plan, you might also have to overcome fear. A business plan sounds complicated. But it shouldn’t be. A complicated business plan is often worse than no business plan at all. Your plan should be understandable in its language (overly technical terms that confuse are not welcome); it should summarize where appropriate (leave the details for appendices); and it should truly describe your business (leave the boilerplates for metal shop). It needs to be short and to the point. Keep it simple, but make it complete. Treat your plan as if it is the only information a potential investor, lender or manager will have before making a decision enabling the success of your business.
Writing a business plan is a labor of love, but also an exercise in logic and forethought. Embarking on the task of planning on paper a business that will likely consume your life should serve several critical functions:
1. A business plan helps you clarify, focus and research your business’ development and prospects. Now, keep in mind that planning does not mean predicting the future (crystal balls are not required), but rather it means being aware of a wide range of likely futures and being prepared for them as they occur. Try to imagine the questions you might have if you were a shareholder, investor or representative of a financial institution. You will need to be able to succinctly explain the purpose of your plan (let alone the business); the vision, goals and strategies you have for your business; and any achievements and/or performances you have had to date (think financial, sales and technical). You will need to describe your product(s) or services in relation to the market and industry as a whole.
2. A business plan provides the framework to create a company’s mission, goals and key strategies. In addition to explaining each of these in great detail, this book we will insert “street smart” principles from Rich Dad’s B-I Triangle into relevant sections.
The B-I Triangle’s foundation is a company’s mission, team and leadership. Its primary elements are cash flow, communications, systems, legal and product. For a complete explanation of the B-I Triangle, read Rich Dad’s Guide To Investing by Robert Kiyosaki.
3. A business plan can serve as a basis for discussion with third parties, such as shareholders, agencies, banks, investors and the like. (Mapping out the financial position and projections for your business can be used to get funds, whether your company is established or just in the startup phase.) Most banks and lenders will need to have at least the basics of your business on paper in order to discuss the merits of your business or idea. Most must report to others (such as a loan committee) and won’t want to take you along to talk over their shoulders. In order to develop a good, useable business plan, you must understand your business finances. Funding requirements, possible sources, likely terms and projected return on investments are all real concerns to investors and lenders, as they should be for you as well. So be sure to be realistic. The temptation to exaggerate can be great, but resist. Back up your numbers with more numbers, with reasoning and with research. Though using a business plan as part of a request for funds is a legitimate use of a business plan, watch out for making this the only function. Your business plan is your road map to the future.
4. A business plan is a benchmark against which actual performance can be measured and reviewed. It allows you to quantitatively measure reality against goals. A business plan is an organic document, a perpetual work-in-progress. Comparing projections to actual numbers will help you measure performance and thereby give you what you need to keep your plan useful. Just as you don’t want to fly blindly into a business, nor do you want to implement changes on a whim. A business plan will help you get started on the right foot and then keep you moving in the right direction.
There are as many outlines for business plans as there are business plans, with each of them being minor derivatives of each other. They are all basically the same and tend to be comprised of four standard segments:
1. The Business. Also called Business Strategy or Business Description, this section might include such subsections as Business Opportunity, Organization and Operations, Legal Structure, Business Model, Operating Procedures, Operations Description, Management, Personnel, Strengths and Weaknesses, Core Competencies and Challenges, Business Accomplishments, Location, Product Offering, Product or Service, Records and Insurance. By the time a reader completes this section, he or she should have a thorough and concrete understanding of your business. This section discusses all pertinent aspects of your business. It covers every aspect of production from idea to service after the sale, including the management, personnel, equipment, paperwork and property involved. For service businesses the product is the service.
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Rich Dad Tips
• In the Business section, make sure you “sell” the one reason your business will be able to generate excessive cash flow. Remember that you are selling by communicating your experience and education, not by promoting your company with empty words and promises.
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2. The Marketing. Also called Market Strategy and including subsections such as Target Markets, Customers, Competition, Distribution, Relationships, Advertising, Pricing, Industry and Market Trends, Strategy and Market Strategy. The Marketing section is a thorough discussion of the industry and your business’ place in it. It covers all the forces that come to bear on your business. From the customers to the competition, advertising to pricing, industry trends to global economics, this section gives the reader a thorough understanding of how your business will deal with getting the product to potential buyers.
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Rich Dad Tips
• A key pitfall of many novice entrepreneurs is not knowing how to “get the word out” on their business. Astute business owners understand how to leverage public relations, viral marketing through word of mouth and the internet to attract new customers.
• Traditional advertising is often expensive and inefficient. True entrepreneurs have a guerilla marketing spirit that allows them to achieve great value from minimal marketing investments.
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3. The Financials. Also called Financial Data or The Deal and includes subsections such as Uses of Funds, Income Statements, Cash Flow Statement, Balance Sheet, Cash Flow Forecast, Profit and Loss Forecast, Income Projection, Sales Revenue Forecast, Income Forecast, Capital Spending Plan, Assumptions, Budget and Break-Even Analysis. The Financial section is all about the numbers. The past, present and future are all represented. You will include tables that lay out the money side of your business. Short-term and long-term costs and revenues are presented in ways that will help management and/or financial experts to determine the risk of your business idea.
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Rich Dad Tips
• In their haste, novice entrepreneurs underestimate the time, energy and money required to build a successful business. They tend to underestimate costs and overestimate revenues and time to achieve them.
• Many savvy investors place little emphasis on the credibility of the numbers because everyone knows they are a guess. They are looked at primarily for an investor or lender to determine if they are in a range of reality.
• It’s important to benchmark similar companies so you can show you have done your homework.
• If you don’t have financial statement experience, this is an area where you must leverage an advisor or risk losing credibility.
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4. The Supporting Material. The material used will depend upon the type of business for which you are planning as well as the contents of the rest of your plan. Common supporting documents include resumes, letters of reference, credit reports, legal documents, agreements and contracts. This is information that needs no textual introduction or explanation or that is introduced or explained in the previous sections of the plan.
In addition, most business plans have a separate cover sheet, a table of contents, an executive summary and some text introducing the business mission and goals, each of which averages