BUSINESS PLAN WRITING TIPS

Posted on November 26, 2007 | Filed Under Start-Ups 

BUSINESS PLAN WRITING TIPS

A business plan gives prospective investors the facts about a concept and ability to deliver, but it also demonstrates how a problem is analyzed and solved. This is important to investors who are not familiar with management. Rewrite resumes to emphasize the skills needed to make the venture succeed.  A business plan is like a management team resume with financial projections.  An investor wants to know that the people behind the idea have the expertise to make it happen.

Give a structured and factual presentation. Even if the idea involves creativity or leading edge technology or a radically new concept, the people with the checkbooks still need a document that is full of substance, easy to read and simple to understand. In this case the rule is substance over form. That is why it is important to put time into preparation of the business plan. To write an effective business plan considers the following to improve content and presentation:

1. Know the competition.

  1. Know the audience.
  2. Back up claims with proof.
  3. Financial projections.
  4. Time and resources.
  5. Be logical.
  6. Credentials and expertise.
  7. Documentation.

9. Facilities.

10. Payout options.

Business plans that don’t inform and excite often end up in the trash. To make sure the plan “hits the bull’s-eye,” follow these six steps.

  1. Focus on the product (“Wow, what a terrific product!”).
  2. Applaud the competition – then rise above it.
  3. Know the markets. (“This market analysis leaves no pebble unturned!”).
  4. Present the course of action (“This plan of action is bullet proof!”).
  5. Show off the management team (“Look who they have lined up! If this company was a baseball team, they would be headed straight to the World Series!”).
  6. Make the executive summary shine (“This company is going to be huge. I can’t wait to read the rest of their plan!”).

A business plan is the most important document to be written. Take the time to do it correctly. The goal is to have the business expand and grow far beyond projections…maybe even dreams! When writing a business plan avoid:

  1. Form over substance.
  2. Empty claims.
  3. Rumors about the competition.
  4. Superlatives and strong adjectives.

5.  Long documents.

6.  Over estimating on financial projections.

  1. Overly optimistic time frames.
  2. Gimmicks.
  3. Typos and misspelled words.
  4. Amateurish financial projections.

BUSINESS PLAN – THE WRITTEN DOCUMENT

A business plan is a written document that describes the business to be started and how it will become profitable. The document usually starts with a succinct statement outlining the purpose and goals of the business and how the plan will be achieved. It should also contain a formal profit-and-loss projection and cash-flow analysis designed to show that if the business develops as expected, it will be profitable. The business plan enables one to explain business prospects to potential lenders and investors using the financial language and tools they have been trained to understand. Even more important, the intellectual rigor of creating a tight business plan will help one determine whether the business is likely to meet personal and financial goals. Many times when budding entrepreneurs take an honest look at their financial numbers, they see that hoped-for profits are unlikely to materialize. Or, put another way, one of the most important purposes of writing a good business plan is to convince one not to start a bad business.

If this is the first business plan ever prepared, don’t be overwhelmed!  It’s quite comprehensive, and may require some hard work and research.  It may seem stressful and overwhelming, because the answers are not always easy.  It forces one to discuss rationally a lot of things that seem intuitive.

Writing a business plan is one of the most difficult things that entrepreneurs have to do, because it challenges one in areas in which one may have little or no knowledge or experience–and funding success may depend on knowledge in these areas.  Keep researching to find answers to items most important for success of the business. It will take time to gather all the information and prepare it for the plan. Business plan guidelines are presented in more detail in Exhibit D.

Good news is a plan or idea exists and it is thought that money can be made!  The bad news is there is a lot of work to do to get the idea ready to present to potential investors. Writing a business plan is hard work. It will take longer than one thinks and, in the end, forces one to do the things they would really rather avoid right now; i.e. research and financial projections and identifying the strengths of the management team in a convincing way.

A company’s business plan is the single most important business piece to be written. There are as many ways to write a business plan, as there are to write a resume. Some will end up in the trash; others will just be “filed”. There are several key elements that will make the difference between being told, “We read the plan and have decided not to invest at this time,” and “We think the company is on the right track — when can we get together to discuss funding for the company in further detail?” Before writing a business plan, do some research. There are countless guides, books and articles on how to write the perfect plan. Find the style that is best suited to the company’s needs so it is prepared right the first time. For a high technology type company, and a simple business or idea, 8-10 pages may be adequate.  However, there is a need to address each of the following topics, even if only to show why it’s “not” important for the business. Write as if the business is already in place. Do not write about what has been completed unless it’s important to show progress or for what one plans to do.

