November 2010

How to Write a Comprehensive Business Plan

One of the most daunting tasks for most small business owners is creating a business plan. Sitting down, staring at a blank page or computer screen is never easy, and even less so when you are creating a document that will govern, to some degree, the path of your business for the next few years. However, there are a few things that can make the process a little easier:

Unless you are using your business plan to apply for finance, it’s more of a personal road map.

o This is to ensure that you know at least somewhat where you are going, and have a clue as to the way to get there

Even if you are submitting your business plan for funding consideration, it does not have to be complex or confusing.

o In fact, the simpler you can make your vision seem (and back it up) the more effective your business plan is likely to be

Understand that your business plan is NOT intended to be written in stone – it’s a working, living document that you alter as the dynamics of your business changes.

Now that we’ve clarified those business plan fundamentals, let’s get into the nitty gritty of how to actually write one.

Spend Some Time Brainstorming

Before you even put pen to paper on your business plan, it’s a good idea to sit down and make notes. Write down anything that occurs to you which may apply to your business. Don’t restrict yourself to the sections or template of a standard business plan; just allow your ideas to flow onto the paper. This will form the underlying basis of your final document, and will help you solidify the content to include in your plan from a holistic perspective. Once you’ve gathered all your thoughts on paper, you’re ready to start writing the plan.

1. Executive Summary

The executive summary of your business plan is pretty much exactly what it says – it’s a summary of the information contained in the rest of the document. Although it is short (around two pages), it’s the most important part of your business plan, and should be written last – after you have covered all the other sections of your plan. The reason for this is that potential funders and investors, who are extremely busy and have limited bandwidth, will NOT read your entire plan. To be honest, they will probably read just this part of your business plan to figure out whether to schedule a first meeting with you or not. Therefore, your executive summary needs to be a knockout!

2. Business Overview

In the business overview section of your business plan, you will cover the idea behind your business and the legal formation it become. For instance, you might be starting an online business that sells pet products. This is the section where you will cover that, as well as outlining what legal form the business will take, were they company is based, etc.

3. Management

Anyone who is seriously considering investing in, or funding your business, will want to know who is behind the idea. They’ll essentially be asking themselves “who will be steering the business from business plan to market success?” In this section of your business plan, outline who the key players in the business are going to be (along with their resumes), as well as detailing the management structure of the business. Use this section of your plan to assure investors that you and your team are the best people for the job, but don’t lie! If you’re lacking in a particular area, for instance, accounting, indicate how you plan to address the issue – for instance, by outsourcing the function. Remember – no one is good at everything!

4. Your Market

Anyone who is considering investing in your business will want to know that there is, in fact, a market for your product/service. Even if you are self funding, you need to know who your target consumer will be! That means examining both the potential demographic your business is aiming for as well as the overall industry landscape. Market research will also help you to avoid costly mistakes. For example, if you are planning to open a fast food restaurant, but the area you have chosen already has five, there’s a good chance you need to rethink your strategy, right?

5. Sales and Marketing Strategy

Once you have covered WHO you are going to sell to, you need to be clear about HOW you plan to do it.

Are you advertising to the general public, or to business?
Will you leverage only traditional advertising methods, or will you incorporate technology?
Will you have a sales force?
What will your USP be, and what will set you apart from your competitors?

All of this information will help you to gain a foothold in the market while you are starting out. If you continue to build on the above, it will be a very worthwhile step toward ensuring the success of your business over an extended period of time.

6. Financial Statements and Projections

Easily the scariest part of preparing a business plan (for most entrepreneurs) is constructing the financial statements and projections. However, there are plenty of free online resources that can help you. There are an abundance of templates that will provide a framework for creating a clear financial picture of where you are right now, what you need to get started, and what your sales and profits will be in the short-term. Alternatively, you could hire an accountant to compile your information into a financial plan. Based on my experience, in the early start-up days, it’s always best to be engaged in every aspect of the business – there’s nothing worse than trying to present a business plan to investors and not understanding the numbers.

7. SWOT Analysis

Yet another aspect of the business plan that scares many entrepreneurs is the SWOT analysis. This acronym simply means an analysis of your business in terms of:

Strengths
Weaknesses
Opportunities
Threats

Spend some time with a sheet of paper for each of the above, and list your ideas. Then simply transfer them to your business plan, and expound upon them with detailed explanations as to how you’re either going to mitigate or capitalize on each of them.

