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"An intelligent Business Plan is the first step to success. The man who plans knows where he is going, knows what progress he is making and has a pretty good idea when he will arrive. Business Planning is the open road to your destination. If you don't know where you are going, how can you expect to get there?"

-- Basil S. Walsh

How to Write a Winning Business Plan



What's wrong with most business plans? The answer is relatively straightforward. Most waste too much ink on numbers and devote too little to the information that really matters to intelligent investors. As every seasoned investor knows, financial projections for a new company - especially detailed, month-by-month projections that stretch out for more than a year - are an act of imagination. An entrepreneurial venture faces far too many unknowns to predict revenues, let alone profits. Moreover, few if any entrepreneurs correctly anticipate how much capital and time will be required to accomplish their objectives. Typically, they are wildly optimistic, padding their projections. Investors know about the padding effect and therefore discount the figures in business plans. These maneuvers create a vicious circle of inaccuracy that benefits no one.

Don't misunderstand me: business plans should include some numbers. But those numbers should appear mainly in the form of a business model that shows the entrepreneurial team has thought through the key drivers of the venture's success or failure. In manufacturing, such a driver might be the yield on a production process; in magazine publishing, the anticipated renewal rate; or in software, the impact of using various distribution channels. The model should also address the break-even issue: At what level of sales does the business begin to make a profit? And even more important, When does cash flow turn positive? Without a doubt, these questions deserve a few pages in any business plan. Near the back.

What goes at the front? What information does a good business plan contain?

If you want to speak the language of investors - and also make sure you have asked yourself the right questions before setting out on the most daunting journey of a businessperson's career - I recommend basing your business plan on the framework that follows. It does not provide the kind of "winning" formula touted by some current how-to books and software programs for entrepreneurs. Nor is it a guide to brain surgery. Rather, the framework systematically assesses the four interdependent factors critical to every new venture:

  • The People. The men and women starting and running the venture, as well as the outside parties providing key services or important resources for it, such as its lawyers, accountants, and suppliers.
  • The Opportunity. A profile of the business itself - what it will sell and to whom, whether the business can grow and how fast, what its economics are, who and what stand in the way of success.
  • The Context. The big picture - the regulatory environment, interest rates, demographic trends, inflation, and the like - basically, factors that inevitably change but cannot be controlled by the entrepreneur.
  • Risk and Reward. An assessment of everything that can go wrong and right, and a discussion of how the entrepreneurial team can respond.

The assumption behind the framework is that great businesses have attributes that are easy to identify but hard to assemble. They have an experienced, energetic managerial team from the top to the bottom. The team's members have skills and experiences directly relevant to the opportunity they are pursuing. Ideally, they will have worked successfully together in the past. The opportunity has an attractive, sustainable business model; it is possible to create a competitive edge and defend it. Many options exist for expanding the scale and scope of the business, and these options are unique to the enterprise and its team. Value can be extracted from the business in a number of ways either through a positive harvest event - a sale - or by scaling down or liquidating. The context is favorable with respect to both the regulatory and the macro-economic environments. Risk is understood, and the team has considered ways to mitigate the impact of difficult events. In short, great businesses have the four parts of the framework completely covered. If only reality were so neat.  

Business Plan DOs and DON’Ts

  • DO be brief. Begin with a two to three-page executive summary. Then, limit the body of the plan to seven-to-ten typewritten pages. Note that internal business plans and budgets are normally more detailed than those presented to external investors. Include everything important to the business and financing decision, but leave secondary issues and information, such as detailed financial information, for discussion at a later meeting.
  • DO let the reader know, early on, what type of business the company is in. While this may seem obvious, many plans tell the reader this information on page 20, for example, and with other plans, the reader is never certain.
  • DO state the company’s objectives.
  • DO describe the strategy and tactics that will enable the company to reach those objectives. DO cite clearly how much money the company will need, over what period of time, and how the funds will be used.
  • DO have a clear and logical explanation about the investor’s exit strategy.
  • DON’T use highly technical descriptions of products, processes and operations. Use common terms. Keep it simple and complete.
  • DO be realistic in making estimates and assessing market and other potentials.
  • DO discuss the company’s business risks. Credibility can be seriously damaged if existing risks and problems are discovered by outside parties.
  • DON’T make vague or unsubstantiated statements. For example, don’t just say that sales will double in the next two years or that new product lines will be added without supporting details.
  • DO be specific. Substantiate statements with underlying data and market information.
  • DO summarize and properly structure internal budgets and plans to facilitate review by outside parties.
  • DO enclose the proposal/business plan in an attractive but not overdone cover.
  • DO provide extra copies of the plan to speed the review process.
Useful Templates

 

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