Packaging is important. With today’s technology, it is not difficult or expensive to insert color images or accent color to make the final product more appealing, distinguish your company, and improve content retention. Print the business plan on good quality laser or color printer and bind copies in attractive covers. Use a nice text layout and effective headlines to make the document look more professional. Invest some time in the appearance of the finished product.

Proofread carefully. Dale Carnegie said, “Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no help at all.” There will be times when management starting a new business and soliciting funding will feel this way.

It is necessary to work hard on a business plan and there are no other options if success is to be achieved. If a major business report or proposal or strategic plan has never been written consider hiring a business or technical writer to help with that part in order to leave time to gather and organize information. The following will be needed to prepare for writing the plan.

BUSINESS PLAN WRITING TIPS

Readers who do not yet have the advantage of knowing the business plan author will judge them by their writing. Pay some attention to what is said and how it is said. The following is a sample cover letter for a bank loan request. Note how much information is packed into a short letter, and that it focuses on what a banker would most want to know.

Write as you would speak, but just a little more formally. Avoid slang and contractions. Do not try to make it too fancy. Start with a list of the main points that need to be presented; then start explaining them. Use only the three basic tenses, past, present, and future. Refer to the business by its name, or “it”. Thus, the ABC Company was formed in 1996 etc., is now called the XYZ Company. Use “I” or “We” only when referring to the actions of the individual owners. Write in the active voice and in short sentences.

A business plan gives prospective investors the facts about a concept and ability to deliver, but it also demonstrates how a problem is analyzed and solved. This is important to investors who are not familiar with management. Rewrite resumes to emphasize the skills needed to make the venture succeed.  A business plan is like a management team resume with financial projections.  An investor wants to know that the people behind the idea have the expertise to make it happen.

Give a structured and factual presentation. Even if the idea involves creativity or leading edge technology or a radically new concept, the people with the checkbooks still need a document that is full of substance, easy to read and simple to understand. In this case the rule is substance over form. That is why it is important to put time into preparation of the business plan. To write an effective business plan considers the following to improve content and presentation:

1. Know the competition. Be prepared to identify the competition and tell what makes the business different (and better) than each of them.

2. Know the audience. Several versions of the business plan might be necessary; one for bankers or venture capitalists, one for individual investors, one for companies that may want to enter into a joint venture rather than fund the business. Determine the audience and get facts to support the ideas that will be important to the audience of potential investors. The Greek poet Ovid said, “Everyone is a millionaire where promises are concerned.” It takes proof, not claims, to convince an investor to write a check.

3. Back up claims with proof. If the company expects to be the leader in the field in six months, explain why.  If the product will sweep the market by storm, support the statement with facts.  If the management team is fully qualified to make the business a success, be sure their resumes demonstrate the experience needed.

4. Financial projections. Be conservative in all financial estimates and projections.  If 50% of the market can be captured in the first year, say why and estimate the financial return and expense but be sure they are realistic. Think conservatively. A 10% market share is much more credible.

5. Time and resources. Be realistic with time and resources available. Progress is usually slower than expected. Over-optimism with time and resources is a common error entrepreneur’s make.  Being realistic is important because it lends credibility to the presentation.

6. Be logical. Think like a banker and write what he/she would want to see, in an order that makes it easy to find the information.

7. Credentials and expertise. Make sure management has good credentials and expertise. They don’t have to have worked in the field, but there is a need to draw parallels between what they have done and the skills needed to make the venture succeed.  If all of the skills needed are not currently present consider adding an advisory board of people skilled in the field and use their resumes.  Discuss the shortcomings factually in the business plan, showing how and when they will be addressed getting the right people on board to fill in the gaps in the management team.

8. Documentation. Document why the idea will work. Have others done something similar that was successful? Is a prototype available? Include all the variables that can have an impact on the result or outcome of the idea. Show why they don’t apply to this situation or explain how to overcome them or make them better.

9. Facilities. Describe facilities and location for performing the work.  If expansion is needed, discuss when, where and why.

10. Payout options. Discuss payout options for the investors. Some investors want a hands-on role, some want to put associates on your Board of Directors, some don’t want to be involved in the day-to-day. All investors want to know when they can get their money back and at what rate of return. Most want out within three to five years. Provide a brief description of options for investors, or at least mention that you are ready to discuss options with any serious prospect.

