Writing a business plan is not an easy task. It’s a way to provide the perfect blueprint of a venture and the first step for an entrepreneur when executing his or her initial idea. The business plan will not only serve as a pitch to potential investors, but also as a guide when trying to accomplish your milestones. Below you will find some tips that will shed some light on the process of drafting your business plan.
1.) Divide your plan into sections. A business plan should be very well structured and at the same time very easy to read, especially for people that don’t know what your company is about (e.g. investors, angel investors, venture capitals, etc.). Be sure to organize your plan by including a table of contents, executive summary (company ownership, location, etc.), market overview (market segmentation, industry analysis, competitors, etc.), strategy and implementation (competitive edge, marketing strategy, etc.), management summary (financial highlights, startup summary, etc.), revenue forecast, personnel forecast, projected profit and loss, break-even analysis, projected cash flow, projected balance sheet, sensitivity analysis, and an appendix.
2.) Get a second opinion. Once you have drafted the business plan it is important to have another pair of eyes review it. The reason for this is not only to correct possible mistakes, but also to get feedback on other possible routes that you were not aware of. The more people you have looking at it, the better. This will help you when you are looking for that missing piece of the puzzle.
3.) Be prepared to re-draft. Every business plan changes several times. It is almost impossible to get it right on the first try, and if you do, there is a high possibility that it was done incorrectly. Once you share your business plan, be sure to ask for feedback because when you launch a product, your plan may need change based on the demand of clients and customers. Additionally, be sure to change your plan accordingly every few months, so that when it comes time to meet with investors, you know that they are looking with the most recent draft.
4.) Think like an investor. Always put yourself in the shoes of the investor. Make sure you always highlight the returns and competition that you will face when launching your venture. These are the top two factors that investors will be looking for. Try to include both sections in your executive summary so that investors can see it right off the bat. Some other factors that investors could potentially be interested in are: industry-leading gross profit margins, intellectual property rights, brand extension capabilities, customer contracts, recurring revenue potential, and partnerships with larger companies.
5.) Know your market. It is very important to know your market before starting anything. You need to know what you will need in order to build the structure. It is critical that you know what other companies are within the same field as you. Make a very clear difference between you and them and explain how you will be able to do things better and faster. Carefully explain how and where you intend to sell your product and how much it would cost you in order to get costumers rolling into your business. The value of a customer should be three or more times greater than the cost of acquiring a customer.
6.) Have the right profit margin calculations. Profit margins should be measured in percentages. The profit margin is the net income divided by revenue, or net profit divided by sales. It measures the amount of money a company makes: meaning every dollar that has been made out of sales. These margins are very useful when comparing your company with another one. A higher margin would mean that the company is more profitable and that there is a better control over the company’s cost. Make sure you are comparing averages with other companies within the same field. Identify if you are on the high or low terms compared to the industry’s performance.
7.) Know the risks. You should write in detail what the operating risks that your venture may be faced with in the future. You also need to be open to change and to other suggestions in order to gain such trust from investors. These investors love when you are open to new ideas, this will help in building a stronger relationship with you and your investor(s). We suggest that you write down the top risks that could damage your sales. In this stage, you have to have the willingness to learn, and to accept a different range of possibilities.
8.) Be very descriptive with your projections. As explained earlier, business plans should not be drafted only to be understood by you. Of course, you will be able to understand what your excel sheet is saying, but other potential investors will not have the time nor the interest to learn what your sheet is saying. Make sure you clearly explain in detail what you are saying, include introductions and descriptions that will help understand your numbers.
9.) Explain the use of proceeds. Every business plan should include how the money is intended to be spent. Make sure you allocate proceeds to the right resources and that the numbers are reasonable. Pay special attention to this section, otherwise the potential investors might feel like investing in your project will be the same as burning the money or throwing it in the trash. The details of the proceeds normally focus on product development, intellectual property filings, equipment acquisitions, debt repayment, and marketing.
10.) Establish clear milestones. This section might be one of the most important parts of the business plan. Be honest with yourself: is this something you can accomplish? In the event that investors decide to put money into your business you need to make sure that they are going to follow these milestones very closely. In the event you don’t reach them, difficult situations may arise for you, for them, and for other interested parties that may be turned off right away. Try to specify the management milestones as well. Separate your milestones from the your product milestones and make sure that both sections are clear and understandable.
