The first thing to know about business plans

A Business Plan can make you look suave, sophisticated, intelligent, fascinating, and highly desirable.  It can also make you look like a rank amateur, or worse, like an unrealistic fool.  It is best to try to avoid the latter.

A Business Plan can help you create a better business by making you think about your ideas and how you are going to run your company profitably.

A Business Plan can serve as a roadmap for you to follow when putting together your business.  It helps you keep track of your original intent so other people’s ideas do not sidetrack you.  It helps you determine what you have done and what needs to be done next.

There are several types of Business Plans, and it should be immediately obvious which one you need.  We will be dealing with the first type – the Business Plan that will, hopefully, attract investors with lots of money who are clamoring to put that money to work in your business.

The Business Plan for Funding Purposes – Comes in two varieties:

The Bank Variety

This is used to obtain a loan.  Since The Bank is not interested in loaning out money that is not collateralized in some way, such as with inventory, receivables, plant and equipment, an investment portfolio, or your house, if you do not have any of these you probably won’t want to try to get money from The Bank.  Even if you have the desired collateral, The Bank will probably not be very interested unless you can show 3 to 5 years of tax returns proving that your company makes money.  The Bank does not want to auction off your loan collateral unless they absolutely have to, contrary to popular opinion, so The Bank usually requires that your company has enough revenues to not only pay its bills but also to pay back the loan.  A Business Plan you intend to present to The Bank should contain your audited financials for the past 3 to 5 years and should very clearly spell out what your company does, what the product/service is and who buys it, and how you intend to spend the loan money, in the clearest and most simple terms.  The Bank does not employ people with great vision for the potential of small businesses like yours.  The Bank employs people who can memorize a list of loan requirements and are uncomfortable with any business enterprise that is even slightly out of the ordinary.  The more normal you can make your company appear on paper, the better your chance of getting The Bank to give you money.


The Venture Capital Variety

Venture Capitalists of today are a jolly breed, addicted to the dream of making returns of at least 30-times their investment.  During the height of the dot-boom, many Venture Capitalists had absolutely no practical business experience and may have made their decisions on a purely image-driven basis.  This does not mean that they still operate that way.  The troubles brought on by the dot-bomb have resulted in many fewer Venture Capitalists, and those that are left are a world-weary bunch.  Although they do have the vision that The Bank lacks, they are also generally looking for a real company.  If they are the kind that requires your company to have been in operations for at least a year before they will believe you actually have a real company, they will be looking for audited financials for that year of operation, plus some history and strongly supported projections.  If they are interested in pure start-up situations, they will be looking to see if your company has any there there.   Even Angel Investors are requiring a larger percentage of facts to dreams these days.  Your Business Plan will need to be well-researched, supported, scrupulously free of overstatement, and have very tight revenue models with a back-up plan in case all goes wrong.  Your financial projections must be very detailed!  You need to show that you actually know how much it will cost to run your company.

The Organizational Business Plan

This document is a detailed roadmap of how you are going to run your business. It is essentially a larger and more detailed version of the Business Plan you would use to seek funding, and it includes full versions of your target market demographics, Marketing Plan, Sources and Uses of Funds, a timeline with benchmarks, Personnel Plan, Operations Plan, Production Plan, Fulfillment Plan, and all your contracts, employee forms, administrative forms, etc.  It will run about 100 pages, give or take a few dozen pages, and should be updated each Quarter.

The Expansion or Reorganization Plan

This takes a critical look at the history of your company, the budgets, the revenues, the profits, and seeks to make everything perform better. In the case of a healthy company, you would be seeking to add new sources of revenue either through marketing, new products, new services, going into new markets, or a combination of all.  In the case of a failing company, you would be seeking to remove those losing elements and build up the ones that seem to have a future.

A well-crafted Business Plan can make the difference between success or failure.  It can teach you a lot about your business, and it can humble you.  It can also be a vehicle for your own outrageous imagination, which will probably get you nowhere.

A Business Plan cannot get you funding.  The quality of your company or your idea will do that.  The Business Plan should bring out the highlights of your company in a responsible-seeming manner so that it is believable.  The only thing a Business Plan can do for you is either get you through the door of opportunity or into the circular file of rejection.  Oh, if it is ridiculous enough, it can be passed around from one snotty critic to another with a note attached saying “Hey!  Take a look at this idiot!  What a hoot!”   I am sorry to say it has been done in far crueler ways.  You don’t want that to happen to your Business Plan.