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With that quote in mind, I say to you congratulations on taking an important first step in making your dreams come to life. I’ll be honest with you; the road you are about to embark on will be saddled with hard work and obstacles that seem impassable. But with true grit and enthusiasm, I guarantee that you’ll eventually find what you are seeking – your true potential, financial independence, and fulfillment that comes with hard earned success.
The act of writing a business plan is a business planning process. It will help you shape your business strategy and provide a blueprint for future success.
It is suitable for all business types (new or existing), industries, whether you plan on selling products and/or services, and whether you plan on securing funds (equity or debt).
• Are you a small or large company? This will dictate the level of detail you want your business plan to go into.
• Seeking funding? If so, you’ll want to address the needs of lenders and investors.
• New business? You’ll only have projections to go with, so make sure your assumptions are rock solid.
• Existing business? Make sure to highlight historical financial data in your plan.
• Services business? If so, you’ll have no costs of goods sold, and no inventory. Likewise, if you’re planning a product oriented business then you’ll have to think about direct costs of producing your product and inventory to ensure you can meet your sales forecast.
• Credit history: demonstrates trustworthiness.
• Collateral: your ability to “put your money where your mouth is” demonstrates your commitment and lowers risk for prospective investors and lenders
• Is there a demand for your product or service – is there a market?
• Experienced management team – can you execute?
• Any competitive advantage?
• Are projections realistic – is your plan credible?
• Strong marketing plan – how will you get customers?
1. Write the Executive Summary last as it takes highlights from multiple parts of your completed business plan.
2. Write the text portion before you write the financial plan portion.
It is natural to think through the various aspects of your business, such as what you are going to sell and how you are going to grow, in a qualitative manner. As you work through each section, consider how it will impact the company’s revenue and/or expenses. Consider the timing as well, taking into account milestones you want to achieve. Keep detailed notes, as this will help you in the next step.
3. Write the financial plan portion, using the notes you jotted down in the previous step to help estimate revenue and expenses.
Reminder: This will be an iterative process! If the financials do not come out the way you want them (e.g.; not profitable enough), then you need to go back and determine the root cause. For example, it could be that personnel expenses are too high, which is caused by a sales expansion plan that is too aggressive.
Extra Reminder: It is IMPERATIVE that the qualitative side of your business plan (the text portion) matches the quantitative side (the financial side); together they provide a complete picture of your business venture.
Think about the end game for your business. Otherwise known as an “exit strategy”, your end game will vary considerably based on your individual goals, the timeframe in which you plan to get there and how reasonable they are.
• Selling your business
• Passing the business down through the family
• Taking the business public (IPO)
1. The source, type and amount of capital needed. For example, if your eventual exit strategy is to take your company public, then you will probably want to raise a large amount of venture capital to accelerate growth. 2. Legal structure. Using the example above, you will want to set up a corporation. 3. Tax planning.
Note: Legal and tax planning are complicated topics. It is recommended you review your legal and tax strategy with a qualified attorney and accountant.
1. Self-financed (bootstrapping)
2. Friends and Family
3. Debt financing. Banks care less about the exit and more about your ability to service the loan.
4. Equity financing. Venture Capitalists want a large return, which is typically through the company going public (IPO) or being sold, within 5-7 years.
By thinking about where you want your business to be and the potential exits available to you, it will help structure
(1) funding options (2) legal structure (3) tax considerations.