There are at least 1,000 books in print telling people how to write a business plan. The problem with most of them is: they’re wrong. Or at least they’re not practical for the vast majority of business startups.
Unless you are a high technology startup looking for venture capital, you do not need a 50-page book with dividers and index tabs to start a business.
You do, however, need a business plan. As a frequent judge in business plan competitions around the country, and as an advisor to “angels” and other professional investors, I review hundreds of business plans a year. Most are terrible.
So how do you catch the attention of someone like me when writing a business plan? There are six things I look for in a business plan, each of which conveniently begins with the letter “C”.
Concept. You must be able to communicate your business idea in a single paragraph (two at the most) “executive summary”. This is the first thing I look for when reviewing a business plan. If I don’t buy the concept, I don’t even look at the rest of the business plan. So make it perfect.
Customers. I want to know that people will actually buy what you are selling. Who are the customers you are targeting with your products or services? What are their fears (the things that keep them awake at night) and passions (the things that “turn them on”)? How do your products or services address those fears and passions?
Competition. A business plan that says “we have no competition; our product or service is unique” goes immediately into the trash can. Every business has competition. If you’re convinced yours doesn’t, you haven’t looked hard enough.
If your product or service is too expensive for the market, what other products and services can people buy to help deal with the same fears and passions? Are there any “big box” retailers, chain stores, or franchises out there that could get into your marketplace and wipe you out with their economies of scale? Are there any new technologies that could make your products or services obsolete?
When reading your business plan, I want you to be realistic about your competitors. I want you to identify them, convince me you have a compelling advantage over them, and tell me how you plan to crush them under your boot heels.
Cash Flow. Too many entrepreneurs spend too much time projecting profit margins in their business plans. That’s important, of course, but what’s twice as important – especially for a startup or early stage business – is cash flow: will there be enough money in your business checking account at the end of each month to pay your operating expenses next month?
Sooner or later, a successful business reaches a point at which revenues from operations are sufficient to cover the monthly operating costs of the business – that’s called the “break even point”. How long is it going to take your business to get there?
If you have “broken even” already, or plan to do so very soon, it will actually be quite easy to convince people to invest in your business and help it grow. But if you are looking for money to pay the electric bill each month, you are not ready to you’re your business plan to investors.
Don’t tell me what you “hope” will happen, or what is “going” to happen. Tell me what’s happening, or what has already happened, and make me feel this rocket ship is leaving the launching pad.
Credibility. I will look at your management team’s resumes very closely, to make sure you have the “know how” to make this business plan happen. I want to see people who know your technology cold and can adapt quickly to market demands. I want to see people who know your customers so well they can crawl inside their heads and make 100% sure sales will happen. I want to see people with operations and financial experience who can help the business “break even” as soon as possible. I want to see people with experience in the industry.
I will also be looking for seasoned entrepreneurs, so don’t try to impress me with your “Fortune 100” credentials. Thirty years of running a large company with an established business model and tons of cash is no qualification for running a startup.
Caution. I want you to warn me about the risks involved in the business, and explain your strategy for managing them. I want to see you working with good lawyers, accountants and insurance professionals. If you are a one-person business, I want to see a “succession plan” to ensure the business will survive your death or disability.
Because if I bring an investor to the table, and things go wrong down the road, his money’s gone. He will blame me, and you do not want to know what I will do to you.
Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.