Big plans Featured

9:55am EDT July 22, 2002

It’s sad but true — success in business takes more than just a great idea. The U.S. Patent and Trademark Office is full of them, and so are many basements. But it doesn’t have to be that way if you start with a detailed business plan.

Whether you’re looking to start a company from nothing or are hoping to raise capital to take your growing company to the next level, a business plan helps you think not just about the idea, but also how and where you’re going to manufacture it, market it, promote it, fund it and protect it, and who’s going to help you.

It’s a road map of sorts that forces you to consider the details and stay focused. And let’s face it. If you’re raising capital, any potential investor or banker expects to see your plan. But regardless of the stage you’re in, it pays to have a documented plan.

With help from the Duquesne University Chrysler Corp. Small Business Development Center, here’s an outline for an effective plan. Consider the following:

Reasons for writing one

1. To set forth goals — what you want to accomplish by when. Goals should be dollar denominated, when appropriate, but can also be expressed in terms of hiring projections or achieving personal satisfaction.

2. To determine objectives, or a means of reaching your stated goals, and timetables for doing so.

3. To assess resources (capital, personnel, equipment, machinery, material, facilities) available for accomplishing these objectives.

4. To delineate how these resources, representing all operational facets of the business, will interact to make it possible for you to achieve your goals.

5. To create contingency plans for managing changes in your external or internal environments (new competitors, industry price decreases, loss of key personnel, etc.). Your plan should anticipate problems and present strategies for avoiding, minimizing and managing these problems.

6. To rationally assess the operational feasibility and financial viability of business opportunities which you have identified.

As for your plan’s general function, it first should serve as an operating guide. Writing a plan forces you to lay out a framework for making consistent and rational decisions which further your company’s mission. It also may serve as a financing/investment proposal. Your plan should present an overview of your company’s operating and financial condition and a projection of its future activity.

And, of course, it should serve as a general sales tool that can substantiate the claims you make to prospective suppliers, customers, and employees.

Format and content

Format and content will vary with the type of business and the intended use of your plan. If you’re approaching friends and relatives for financial and emotional support for your new business, you can probably satisfy them with a photocopied plan in the form of a brief outline. When approaching investors and lenders, however, you should have a printed and bound document written in great detail.

Even the perspective of your plan can vary depending on the intended audience. Banks are primarily interested in the cash flow which will be available to service debt payments, while venture capitalists are usually most interested in the growth of their equity investment, with an eye on a public stock offering which will net them a large return on their invested capital.

Particularly when you prepare the plan for external distribution, you should make it as easy and as interesting to read and understand as possible. Avoiding jargon, explaining technical factors in layman’s terms, citing examples, drawing analogies to commonly understood situations, and using graphics, such as bar charts, pie charts, flow charts, and pictures, can greatly help readers to understand your plan, as well as increase their interest level.

Despite your interest in painting the brightest prospects for your company when preparing a plan for investors and lenders, don’t avoid discussing the potential risks or problems which could affect your company’s performance. Anticipating these risks and problems, and presenting a plan for dealing effectively with them, will make your plan more useful to you and more credible to others than if you pretend the problems don’t exist or that they are trivial and require no forethought.

Keep in mind that investors are skeptical readers; they would normally consider a business plan presenting a business without risk or problems as a fictional work by a business owner who is unaware of or not disclosing such negative matters.

One other note: Most complete but succinct plans are between 30 and 50 pages long. Here’s a typical business plan outline to consider:

A. Executive summary

1. Overview of plan and projected needs

2. Sources and uses of funds

B. The company: characterization and goals

C. Products and/or services

1. Description

2. Potential for growth and development

3. Proprietary/ownership position

4. Special talents, skills, technologies

D. Market analysis and marketing strategy

1. Market identification and evaluation

a. The Industry: characterization and trends

b. Target markets: Proposed and existing

c. The market: size, location, and potential

d. The competition: characterization and strength

e. Projected sales and market share

f. System for ongoing evaluation of the market

2. Strategic market planning

a. Product warranties and service policies

b. Pricing policies

c. Sales strategy and management

d. Distribution

E. Production and operation plans

1. Location: region, city, and state

2. Land and structural Improvements

3. Plant/facility layout

4. Production strategy and management

5. Labor needs

F. Management personnel

1. Legal organization

2. Organization chart

3. Ownership and method of compensation

4. Key personnel

5. Board of directors/advisers

6. Support services

7. Management development and training

G. Financial statements and plans

1. Historical income statements, cash flow statements, and balance sheets

2. Projected Income statement, cash flow statements, balance sheets

3. Projected break-even analysis by product/service

4. Capital requirements and proposed basic capital structure

H. Impact on community

1. Environmental impact

2. Economic benefit

3. Employment impact

I. Appendices/exhibits

Kiss-of-death phrases

Here are six phrases you shouldn’t put in your business plan, particularly if you’re hoping to attract investors:

1. Growth is inevitable.

2. The product or service will sell itself.

3. We have no competition.

4. The business runs itself.

5. Our target market is the general public — everyone can use our product or service.

6. Our past experience guarantees the success of this business.

And don’t offer any other unsubstantiated claims of extraordinary performance, followed by exclamation points.