8. Supporting Documentation

This is the section of your business plan where you can supply any other documentation that is relevant to your company or which your readers may find interesting. Maybe you are applying for growth funding, and your company or product has won an award – include a copy. Or maybe you operate in a highly specialized environment that requires certification – include yours here. This section can have a substantial impact on how your business plan is received from a risk mitigation perspective.

Take Your Time, and Treat Your Business Plan as a Learning Tool

As you can probably now see, the concept behind your business plan is not that difficult or complicated.

Yes, building a business plan can be a process that takes some time, but it is an exercise that will help you to gain a clearer picture of your company. Furthermore, a great plan will help you to convince potential investors and funders that you are worth the risk.

Think of your business plan as your sales pitch for your business on paper – invest time in making it great.

How to Start a Business with Little or No Money

Do you think you need a lot of money to start a business? You don’t! I’ve started eight businesses with less than $1000 each. These are the tricks I use.

You Don’t Need Everything from Day One

Don’t feel like your business has to look like a “real business” from day one.

You don’t need an office.
You don’t need to incorporate from day one.
You don’t need fancy business cards, a fax machine or that desk you really like.

People can often become distracted by the things mentioned above and lose focus on what matters. Concentrate on selling and then selling some more. That’s all you should be working on at the very beginning.

Use Relationship Marketing to Your Advantage

This is the most important lesson that I’ve learned in my career as an entrepreneur, so please pay attention. The best kind of marketing is called “relationship marketing” and it’s free. How does it work?

Find the people that have access to your audience.
Offer them a commission for referring business to you.
Let them market your company at no risk to you.

Let’s say you offer city tours in London. Go to all the hotels in the city, talk to the front desk staff at each place and tell them what you do. They have access to millions of travelers and that’s your target audience. Pay the front desk clerks a commission for each guest they send your way. This is risk-free and extremely effective.

Do As Much as You Can Yourself

Design your own business cards, build your own website, and write your own marketing copy. These won’t look as great as work done by professionals, but it’s free and fast. Once you’ve sold a few thousand dollars worth of products or services, you can always re-do your website, business cards and marketing copy using experts.

Good Enough is Good Enough

There’s a group of people that struggle more than anybody else when it comes to starting a business with no money: the perfectionists. They can’t stand good business cards; they need great business cards. They can’t stand using a template for a website; they want a custom-made site. They can’t work with a web-based application that’s $5 a month because it doesn’t have all the features they want. They don’t leverage existing products, they need stuff that is customized for them, and that can be very expensive.

Have Contractors, not Employees

Having contractors has many advantages:

You can stop working with them when you don’t need them anymore or if they’re not good at what they do.
They don’t need a desk or office space.
When work is slow, they get paid less. When there’s a lot of work, they make more money. Try that with an employee.

Pay for Results

It’s OK to have some people on retainers, but make sure that most of their income is tied to results. If they bring you a lot of business, they should make a lot of money. After all, you’ll be making a lot of money too, so it’s only fair that you share it with those that help you achieve your goals.

Be Smart About Your Inventory

These are two great pieces of advice I learned from my mentor:

Produce on demand. When you receive an order, collect payment and then manufacture the product. By doing this your working capital will come from your customers instead of your own funds.
Be the middle man. Instead of producing your own products, buy them at a discount from someone else and sell them at retail price. The profit margin will be smaller but this is a lot less risky. Once you’re in a better financial situation, you can start producing your own products.

Barter as Much as You Can

Very few people barter these days, but bartering is extremely powerful. If you have something other people want, try to barter for their services. You might not get the best expert in the industry to work with you, but whomever you get will be good enough.

Leverage Other People’s Businesses

You should take advantage of the retail locations, distribution channels and manpower that other companies pay for. For example, if you sell t-shirts, opening your own retail store will be way more expensive than selling your t-shirts through other people’s stores. Let them carry your products. Use their salespeople, their retail space and their distribution channels.

Bonus Tip: Don’t Quit Your Job Yet!

Having to make money by tomorrow in order to be able to buy groceries is no fun. I know it because I’ve been there; several times. Don’t quit your job yet. Work on your business in your free time. Grow it without taking stupid shortcuts because you’re desperate for money. Once you’re getting a decent income from your business, you can quit your job and work on your business full-time.

What other tips do you have for low- or no-budget startups? Share your comments below!

Learn Strategies in Convincing People to Loan You Money for Your Startup

The funding problem is one that all entrepreneurs face. Without money to start your business, your options are very constrained and growth could take eons longer than it would with the help of an investor. If you don’t have the means to self-fund, you should begin polishing your pitch to investors immediately, but without proper etiquette and requisite plans you could come off looking desperate and unprepared. The following tips will help you look more credible, serious, and promising to potential funding sources.

