The business plan is an essential part of starting a business, especially if the business will be seeking financial assistance. Most investors or financial institutions will not even consider a company that does not have a business plan.
What is a business plan?
The business plan is a document that provides the reader with a complete picture of the financial and operational aspects of a business. It actually serves a dual purpose. Internally, it is the road map for the company to follow, and when followed, keeps the company focused on the original mission. Externally, it is an introduction to the company for potential investors and financial lenders.
What is in a business plan?
The business plan consists of six sections: executive summary, description of the business, management, finance, production and supporting documents.
Presentation of the business plan is important, especially when introducing a business to potential investors. Make sure there is a cover sheet that includes the name of the business, address, telephone/contact information and the name(s) of the principal(s), or the persons responsible for the obligation, or partners of the business asking for the loan.
The executive summary is the first section of the business plan. This is arguably the most important section, as it summarizes the whole document into a concise narrative.
Investors are provided with a brief description of the business to decide whether they are interested in reading further. The executive summary should include the name of the business, its legal structure, the amount and purpose of the money requested, a repayment statement, business concept, product information, current stage of business, projected sales for the next two years, and an anticipated break even point.
Table of contents
Following the executive summary is the table of contents. This allows the reader to quickly find information they need to make a decision about financing a business.
Description of the business
The business section describes the business venture in greater detail. It discusses the product or service, introduces market research results (market segments, competition, etc.), and identifies unique characteristics that indicate success. Include the location(s), hours of operation, a mission statement and a complete marketing plan.
The management section is crucial when seeking financial backing for a business. Investors want to make sure the management team is strong before investing in a project. Describe the management team and the experience that each member brings to the venture. Include an organizational chart diagramming who manages each department and personnel responsibilities that fall under each individual.
The finance section will describe how much the company needs to borrow. It will show the breakdown of the proposed uses of project funds. Consider presenting the total project in stages/phases of development to better identify cash requirements. Also indicate the equity participation of the owners and investors. Owners should have a considerable financial investment in the company when approaching investors. Investors feel that the more equity the owners have in the company, the more likely they are to ride out any “rough patches” the company may have. The finance section is also where stated projections and assumptions for two or more years of profit and loss statements and balance sheets should appear, along with one year of company cash flow (month-by-month).
The production section will explain production or delivery of service. This will be an in-depth explanation of the day-to-day operations. Topics covered in this section will include physical facilities, suppliers, patents, labor and the technologies that exist/will be used. This is also the time to discuss if the product/service is seasonal, how new products/services will be developed, and how the business will administer quality and cost controls.
Documents in this section might include personal resumes, personal financial statements, cost of living budget, letters of reference, letters of intent, job descriptions, copies of leases, contracts and other legal documents that help convey an accurate picture of the business. Any descriptive drawings that identify proposed site plans and floor plans of operation would appear here also.
A business plan is a great way to see a business’ viability on paper and should have as much information as possible. If getting started is difficult, free sample business plans can be found at www.sba.gov or www.michigan.gov/business.
When financing a business, always consider a local credit union as one of the options. Credit unions are nonprofit financial institutions that are member-owned and service-oriented. They typically have better rates, lower fees and are willing to help small- to medium-sized companies.