business owner includes research into a business plan, they are showing banks and investors that they are not going into a business venture blind. A well-researched business plan shows forethought, logic, and realistic thinking.
Therefore, to create a business plan that will help raise money, a business should include the following elements in their business plan:
The Mission Statement: In Bookkeeping Money-Saving Tip # 15: The Mission Statement, I discussed the importance of having a Mission Statement. It is just as important to put that Mission Statement into the Business Plan. Consider it the “Sales Pitch” of the Business that basically tells an investor the Business’s main goal.
An Introduction: The introduction is a fairly simple concept. You create a page or two (or three) about the basic business concept. What is the business selling? If there is a location, where will that location be? Will the business have an inventory and if yes, where will that inventory be kept?
Demographics: Demographics are an excellent option to add to a business plan because it exhibits that you know who your ideal, targeted customers are and who they can be. The demographics can help a business see where they should be focusing their marketing dollars, and how to theme their business to attract those ideal clients instead of creating a business that tries to “attract everyone.” (Read Paint a Target on Your Customers for more information on how to do your own demographic analysis.)
Competition Analysis: You know the expression, “Keep your friends close, but your enemies closer”? This expression is just as true in business as it is in life. You should know what your enemies (ie, your competition) are doing in their businesses, because every choice they make could potentially harm or help your own business. Therefore, creating a section that lists ALL of your local competition, as well as what products they are selling (that you may or may not sell as well) and what prices those products are marked at. The more you know your competition, the more you will be able to create a business model that grinds theirs into the dust (should that be your wish). Either way, it shows investors that you have a strategy to stay afloat despite what your competition is doing.
Location Analysis: A large majority of businesses draw their customers from within 10 miles of their location…TEN MILES. However, the more unique that business and its products are, the farther distance a customer is willing to travel in order to buy what that business is selling. On the flip side, the less unique a business and its products are, the smaller the distance a customer is willing to travel to make a purchase. For example – Disneyland has a very unique product; people are willing to fly from all over the world to experience the unique product that Disneyland offers (and that no one has been able to yet duplicate). Another example – Souvenir shops. Souvenir shops all sell the same products, and they all try to rent space where the tourists are. The end result, tourists have so much choice on what souvenirs to buy and where to buy them, they don’t need to go far from their hotels to get what they want. (In fact, they often buy from within the hotel). So, in order to create a competent location analysis, you need to include the demographics and competition within YOUR 10-mile radius. (You can read more about Location Analysis in my article entitled: BOOKKEEPING MONEY-SAVING TIP #4: Analyze Your Business Location.)
Marketing Plan: At this point, you should know your competition AND your customers, so you should have a pretty good idea how you can target your marketing campaign directly to your ideal customers. Let your investors know as well. Include a section just about marketing.
- The Dollars and Cents: No investor is ever going to invest in a business that looks as if it is going to fold its doors as soon as it opens (unless that business is a non-profit). Investors want to know that a business is going to make money and that they will recoup their initial deposit. Therefore, the dollars and cents is one of the most important things to include in the Business Plan. If the business is already open, then bankers would ask for a “Profit and Loss” Statement, as well as a “Balance Sheet.” But whether the business is in operation or not, another excellent idea to include is the “Pro Formas” or basic monetary projections. You can create a Budget and include it in the dollars and cents section, and you can project from that budget how you plan to make more money (or save money). Calculate Budgets with Low Income-Expense Projections, Mid Range Income-Expense Projections, and High Income-Expense Projections. That way, the investors will know that the business will still say afloat even in “Hard Economic Times.”
An Executive Summary: The Executive Summary is basically the bare minimum summary of what the business has created plans to accomplish. It takes the main points from each section, and presents them in a direct manner. The Executive Summary is basically your “In Conclusion” statement, however, this summary is going to go at the BEGINNING of your Business Plan. Most investors never really read past the Executive Summary (unless there is something in the Executive Summary that doesn’t make sense), so in essence, the Executive Summary can be the main section that makes or breaks your business plan’s goal: to raise capital. Therefore, make sure your Executive Summary has ALL the main items you want an investor to know, and put it right after your Business Plan’s Introduction. Consider the rest a guide for the business and backup for the more thorough investors.
While I cannot guarantee that this business plan format will raise capital (after all, there are many other factors that investors take into account besides the business plan), I will say that a well written business plan can tip funding in a business owner’s favor. You really have nothing to lose by creating a thorough, well-researched business plan – but you do have everything to gain.