If you’re starting your own company, a business plan is not optional. It’s an essential component of your business – both now and in the future.
A business plan acts as a guide by which you plan to run your company. By putting together this plan, you are mapping out the means by which you plan to achieve and maintain success.
Moreover, a business plan is required in order to get funding.
“The business plan is the very first impression a lender has of a candidate,” Reg Byrd of Westlake Village, Calif.-based Direct Connect Ventures, a consulting firm which offers professional business plans among its services. “There are no second chances. They judge you by the business plan, plain and simple.”
A well-written business plan assures lenders and investors that your business is worth the financial risk. It offers credibility and tells potential sources of funding that you’ve done your homework and are serious about starting your business.
“The business plan has to be written in such a way that it describes you as being born to own (this kind of business),” Byrd says.
There are several major components to a well-written business plan. First off, it must encompass an executive summary of the company, something that tells potential funders what your firm is and why it is poised for success.
“You’re telling a story to the underwriter,” Byrd says. “They may have never, for example, heard of a McDonald’s before in their life. You’re telling them what it is.”
On the heels of the executive summary comes an introduction of yourself as the business owner. “No modesty allowed,” Byrd says. “Pump yourself up completely. It’s got to be all about you and why you were born to own (this company).”
Then comes the company structure, which consists of several elements. You’ll want to explain in specific detail what product or service you’re offering, as well as the tasks that each company player will perform. This section also includes a market and industry analysis to let potential funders know that you understand the demographics of potential clients targeted by your company. You’ll want to include details such as zip codes from which you wish to pull customers.
A business plan must list key company objectives and goals for the first three years. Byrd says that this listing should be particularly specific for the first year, less so for the second year, and “hopeful” for the third year.
One of the most crucial aspects of any business plan is the financial projection. As with our objectives and goals, the financial projection for the first year should be very specific, with a month-by-month breakdown. A summary will suffice for the second- and third-year projections.
Byrd warns against writing your own business plan, instead urging entrepreneurs to consult a professional.
“The person who’s going to write their own business plan does not understand (what’s) involved in making sure that everything is there that the underwriter needs,” he says. “They don’t have the understanding of the intensity that a business plan needs to have. People don’t know how to do projections. They don’t know how to pull that pie out of the sky and make that business work.”
Professional companies that offer business plans often have access to information pulled from companies that specialize in demographics, providing a more insightful means of assessing a company’s target audience.
“Our demographics pull is specific to the zip codes and specific to the kind of business that you’re buying,” Byrd says. “An individual writing his own business plan isn’t going to be able to get that information.”