Business Plan Basics
By Joe Romeo, Senior Business Development Representative, Hennessey Capital
Any entrepreneur knows that writing a business plan can be a daunting task. How is it possible to cram all of your aspirations for your company into one document? Challenging as it may be, a solid business plan is paramount when seeking financial support for your business. Here are a few concepts to keep in mind as you build or update the business plan for your new business venture.
SCALABLE PLAN:
One multi-level plan that is scalable for different audiences is best. A full blown business plan with all of the details in every section offers a deep dive for owners, strategic partners and trusted advisors. It is also critical to demonstrate how you, the business owner, are assuming some level of risk. Investors want to know that you have “skin in the game,” thus creating a vested interest in the company’s success. Make sure your plan includes a thorough explanation of your personal investment in the venture.
This fully developed and detailed version can offer a comprehensive review of the entire business and can be abbreviated into a brief overview for others.
Most important will be a skeletal version with all but the essentials removed, referred to as an executive summary. This will be needed for your most important audience - outside investors.
This group (Venture Capitalists, Angel Investors, Private Equity investors, etc) won’t spend more than a couple of minutes on the initial review of any plan. These individuals review a myriad of investment opportunities every day so providing a basic overview that is succinct is key.
REASONABLE PROJECTIONS:
Avoid any ‘blue sky” projections. This market space is full of them and you can put all of the businesses that hit their outlandish projections in a thimble. Be realistic with your financial projections.
There are two essential projections you should include as part of your plan. 1) a conservative projection that you are very confident you can attain. This should be used as the basis for all of your cost and expense budgeting. Remember to keep your projections S.M.A.R.T. - Specific
Measurable, Attainable, Realistic and Timely. The other is a less conservative projection that should be the realistic target or goal the business is working to achieve, otherwise known as a “stretch” goal. Be sure to include ROI projections for your most important audience.
SELF STRESS TEST:
This is not something to include in the business plan, but you should be ready to address questions about the worse case scenario. Pre-perform a stress test for your business.
Have a contingency plan to adjust for unforeseen market conditions. This lets potential partners know you are savvy enough to have considered “all” of the scenarios…good and bad…you’ve identified and evaluated the down side. Investors view this as a rare dose of reality amongst the over-ambitious entrepreneurs.
END GAME / EXIT PLAN:
Although this is often premature for start up businesses and entrepreneurs, it is best to have an exit strategy or succession plan in place. Capital investors hold this part of the process sacred and always have an exit strategy in mind. It is the one true affirmation of their investment and the final step that determines the actual risk or reward of their decisions. Ultimately, investors will want to know how they can recoup their investment and exit the business.
There is a plethora of online resources focused on preparing and building a business plan. Here are just a few I would recommend:
www.automationalley.com
www.sba.gov
www.techtownwsu.org
www.oakland.edu/ouinc
www.oakland.edu/macombouinc
www.annarborusa.org
