The business of your
dreams is off the ground and to your delight, all is going phenomenally
well. However, you've outgrown your "kitchen table operation" and now need
additional capital to take the company to its next stage of development.
You've been telling yourself, for sometime now, one of these days I'll sit
down and determine where my company should be going over the next few years
and how I'll get it there. That day has now arrived; procrastination can no
longer serve you. It's time to write a business plan.
Few business owners
enjoy creating business plans, but most entrepreneurs need them. A
comprehensive business plan can serve two purposes: It can provide
operational guidelines to run a business and/or sell a potential investor on
a venture. Unfortunately, the role of the business plan in attracting
capital is often misinterpreted. A lack of understanding can bring about
fundamental errors in the preparation and presentation of a business plan to
a potential investor, investment banker or broker. Knowledge of the basic
rules of writing a business plan will increase your chances of obtaining
financing.
Nothing is as
useless as a business plan filled with hype and unrealistic projections.
"One of the biggest problems is people don't have a good financial or
marketing background, so they depend on their own personal conjecture and a
narrow perspective," says Patricia Gregory, a financial and marketing
instructor at the University of Redlands. The reason is "most small business
owners don't want to spend the time, energy and money." [Good research
takes all three.] "You can learn without spending money," says Gregory.
"Just read good business materials," she further emphasized. But, for so
many people, the time and energy it takes to read equals money, and
competent research can take anywhere from two to six months.
Without facts, you may be trying to build
the future on guesswork and your own erroneous desires. On paper, clearly
state the assumptions that best describe your business as well as your
present and potential client base. Then, explore the assumptions by talking
to as many people you possibly can with expertise in your field. Leave no
stone unturned, speak with other business owners, your CPA, industry
suppliers, potential customers, and especially your competition. Go to a
local library or trade association and gather further evidence that will
support your assumptions. An excellent resource is Dun's Census of American
Business, one in a series of business publications by Dun's Marketing
Services, Inc., a company of The Dun & Bradstreet Corporation.
At the onset,
organize your business plan in a flexible manner. Adaptability will be a
key factor in structuring the disclosures required during the fund‑raising
process, as financiers differ in the type of information preferred.
"Private investors and venture capitalists are interested in the company's
long‑range prospects and will look for growth potential," says Kevin J.
Davis, a Houston attorney that often represents venture capitalists. This
type of capital source will want sophisticated financial statements with
concrete marketing and management objectives and strategies. Your local
banker may be much more interested in collateral, cash flow, personal
references, or guarantees. A strategic business plan has
long‑range goals build on the company's strengths. A detailed explanation
of benefits to a customer would be included in a strategic plan, along with
evidence of what the venture will do best and the main business focus. Your
plan should justify the marketing method chosen and show financial
projections. These key elements of a strategic business plan should be
written in clear, easy‑to‑read language.
"Your plan should not only reflect your
venture's potential, but also outline your management strategy," advises
Gregory to a classroom of attentive students. A thoroughly researched,
analytical business plan will convince a financier that you are vigilant,
conservative, and capable. A sloppy, business plan, or one that draws
faulty conclusions and is based on personal feelings, shows you are
careless, negligent and inexperienced.
The down‑side of your venture will need
to be exposed. A good business plan shows the strengths as well as the
weaknesses of the venture. If competition or price wars appear to be a
potential problem, show your projected solutions. Being overly optimistic
is unrealistic and can be fatal. Problems are expected, but so are
solutions. Foreseeing problems keeps the business alert and ready to
implement solutions.
A good first impression is made for a
financier when you offer a comprehensive and well organized presentation.
Begin by summarizing key points. Then prove your claims in the body of the
presentation. Follow the body with yet another short, precise conclusion of
pertinent facts that includes your funding request. Last, but not least,
dress your presentation with professional‑quality binding and covers.
When you have completed the business
plan, have several copies made. Then, distribute the copies to a number of
viable capital sources. Even when a deal seems close to completion,
continue your efforts to obtain capital from alternative financial sources.
This tactic will serve your best interests in the event your original deal
falls through. In certain situations, it could even strengthen your
negotiating position.
There are no guarantees, but the
completion of a well conceived business plan will give you a valuable tool
for raising capital. You will also have a management tool that, if used,
will serve as a roadmap to guide the company from one stage of growth to the
next.
Delores L. Braswell,
from the Business Development Division of the Small Business Administration,
says "write a thorough plan; check it out; keep it out, as it needs to stay
activated." You will want to continuously update and revise the business
plan as your business grows and matures. As business conditions change, the
business plan can be modified to reflect the changes. Braswell reminds us
that "[A business plan] can't be of much help if it's in a drawer."
Date of
Publication: March 15, 1991 *975 Words *View
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