Writing a Business Plan
Important Elements of a Good Business Plan
Written by Chukwuma Asala for Gaebler Ventures
A business plan is not complicated to write but a botched business plan will get you nowhere with future investors. This article will highlight some common mistakes when writing business plans.
Most investors are very busy and so they need a business plan that has enough important information without too many details.
The goal is to give them enough background to allow them to make a quality decision.
Writing a business plan is no easy task but with the right guidance it can be a fun process.
If you are planning on writing a business plan in the future this article will point out some important things to remember about bad business plans. Sometimes to figure out what you want it is easier to take a look at what you don't want so we'll adopt this approach when taking a look at business plans and some pitfalls when writing them.
The tendency for inexperienced writers of business plans is that they feel they don't have enough tangible information. You are not supposed to have enough information. If you did, then you wouldn't need to write a business plan. The product or service would probably already be in the market already.
The business plan is not supposed to give investors a definite future outcome but more a projection of what may happen if the product is manufactured. Use projections wherever you do not have necessary numbers to calculate definite figures, but be sure to include in the business plan that these are projections and not actual calculated numbers.
Investors like projections because that means there is some room for flexibility with your results and this could mean more profit than you anticipate and more profit for them.
Stay Away from Definite Numbers
This is tied in with the first point about making projections. It is almost a disadvantage to have enough data to estimate numbers that are probable in the future. Investors don't like definite figures or statements about the potential profit margins that the manufacturing of a product will bring. They believe that the more flexible your projections are that the more research and work you put into the business plan.
If you are flexible with your numbers and figures, it will put less pressure on you to back them up with more statistics. But if you are giving them concrete definite numbers then you must be prepared to back up those numbers with the necessary tables and statistics.
Always Offer a Compelling Executive Summary
With the possible exception of the conclusion and recommendation, the executive summary is the most important part of a business plan. The executive summary contains enough information for the readers to become acquainted with the full document without reading it. Usually, it contains a statement of the problem, some background information, a description of any alternatives, and the major conclusions.
An investor reading an executive summary should get a good idea of main points of the document without becoming bogged down with details.
I repeat, investors are very busy people and are not looking for details. So most of the time, they will read the executive summary first to figure out if it makes sense for them to go through the entire document. If the executive summary is not satisfactory, forget the business plan. They will never get past the first stage and may miss out on a very well-written document.
Just ensure that your executive summary is accurate and representative of your full document. It should not be misleading, but it should give readers the same impression as if they had read the entire report.
Include actual figures where possible.
I know I mentioned earlier that actually figures and numbers are not necessary and in fact play to your advantage. This is true, but you still need to have them in there. A business plan with too many supposed actual future figures is a death sentence to a project, but a business plan with little to no actual figures is even worse.
The actual figures are usually a benchmark from where the projections can build from and without them a lot of the projections will not be coherent. Actual figures give some validity to the potential profit of your proposed business idea or product and will give the investors some idea of what is realistic and what is not.
You must have an exit strategy.
In entrepreneurship an exit strategy is a way of terminating ownership of a company or the operation of some part of the company. Entrepreneurs and investors use exit strategies to reoccupy capital they have invested in a company and so this is very important.
Investors want to know that if in the even the projections for the project are wrong and continuation of the project would be detrimental with regards to the money invested that there is an easy strategy to either get their money back or direct the equity somewhere else where it can continue to develop. Make sure this exit strategy is clearly stated and is feasible. This is usually not too complicated but it is important to map out in detail.
Profit is not necessary, but growth is.
Remember that a business plan does not have to end with the company making a profit for it to be a good business plan. The objective is to show that in the future there will be a profit. Make sure to show projections for break-even points as well to give a realistic timeline for when the profit can be generated. But focus more on the growth trend and not the profit that may be generated. Investors want to see growth projections, not profit projections.
Chukwuma Asala is an international student from Nigeria who is studying to earn an MBA from the State University of New York in Albany. He has analyzed more than 20 industry case studies throughout his education thus far, and hopes to bring some of his business knowledge to Gaebler.com.
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