How To Write A Business Plan

The business plan is perhaps the most important written document you can ever create. It describes all critical internal and external elements and strategies for guiding the direction of your venture’s first several years as well as giving potential investors an idea of the venture’s structure, objectives, and future plans.

It communicates important entrepreneurial management practices, such as how your venture will mitigate risk, and how your venture will manage uncertainty. Most importantly, new business venturing is now about focusing on creating sustainable value.

But which elements of your venture are capable of creating value? And which elements, if not properly managed, are capable of destroying value?

Business planning is the process of uncovering and identifying what creates and drives value in your business; the business plan is the document that communicates your Value Drivers.

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Founded in 1996, the Global Entrepreneurship Institute is a non-profit 501(c) 3 educational organization with the specific mission of educating and supporting entrepreneurs around the world. Working as a global business incubator GEI facilitates introductions to investors, professional service providers, and other entrepreneurs. Using our exclusive Roadmap to Entrepreneurial Success we have helped entrepreneurs raise over $100 million and create companies that are worth hundred of millions of dollars.

We advise many entrepreneurs and know what you are facing right now.
Here’s some information we share with them:

What is a business plan?
Most people hear “business plan” and think only “start-ups.” Yet this is not always true because ongoing companies create business plans, project plans, new product plans, and plans for acquiring and integrating other ventures. General Dwight D. Eisenhower once said, “Plans are nothing. Planning is everything.”

Why do we need a business plan?
The business plan is perhaps the most important written document an entrepreneur can ever create. It describes all critical internal and external elements and strategies for guiding the direction of the venture’s first several years as well as giving potential investors an idea of the venture’s structure, objectives, and future plans. It communicates important entrepreneurial management practices, such as how the venture will mitigate risk, and how the venture will manage uncertainty.

What do we need in a business plan?
Business planning is the process of uncovering and identifying what creates and drives value in your business; the business plan is the document that communicates your Value Drivers.

Detailed Business Plan Outline
Our outline simply follows the content and approach of our online resources. We recommend that the total length of your business plan be no more than 15 to 20 pages. Each Value Driver should be one page (10 total pages) with 3 to 5 paragraphs for each page. Your financial section should be limited to 3 to 5 pages (the notes and assumptions can be embedded on the spreadsheets) and your Executive Summary should also be 3 to 5 pages.

How do I get started writing a business plan?
Your business plan acts as a reflection of you, showing that you have really thought things through. It requires advance preparation, delegation, refinement, and, most importantly, a disciplined approach. Eugene Kleiner shares sage advice, “Writing a business plan forces you into disciplined thinking if you do an intellectually honest job. An idea may sound great in your mind, but when you put down the details and numbers, it may fall apart.”

Are business plans a waste of time?
Recently there was a posting at the Wall Street Journal by their editor for the small business section. There were a number of interesting comments, of which I invite you to review. Yes, I did contribute a posting.

Why do some business plans fail?
The cold reality is that no one is going to read the plan with the intensity you had when you prepared it. So knowing this, most entrepreneurs focus on just getting the plan done rather than on getting the right plan done. But what is the perfect plan?

What is a cash budget table?
Every entrepreneur planning a new venture faces the same dilemma. What are the critical capital resources? How much cash is needed? When is it needed? How will the funds be used? How soon will the venture reach profitability? To answer these questions, it is important to first gather all the pieces of the puzzle that are known.

What is your financing strategy?
Funding is the oxygen that fuels a fast-growing business, but understanding the capital sources, potential capital structures, and creating a financing strategy can be confusing and overwhelming. The key is to understand your financing options, understand your alternatives, and create a financing strategy that best matches your situation.

Why do we need a financing strategy?
You need to have a financing strategy before you do the business plan, but you don’t actually start to seek financing until you have your business plan complete. In fact, your business plan communicates not only your vision and business strategy but should also complete and support your financing strategy.

What are venture capitalists?
The NVCA defines venture capital as money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors.

How does the venture capital industry work?
Marc Andreessen, co-founder of Netscape, vividly describes an insider’s view to the venture capital industry’s food chain: The best venture capitalists (VCs) can see ahead and are willing to think they can fix things, put the management team together, do all this stuff. Any huge success story like Netscape or Apple is like a sausage factory. Everybody likes to eat sausage; no one likes to see how it gets made. These things are all sausage factories inside.

How do we find investors?
First-time entrepreneurs out raising money normally make one of two mistakes in approaching venture capitalists. They contact either too few, or too many. According to Tom Clancy, a partner at Enterprise Capital, raising money for start-ups is probably more dependent on personal relationships than it is on the underlying potential and economics of the deal.

Do we need a non-disclosure agreements? (NDA)
Do not get hung up on having every investor sign a nondisclosure agreement (NDA). Asking a formal private equity investor to sign an NDA is a sign of an amateur.

Be Careful Using A “Matchmaker” to Help You Raise Money
As this report “The Search for Venture Capital: Beware of  “Finders” Operating As Unregistered Broker-Dealers” prepared by the law firm DLA Piper points out, there is potential liability for Start-Ups. The potential problem with using a finder is that the finder may be operating as an “unregistered broker-dealer” of private securities.

What is the venture drill for raising money?
All entrepreneurs must go through the formal venture drill when raising money from outside investors. The three steps to the drill are packaging, placing, and presenting. Packaging is researching and writing an effective business plan. Placing is skillfully introducing the opportunity before the best investors. Presenting is communicating and making the deal happen in a formal meeting at the investors’ closing table.

How do we manage the venture drill process?
Sorry, just like in romance and dating, the answer is “No” until you hear a “Yes.” Don’t be shy, manage the relationship. Venture capitalists are very busy folks. They all have huge slush piles of unread business plans and unread e-mails, and lots of board meetings to attend. It takes at least six calls or e-mails before they return one.

What financials do we need for investors?
Professor William Sahlman writes, “Entrepreneurs are value creators, investing today in hopes of generating cash flows tomorrow.” So the main purpose of the financial section of a business plan is to formulate a credible, comprehensive set of projections reflecting a venture’s anticipated financial performance.

How to value your deal like an investor?
One of the entrepreneur’s most difficult challenges is assessing and determining a value for the emerging growth venture. Simply put, value is determined by the interaction of three major ingredients: cash, risk, and time. Valuation depends mainly on understanding the venture, its industry, and the general economic environment, combined with a very prudent job of forecasting. Investors know that careful thought and hard work leads to foresight.

How do we negotiate a deal with investors?
Congratulations! Out of a thousand plans, maybe 100 or so get considered and only about twenty get to meeting—so you are on your way! As you get into the talking points of a deal, know that there is much you can control when negotiating with venture capitalists. In fact, far more is negotiable than you may think, it only depends on your negotiation skills and tactics.

What are deal killers with investors?
Just like it sounds, it is something that will kill the deal instantly for that particular investor. Triggering any one of the deal killers can be quite costly for you, especially when there is a limited number of venture firms you can approach.

SOURCE: Roadmap To Entrepreneurial Success