The Essential Elements to a Powerful Business Plan – Published on on Monday, August 12, 2013

First impressions are always important, in every aspect of life and business, but they are absolutely critical when entrepreneurs are seeking funding for a new project.  Often, either due to financial constraints, deadlines, or a lack of understanding of the importance of making a strong first impression, entrepreneurs fail to deliver a powerful business plan to potential investors.  Just as often this oversight results in missed opportunities for funding; opportunities that are lost forever.

As a professional business plan writer who writes more than 100 plans each year, I have worked with countless entrepreneurs who have attempted to avoid writing a complete, comprehensive business plan, opting instead for what they think is an executive summary of a plan, or some other incomplete document that fails (miserably) to deliver a strong, concise, and actionable message to investors or lenders.  While there are elements of a business plan that require some specialized skills to complete, there are some basic steps every entrepreneur can take to develop a highly impactful business plan.

Every business plan should include key sections that outline the business opportunity for the investor or lender.  Often entrepreneurs focus on what they believe is great about their business idea instead of focusing on what is important to the investor or lender.  A good plan will be written from the investor’s or lender’s perspective, meaning that all information in the plan will be presented in such a way as to address the interests and concerns the investor or lender will have, and will also present a compelling opportunity to drive the investor or lender to take action (give the entrepreneur the money they need to start or expand their business).

It follows that a plan written for an investor will not be quite the same as one written for a lender.  Investors are interested in generating a return on their investment, and will typically be willing to forego cash flow in the short-term for a larger payoff down the road.  Lenders are concerned about the business generating strong current cash flow to cover debt service.  With these key differences in mind, the entrepreneur must focus on these differences when writing their business plan.  This will mean including investor-specific or lender-specific data and language.  At a minimum, for investors, projected future valuations and implied rates of return should be included, while for lenders, debt service coverage ratios should be included.

All business plans, regardless of the audience, must contain an executive summary.  This should be the first section of the plan and is a summary of all other sections of the plan.  Additionally I like to include a “Problem,” “Solution,” “Why Now?”, and “Objective” statement.  Defining the problem the business will address, and the unique solution the business will offer for that problem helps the investor or lender understand the specific niche market the company will fit within, and how the business will gain a competitive advantage.  The “Why Now?” statement provides some urgency to show not only why the business is needed right now—why the problem needs the solution the business will provide today, but also provides an opportunity for the entrepreneur to create some urgency with regard to getting the funding completed—the opportunity may not always be available so the investor or lender needs to take action now.  The “Objective” statement is where the entrepreneur states what they are trying to accomplish with the business plan, which is usually a successful funding round.  I include some detail as to the amount needed, what it will be used for, and what form of funding—equity, loan, hybrid, etc.

I like to end the executive summary section with a “Deal Summary,” which is a summary of the funding requested and a call to action—asking the reader to contact the entrepreneur to discuss the plan and the funding round.  This is similar to a cover letter that would be included with a resume or business proposal, etc.

The main body of the plan should include several major sections, each of which should include enough detail to fully explain the opportunity to the reader.  I include the following major sections:

  • Company Description
  • Product and/or Service Description
  • Management Team
  • Industry Analysis
  • Facilities and Operational Plan
  • Promotional, Marketing, & Sales Strategy
  • SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)

In addition, I include appendices for:

  • Financial assumptions
  • Financial Analysis
  • Supplemental Data
  • Letters of Intent
  • Testimonials

Depending on the type of business I may include other sections that relate to the specific attributes of the business.  This can be critical for businesses in new or emerging areas of the economy where broader industry information is unavailable, especially for highly technical businesses where investors or lenders may have difficulty understanding the business (confused investors and lenders do not fund deals).

Within each section, it is important to present the information from the perspective of the reader.  As stated above, entrepreneurs often mistakenly write business plans focusing on what they believe is great about the business rather than on what the reader cares about.  While including enough information about the business so that the reader understands the operating model is important, the reader will not want to read 10 or 20 pages about a particular industrial process, patent, algorithm, etc.  Engineers in particular struggle with this issue because they are technical thinkers who value the operational aspects of their business model and want to convince the reader of the power of their business model based on those operational strengths.  While some investors may want to gain a more thorough understanding of the specifics at some point, extreme detail should not be the focus on any business plan.  Finding a good balance between providing enough detail so that the reader gains an understanding of the application of and market for the product or service without overwhelming them with too much detail is essential to developing a winning business plan.

In the financial Analysis section, a minimum of three years of financial information should be presented, with a full set of financial statements—income statement, balance sheet and cash flow statement.  It is a good idea to present at least the first year in monthly increments.  Additional tables for key areas such as the Use of Funds (what you plan to use the money for that you are looking to raise), Employment Cost Detail, Revenue Model, Financial Ratios, etc., should also be included where possible.  Pricing matrices are helpful as well, especially if the business will offer multiple products and/or services.

The Financial Analysis section can be difficult for many entrepreneurs and is usually where those who have problems completing a business plan get stuck.  While there are software programs available that can assist the entrepreneur with this section, or with writing a business plan overall, I have not seen any that I would recommend.  Very often clients come to me after attempting to write a plan using software programs only to run into problems.  Plans written with business plan writing software typically look very generic and unprofessional, and lack the detail and customized feel of a well-written plan.  Each business is unique, and that uniqueness is a key selling point for investors and lenders alike.  Trying to fit a new, unique business into the constraints of a generic software program is usually an exercise in futility.

Hiring a professional business plan writer is often the most effective strategy for not only developing a strong business plan, but getting it completed on a timely basis, and pushing the funding process forward.  Most entrepreneurs fail before they ever get a chance to present their ideas to qualified investors because they cannot complete a quality business plan getting bogged down in the process, or because they move ahead with their funding efforts without a plan, only to blow the best opportunities they have for funding by making a poor first impression.  By putting their best foot forward with a well-written, comprehensive, targeted, concise business plan, entrepreneurs can focus on navigating the funding process with confidence and the right tools to successfully complete this very important step in building their business.

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