Business plans that don’t inform and excite often end up in the trash. To make sure the plan “hits the bull’s-eye,” follow these six steps.

1.  Focus on the product (“Wow, what a terrific product!”). Furnish all pertinent details about the product or service, including any research conducted. What development stage is it in? How is it unique? What are the distribution methods? Who will use the product and why? What does it cost to manufacture, and what is the selling price? Describe future plans for updates and new releases. Involve the lender in the product or service so they will be as excited about it as you are. Try to describe everything in simple terms; items and attributes that are clearly to some may not always be clear to others. The goal is not only to convince the lender that the product will revolutionize the world, but that the facts in the plan prove it!

2.  Applaud the competition – then rise above it. (“Impressive! This company offers a unique advantage that will have customers beating a path to their door!”) Analyze the competition in great detail. Who are they? How do their products work? How are they similar to and different from the company product? What are their marketing tactics? Define each competitor in terms of sales volume, gross margin, income and market share. Then discuss your company’s competitive advantage over each one. Do this without dragging names or products through the mud. Instead, show how a customer will chose the product over the competitor’s because of its quality, delivery time, location, price, etc. Convince the reader that the company will be not only a worthy competitor, but will be setting industry standards in the future. Make the lender aware that risks related to competitors are known and how the business will overcome each one.

3.  Know the markets. (“This market analysis leaves no pebble unturned!”). Provide an in-depth analysis on how your company perceives its target markets. What are the economic, geographic, occupational and psychological profiles of the people who will buy the product and how will each benefit? Develop and include a preliminary marketing plan. List sites in which to advertise, promote and publicize. Make sure to include budgets and project revenue for each. Also include an outline of the sales strategy. Will outside sales reps or an in-house force be used? Are resellers, distributors or franchises to be involved? What sort of sales training will be provided? Again, details are paramount.

4.  Present the course of action (“This plan of action is bullet proof!”). How exactly will the product be brought to market? How is the product being assembled? What materials will be used? What production resources are owned or needed? What are the costs for equipment and manufacturing? Are facilities leased or owned? Explain both the fixed and variable costs related to assembling, storing and delivering the product.

5.  Show off the management team (“Look who they have lined up! If this company was a baseball team, they would be headed straight to the World Series!”). The key to turning an idea into a successful venture is to have a strong management team. The team must have in-depth technical knowledge, managerial skills and years of experience. It is management’s responsibility to plan, organize, control and direct the activities of a company towards its goals. Describe the team and its responsibilities as a whole first. Then break down each member’s special skills, attributes, and accomplishments, indicating how each will benefit the company. Describe management objectives and include organizational charts to support claims.

6.  Make the executive summary shine (“This company is going to be huge. I can’t wait to read the rest of their plan!”). Does the executive summary leave the reader intrigued and thirsty for more information? It should, because it will leave a lasting impression. It will be the last thing submitted but the first thing the lender will read, and should summarize the most pertinent details from the plan. Include a brief yet captivating overview of the writer’s position within the company, the company’s capabilities and limitations, the competition, marketing and financial strategies, and the management team. This is the company’s cover letter, so make it good.

A business plan is the most important document to be written. Take the time to do it correctly. The goal is to have the business expand and grow far beyond projections…maybe even dreams! When writing a business plan avoid:

1.  Form over substance. If it looks good but doesn’t have a solid basis in fact and research, save your energy.

2.  Empty claims. If facts are presented, back them up in the next sentence with a statistic or fact or quote from a knowledgeable source that supports the claim.

3.  Rumors about the competition. If a competitor is going out of business allude to it, but avoid listing their weaknesses or hearsay. Stick to facts.

4.  Superlatives and strong adjectives. Words like major, incredible, amazing, outstanding, unbelievable, terrific, great, most, best, and fabulous don’t have a place in a business plan.  Avoid “unique” unless it can be demonstrated with facts that the product or service is truly “one of a kind”. Seldom is an opportunity truly unique.

5.  Long documents. Keep it under 25 pages total. Write what is necessary, but keep it at home.  If investors want details, they will ask.

6.  Over estimating on financial projections.  It is good to appear optimistic, but resist

excess optimism. Use half of what might be considered reasonable. Better to underestimate than set expectations that aren’t fulfilled.

