08/ 02/ 2004
by Jim R. Sapp
To start a business or expand one, it is critical to have a business plan. Your business plan is the backbone of your company. This may seem like a waste of time to you -- you have the whole plan in your head! But you must write it out, do the financial projections and really take a hard look at the business model before you start spending your money. Whether you’re an attorney, dentist, rancher or parts manufacturer, you need a written plan. And it should not be just a paragraph or two of dreams. Your business plan is a guide for you; it needs to explain your passion for the company you are building and detail why it is going to work.
This is not something you can do overnight. It requires a lot of time and effort. Take time to analyze and think through the project, and give yourself an adequate amount of time to complete it.
You can write the business plan yourself, but don’t be afraid to solicit input from others. The plan needs to be specific and clear. Don’t assume that everyone is familiar with your business. Only you truly know your business, so it is up to you to present it in a way that others will understand.
The purpose of the business plan is typically to secure some type of financing, whether it is a loan or investment in the company. In many cases, a lending institution will not even review your material until a plan is presented. If the lender sees that you are organized and have analyzed your business operations, you are much more likely to receive favorable terms -- and the terms of the loan are critical. Rates, down payments, length of the loan, renewal options, insurance and equity conditions all have a large impact on your company’s bottom line.
Your business plan should show that the company is focused on a clear mission and well defined goals. You can’t expect someone to lend you money just because you think you have a viable product to sell. You have to provide a financial institution or other lender with the necessary information to make them comfortable enough to want to grant a loan or investment. A well-thought-out plan demonstrates to the lender that you understand your business, and that the business has a better-than-average chance of surviving and being profitable.
Six essential elements of any business plan
1. Objective
The objective is the most important element, yet it is often forgotten. The business plan should explain specifically what you are seeking and who is seeking it. For example, “Widget Manufacturing is seeking $100,000 for start-up expenses and new computers.” Be certain to include the full legal name of your company, a “doing business as” (dba) if appropriate, your corporate address and your contact information, including cell phone number or e-mail address. This contact information is especially important if you are still employed elsewhere.
The narrative should provide a basic explanation of the company and its stockholders, product or service history, personnel, marketing plan, operations timeline, competition and analysis of the current marketplace and trends. Include trade articles and informational documents that support your belief that your product or service will be successful. Describe in detail how you make your product or the kind of services you provide. Give examples of your work, past clients and potential customers. Include any appropriate statistics, research, graphs, charts and colored pictures. This can be challenging, but it is important for the company and the lender. Include your company’s mission statement. If you don’t have a mission statement, develop one. If you don’t know how to create one, attend a seminar, go to the library or look at the mission statements of other businesses. You need a mission statement, even if it is simple.
This is also the place to include information about the professionals who support the company: accountants, attorneys, insurance liability carriers and medical insurance carriers. If you have executive staff or advisory board members, they should also be listed along with their resumes.
Be sure that this section is laid out logically. The history of the business should obviously be chronological. The pages of the entire business plan should be numbered for easy reference, and you should include a table of contents. You should also write an executive summary, reviewing the plan for a quick reference. The lender will use the summary frequently, so be sure that it does your company justice. It is imperative that someone with good English and grammar skills review this section.
3. Financial information
If you have any financial statements about your company, this is the place to include them. You must also include your personal financial statement. Provide a neatly typed, personal financial statement that you prepare, or fill out a general form from the Web site of a financial institution. Lenders need to know what you have accomplished financially. You need to share what you’re worth, but do not include financial information on your spouse.
4. Projections
It is important that you do your research when it comes to projecting where your business will be for the next three years. Be sure you are realistic in your projections. Also, unless you are an accountant, have someone assist you with these projections. It will save you a lot of time and stress over tying spreadsheets together.
5. Supporting documents
Be sure to include additional items that will help explain your business. Bulk can be good, but only if the additional information is beneficial to understanding your company. Some items that you may want to include are a franchise agreement (if applicable), maps, photographs, demographic research, charts showing historical data and newspaper or magazine articles about your company or industry.
6. Resume of owner
One of the most important documents, one that is often overlooked, is a very thorough resume about you, the company owner. The lender will want to know who you are, what you’ve accomplished and something about your background and history. The lender needs to be very comfortable with your ability since you are the brain and backbone of the new company.
Every company should have a business plan that explains the organization and sets distinct goals. A business plan is the key to successfully obtaining financing. Keep in mind that the business plan is a representation of you and your company, so it needs to be neatly bound and professionally presented. I also recommend having a copy of your business plan available in a CD or floppy disk format for those financial institutions, investors or family and friends that may have an interest in your venture. Then it’s easy to electronically forward your plan to them.
Review and revise regularlyBe sure to review your business plan and goals monthly. You may know where you want to take the company, but you have to be sure your staff, loan officer and board of advisers do, too. A successful company is guided by a strong leader, but it doesn’t operate with one person. Your company needs your direction and leadership, but you can’t do everything. You must listen to your employees and other professionals, and keep current on new trends by attending seminars and trade events. You are in an important position, and people are counting on you.
Jim. R. Sapp is an international business consultant and speaker with more than 25 years experience as a business owner and entrepreneur. He is Founder and Director of the American Small Business Institute, and recipient of both the “Entrepreneur of the Year” award and “Blue Chip Enterprise Award” for inspirational achievement in business. His book Starting Your First Business is available from www.sappbiz.com or by calling 800.570.5436.
