I once overheard a conversation between two entrepreneurs that helped me draw a correlation and make an observation. One of them stated… “Writing a business plan is about as fun as getting a root canal!” The other entrepreneur said, “I’ve got one even better, it is about as fun as sitting down for a long conversation with my mother-in-law.”
Sometimes I have to agree that it can create a little discomfort, but the process of writing a business plan can be highly rewarding if you follow a simple system and the proper outline.
You may have heard an investor or a banker make the statement: “I’m sorry, but before I make a decision, I will need to see your business plan.” If you are looking for funding a business or an idea, a business plan today is as essential as a business card and an e-mail address.
Writing a business plan is time consuming and requires discipline. I have written over 130 business plans. I teach a course at the University of Utah on Business Plan Development, and I have written four books on this subject. In addition, I have read through hundreds of plans over the years. With all of this familiarity in business plan development, I am still thrilled to begin the process all over again and create a magnum opus, or work of art.
There are definitive pitfalls to look out for and some simple things to include in your plan to help you achieve your goals. I want to walk you through nine key principles that are basic steps in getting funding. When these principles are observed, I have seen millions of dollars raised for business ventures. Follow them carefully as you plan your venture and you will be far ahead of your competition.
Principle 1 – Convince yourself that proper business planning is an absolute necessity.
Your business plan is the heart and soul of your operation and is one of the most powerful tools you can provide to potential funding sources. It explains the four most important things they will look for in sizing up the opportunity…namely your Management Team, your Financials, your Marketing Plan and your Product or Service.
Your plan should outline the market potential and how your product or service will fit in to take a piece of the market. It communicates how well you have researched the opportunity, and lays out a road map from beginning to end…or at least for the next five years. It should also tell the potential sources of capital how you plan to capitalize on your strategy and create sales.
Next, your plan should clearly explain why your team is qualified to drive the business to success. In other words, surround yourself with a team that investors will be comfortable with. Finally, a good convincing of the potential of the business will exist with your Financial Projections. This is a key area of focus and will require forecasts for you to show to financiers.
Principle 2 – Understand why you need a business plan.
“Those who fail to plan, plan to fail.” This old adage is not only profound and true; it is a simple process to follow. When you leave for a trip, you wouldn’t just hop in the car, drive to the airport, book the first flight out that you see when you get to the counter, show up at a destination with no lodging plans, no car, no money and no sense of what you would like to do while you are there…wherever there may be; without a sense of how long you would like to stay, people you would like to meet, places you would like to visit, etc., and then still be able to enjoy your trip.
The same is true with planning your business. Have a plan. Commit your plan to writing. Put some serious thought behind it. Do your research. Come up with a compelling strategy that will make others want to participate with you…whether they are potential investors or key employees. Explain how you will compete in the market, and what your critical path to customer acquisition is.
If you don’t have a plan, don’t plan on getting any funding. It’s that simple. Besides, you will be much better off by going through the process of developing a business plan. Two important things will occur in the process: 1.) You will better understand your business and will probably appreciate it more, and 2.) You will know if there really is an opportunity out there for you to snatch up your own piece of the American Dream.
Principle 3 – Take charge of your entrepreneurial life.
Think of it as a way for you to take control of your own destiny. A written business plan is evidence of your initiative. It shows that you have the discipline to focus your energies on an important project. Your plan will illustrate how you will achieve progress and growth, solve problems along the way, and accomplish your goals. Your business plan is the foundation of your vision and will allow you to structure your ideas into reality.
Principle 4 – Lay out a master blueprint.
A set of detailed architectural drawings is highly important to a builder…the same way a business plan is to an entrepreneur. Your plan will list the set of detailed procedures in building your business. It will also determine the details that will be used in reaching your objectives. Creating and reading from a set of blueprints in building a structure takes time and effort. Architects cannot neglect a single point of interest in developing the blueprints. If they do, the potential for disaster is certain.
Likewise, without a business plan the potential for disaster is very high. Your business plan is literally a master blueprint when you are developing a business. Blueprints for a building and a master blueprint for your business are very much alike. Isn’t it interesting that a local municipality will not even allow the footings to be dug if a set of blueprints is not first approved? Funding sources view loaning money or investing capital the same way and take the position of, “Come and talk with me after you have your plan in writing.”
Finally, each section of the blueprint is like a section of your business plan. Although they may be completely separate, they eventually must all tie together in the end to demonstrate a beautiful masterwork.
Principle 5 – Communicate your master plan to members of your team.
The business plan is a concrete statement of purpose that allows you to communicate to your associates and potential investment sources a step-by-step agenda for reaching your goals. Some portions of the business plan can also be used in training and coordinating meetings. You can even incorporate elements of your plan in explaining to your employees what their role is and how they will be accountable as you make the business function successfully.
The primary idea here is to have as many team members as possible involved in the process of crafting your business plan. After all, there may be several things they come up with that you probably never would have thought of. When your team is involved, they will be silently committing their energies to the success of the business. Involvement = Commitment, and Commitment = Success. This is a powerful way for you to find a greater degree of success, and keep your team enthused about the prospects of succeeding at all costs.
This concludes Part 1 of a two-part series on developing an investor-ready business plan. Part 2, further explains the principles that are critical in crafting a business plan that gets results.