I was having lunch with a friend, an accomplished businessperson, and I asked what he thought was the critical difference between new ventures succeeding or failing. He responded, “A good business plan.” We agreed a good business plan provides lots of information in the fewest words possible. We went on to discuss what a good business plan covers.
Let me suggest an outline and approach when preparing a business plan.
Purpose: State the purpose of the company in one positive and declarative statement.
Problem: Indicate the problem the company will solve, and how this problem is dealt with today.
Solution: Demonstrate how your idea solves the problem dramatically better and makes the user’s life better.
Timing: What is happening in the world today, trends, that makes the timing of your idea perfect.
The market: How big is the total market potential, identifying the typical customer, and what percent of the typical with likely purchase your idea.
Competitors: Who is the competition currently selling into the target market and what advantages will you provide to get the customer to switch.
Product Development: What is involved in protecting your product/idea against pirating.
The business model: Marketing, sales process, pricing, distribution, account size, and revenue growth.
Team: Who is the founder and management team responsible for executing the plan? Who are the board of directors protecting any outside investors? Who is the board of advisors supporting and lending expertise to management?
Financial Model: A minimum of three years’ projections of (a) profit and loss, (b) balance sheet, and (c) cash flow. If attracting outside investors, you will need a term sheet including ownership structure and how much each individual will own.
This process may seem a bit overwhelming, but I can assure you that it will be well worth it once you launch. If you are looking to buy an existing business the process is largely the same. I’ve seen many businesses that use the “if I build it, they will come” strategy. But perish the thought; it doesn’t work. Another common mistake I’ve seen is “short cutting” by ignoring any one of the steps outlined above. That usually leads to a “short life.”
Finding and engaging seasoned and successful financial and legal advisors as you start your journey is critical.
I wrote my first business plan in 1989 for a business I launched that year. It wasn’t nearly as robust as it should have been, which led to many early struggles. I wish I knew then what I know now.
Patrick Burke is the managing principal of Burke Group, a Rochester, New York-based retirement plan consulting & administration, actuarial services and compensation consulting firm.