Build a Prototype

Let’s face it: talk is cheap. Anyone can have a “great idea” that sounds like a real winner on paper, but no amount of talk is ever as impressive as using the real thing. TechRepublic warns against spending too much time and effort on the functionality of the prototype. They recommend that a prototype should be an empty shell of an application that does little more than visually represent your current vision.

The purpose of the prototype is to get it in front of your prospective investors fast and let them critique it. If you invest too much time in programming the technical back-end, you might end up having to scrap a lot of your work when the investor submits changes he or she want to see before writing you a check.

Identify a Clear Target Market

Too often investors meet people who have grandiose new ideas that they are sure the world will want, but can’t specify who in particular will use it. Believe it or not, a product without a market is like a rowboat without oars – practically useless. Investors know it, too. “It’s a big red flag when someone outlines the size of the market-multibillion dollars-but doesn’t clearly articulate a plan for how the idea will meet an unmet need in the marketplace,” says Aaron Keller, an adjunct professor of marketing at the University of St. Thomas.

Dedicate a significant amount of time putting yourself into the shoes of your future customer. What problems do they have? How does this product solve them? How can you communicate the value of your product to them? Understand as much about your market as possible and communicate this knowledge to your investor.

Seek Help with Your Business Plan

If you plan to seek funding from a professional investor (such as a venture capitalist, or a small business bank loan) you will need a dynamite business plan before you even walk through the door. No amount of crafty salesmanship or product hype will get the job done with these folks – they’ve heard it all before. The problem is that you’re not a professional business plan writer, you just know your product and want to get started developing it.

That is why the Small Business Association (SBA) offers free online business plan consulting. Their toolkit offers everything you need to complete an attractive business plan quickly, from essential inclusions to formatting guidelines. There is even an interactive online workshop to help you ensure that you learn all the tricks and tips for writing to investors.

Define Your Team’s Roles and Credentials

Behind every great company is a talented team that can combine specific skills to create the magic that drives their sales. Investors know that the success of a new business is as much about the people turning the wheel as it is about the wheel itself. Before seeking funding, write a brief biographical outline of the credentials and roles of your core team members, making sure to include all professional certifications, work experience, and educational merits that apply.

Design Clear Return on Investment Figures

An important component of your business plan that every experienced investor needs to see is your return on investment outline. Specifically, this section explains how the investor stands to benefit from your company. What percentage of profit is he or she entitled to, how soon do you expect to reach profitability, and how long will it take him or her to gain their investment total back? Considering that these are likely the biggest questions on the mind of anyone you ask for money, it is important that your ROI figures are backed by research and show a positive outcome for the investor.

Decide On Your Exit Strategy

New entrepreneurs are so excited to begin their businesses that the concept of an exit strategy is usually the furthest thing from their minds, but it is an important aspect that deserves attention. For those unaware, an exit strategy is how you plan to leave your business in the future. Some envision a life-long company that they will work at until retirement while others plan to build the business up and sell it off for a big pay-out.

It’s tempting to put off this decision for later, but StartUpNation points out that the exit strategy can actually shape the business right from the start. “If…you plan to exit your business and transform your equity into cash through a sale, merger or IPO, you need to prepare for that every step along the way,” they explain. “You’ll need to build value and equity in your company by creating unique products, services, relationships and distribution channels, building an intellectual property portfolio and expanding your customer base.”

Try Approaching Friends And Family First

Often, when entrepreneurs think about funding, their mind immediately focuses professional investors and neglects an alternative possibility. Before calling the bank, consider talking to your friends and family about investing in your company. Consider that you have a reputation with the people closest to you, and they surely want to see you succeed. New investors are fine, but they are a much harder sell because they see you strictly as a business proposition.

Tonia Papke, president and founder of MDI Consulting, agrees. “Family and friends are great sources of financing. These people know you have integrity and will grant you a loan based on the strength of your character.”

Justify Every Dollar of Capital

Deciding on an amount to ask for is one of the most difficult steps in planning funding. Carl Showalter, founder of an early-stage venture capital firm known as Opus Capital says that proposing a reasonable amount of funding is a skill many new entrepreneurs lack. “It’s surprising how often I meet with first-time entrepreneurs who tell me they need $5 million. Not many companies need that amount in their first round of funding.”

If you want to increase your chances of getting the money you need, keep the estimates conservative and justify every dollar. Never name a high figure just because it sounds like you’d be financially set for a while, this is inappropriate. Instead, create a comprehensive expense report that explains exactly how the money will be used to grow the business.