7.  Overly optimistic time frames. Ask around or do research on the Internet. If it takes most companies 6-12 months to get up and running, this is probably true of this business. If prototype development is expected to take 3 months, double it. Delays are inevitable and hard to control.

8.  Gimmicks. Serious investors want facts, not hype. They may eat the chocolate rose that accompanies the business plan for your new florist shop, but it won’t make them any more interested in investing in the venture.

9.  Typos and misspelled words. Use a spell checker, hire an editor or have four people read the document from back to front, but get those errors out of there if the plan is to be taken seriously.

10. Amateurish financial projections. Spend some money and get an accountant to do these. They’ll help one think through the financial side of the venture, plus put them into a standard business format that a businessperson expects.

EXECUTIVE SUMMARY (EXAMPLE)

ABC Design and Construction Inc. is a high-end design and remodeling firm with a reputation for integrity, quality craftsmanship, and excellence in management. In three years annual sales have increased to be well over a million dollars.

ABC Design and Construction Services was formed by Joe Doe as a Sole Proprietorship in December 1997. In 1998 a combination of activities involving residential design, consulting, and general construction brought Gross Sales of $250,000.

The Company experienced steady growth since its inception, and incorporated in March 1999, (see Appendix 6, Articles of Incorporation). In 1999 Gross Sales of $750,000 were achieved. In 2000, signed contracts show that Gross Sales are expected to be $1,300,000 (see Appendix 2, current Backlog).

The Company has its address in leased premises at 1234 A Street, Somewhereville, AB 12345. Its activities fall under the Standard Industrial Classification SIC 1521 and 1522. The owners are Joe Doe and Nancy Doe.

ABC Design and Construction is involved in four distinct activities:

  • Architectural Design
  • Residential & Light Commercial Construction
  • Property Services
  • Retail Floor Coverings (see Appendix 4).

Eighty to ninety percent of the Gross Sales are in design and construction. At the moment (May 2000) there are 25 permanent employees on the payroll and 10 subcontracted workers excluding subcontracting companies (see Appendix 1 for resumes).

The company’s Short Term Objectives (within the next three years) are to increase activity in all Divisions, and to achieve annual profit, net after taxes, of $200,000 by 2003. Its Long term objectives are: to maintain the level of current business achieved up to 2003, and then to move into historical restorations, more light commercial work, and increased new custom home construction.

To implement these objectives the company needs:

  • A loan of $100,000 at Prime plus 2%. This loan to be used for current near term expenses including ………., ……….. and………. It will be repaid in five years.
  • A line of credit of $50,000 to take advantage of discounts available, avoid associated penalties, and expand into high profit areas requiring positive cash flow.

The prospects for ABC Design and Construction’s continued growth are excellent, with 2000 construction and design contracts underway already exceeding $550,000 (see Appendix 2, Backlog 2000).

For equity the company has assets of $227,000 (see Appendix 9, Balance Sheet as of mm/dd/2000). Additionally the company’s owners are willing to offer as collateral a second mortgage on a residence with an estimated equity of $150,000. The address of this residence is Street Address, City ST 11111.

The company’s overall objective is to satisfy that market segment that demands integrity and quality construction, and to maintain a steady growth in sales volume that will sustain the company for twenty years. Joe Doe has enhanced his reputation to the point where the company is regarded by many architects as the recommended choice with their clients due to the excellence of its craftsmen and management.

Market research shows that the population in Somewhereville has increased by 200,000 between 1985 and 2000. This increase in population brought about an increase of 19,850 new single family homes valued at over three billion dollars. This increase gives the area over 128,000 existing homes as a potential remodeling market. Demographic estimates published by the State Office of Financial Management, 1999, indicate that an additional 20,000 persons will need to be housed between 2000 and 2020. ABC Design and Construction intends to pursue this market vigorously. (See Appendix 7 for data on anticipated changes in the population of the County).

FINANCIAL OBJECTIVES

The financial objectives of ABC Design and Construction over the next few years are as follows:

2005 2005-2010

Please review the enclosed business plan and loan proposal, and of course feel free to ask for any additional information or explanations you may want. I will call you in about one week to arrange an appointment so we can discuss the loan in person.

I look forward to a mutually profitable relationship with the XXX Bank.

Sincerely,

Joseph J. Doe


Comments

Leave a Reply