show the projections of expenses and sales over one, three, and even five years. Be conservative in your estimates, and always have the math ready to back them up. Make sure you include existing liabilities coming into the business. You can typically gather information and use Excel or another financial software program to make the spreadsheets you’ll need to support your written overview of your future financial picture. Business plan software is also readily available with the necessary spreadsheets.
The most important financial statement you will need is an income statement (also known as a profit and loss statement (P&L) or an earnings statement. Income statements answer the questions, “Am I making or losing money?” and “How?” A cash-flow statement can show how you will stay liquid, which is vital to any business, and a break-even analysis will show that you have a good idea of what you need to reach before you can come out with a profit. You should also let it be known how much money you are putting into the business since investors will always take a project more seriously if they know you have invested in the undertaking.
Risk Planning
It’s important for you and for your investors to know that you are accounting for risks, which can include anything from unfavorable industry-wide growth trends, to low sales to lack of skilled labor to a major competitor undercutting your process to a recession.
Whether you are using a version of Microsoft Word or one of the popular software programs to guide you along the way, you can go back to earlier versions and revise and rewrite as you go. Some people still enjoy printing out an early draft of their business plan and marking it up at the kitchen table, while others prefer reading everything on their computer and/or iPad, tablet, or iPhone.
save
There are many sources of information about how to prepare a business plan. One excellent source is the Small Business Administration (www.sba.gov), which provides assistance over the internet. Numerous books covering business plans such as Write Your Business Plan by Entrepreneur Media, Inc., can be found at Amazon (www.amazon.com), Barnes and Noble (www.barnesandnoble.com), and other online booksellers. You might also visit www.bplans.com, which is a very helpful website for anyone starting a business and writing a business plan.
Business plans can be 5 to 50 pages. More often than not, the smaller plans, or mini-plans, have become more fashionable in a world in which time is of the essence. Most plans today are sent electronically to potential investors, but you should be ready with hard copies if the situation presents itself. Also, you always want to double-check everything and proofread your work.
And finally, be ready to back up anything you have in your business plan and answer any questions a possible lender, investor, or potential vendor or partner may throw at you.
While you remain in the driver’s seat, writing the plan and doing all the heavy thinking, business plan software can handle research, organization, calculations, and more.
Of course you don’t have to use specific business plan software to write your plan. Microsoft Office or any similar software in which you can write each section of your plan can serve your purpose. You can even use Excel or other spreadsheet software to handle the financial pages.
However, should you want to the guidance of a software program, find one that meets your computer capabilities, has tech support readily available, and is highly rated. The difference between a $59 and $99 software program is typically the features.
Some of the most popular choices are: Business Plan Pro from Palo Alto Software at www.businessplanpro.com/; BizPlanBuilder® a cloud-based program from Jian software at www.businesspowertools.com/project/2015-a_bizplanbuilder-business-plan-software-template/; and Ultimate Business Planner from Atlas Business Solutions at www.abs-usa.com/business-plan-software/overview.
Every business has a purpose for its existence. A written mission statement, usually one to four sentences long, says what your company is, what you do, what you stand for, and why it’s important. An example of a poorly written mission statement is: “We build fine homes.” A much better example is: “We are dedicated to providing services and solutions that meet the dreams of our clients. Quality construction is delivered with friendliness, professionalism, individual pride, and company spirit.” The best mission statements focus on satisfying customer needs rather than on the products that are sold. Certainly everyone wants to have a fine home, but it is more important for a client to know how he will get that fine home. The client will have positive feelings about hiring a company with a compelling and personal mission statement, and employees will understand the goals and objectives of the company they work for.
There are two ways to finance your new business: equity and debt. Equity financing involves raising money from investors who will often have an ownership stake in the new business.
Most small businesses start with the owner(s) putting some money into the project themselves. This will often encourage other investors, knowing that if the owner put his or her money into the business, then they are taking it seriously. Your investment should be money you have earmarked specifically for the business venture and NOT from your ongoing living expenses or your retirement savings. Other sources of funds often come from friends or relatives who have an interest in helping the new enterprise. Caution must be used when taking money from friends and relatives; personal relationships may be ruined if the business fails and these friends lose their investment. Business owners who raise capital in this manner must explain their business plan carefully and make it clear to potential investors that there are risks associated with their investment. It’s also very important to stipulate whether such investors are going to be involved in the business or “silent” partners. Spell out everything, and put it on paper in advance.
Venture capitalists (VCs) are another source of equity financing. These are wealthy individuals or companies who look for startups in which to invest their money. Generally, however, VCs prefer to invest in companies that have strong growth potential. VCs often like to get quite involved in the workings of the company and have less patience for businesses that project slow growth.
Angels are individuals who invest their own money in new ventures of interest to them. Many angels are well-off professionals, such as doctors and lawyers or former business owners. Some are retired but have tremendous expertise to share in a specific field. Others are successful business owners who have made a bundle with their own entrepreneurial efforts and are now interested in letting their money work for them in someone else’s venture. Typically they are less involved in the actual running of the business than VCs.
Angel investors used to be a difficult group to find. Not any longer. There are groups formed by angels and other organizations, such as Funding Post, that bring some angel investors together for you to meet. You can visit the Angel Capital Association (at www.angelcapitalassociation.org)