Now that you have a good handle on how to prepare your business for the great finance search and know how to make informed financial decisions, it’s time to move onto the document to end all business documents: the business plan. If you dream of expanding your online business or starting one from the ground floor, you’ll need a business plan.
Potential investors want to see that you’re serious about your company and need to know the financial specifics to make an informed decision about whether or not they are willing to take a risk on you. A good business plan will lay out of the vital information about your business in an easy-to-understand manner.
Organization is very important, but we’ll get to that later. A definition of this important document can help you understand what will be required of you and why once it comes time to setting pen to paper.
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What is a business plan?
According to www.business.gov, a business plan “is a comprehensive planning document which clearly describes the business developmental objective of an existing or proposed business applying for assistance in SBA's 8(a) or lending programs. The plan outlines what and how and from where the resources needed to accomplish the objective will be obtained and utilized.” Quite a mouthful, we know! But let’s break this definition down in order to shine a little light on what this document is, exactly.
From this definition, we gather that a business plan is a “comprehensive planning document.” Seems pretty clear so far! Next, this document “clearly describes the business developmental objective of an existing or proposed business.” So, whether you are just starting your Internet business or it has been established for some time, a business plan helps to get down in writing your company goals and objectives. Lastly, we gather from this definition that a business plan “outlines what and how and from where the resources needed to accomplish the objective will be obtained and utilized.” In simpler terms, a business plan provides an outline for:
- What resources are needed in order to accomplish your business goals and objectives
- How you will obtain these resources in order to accomplish your business goals or objectives
- Where you will obtain these resources in order to accomplish your business goals or objectives
Why does my business need a business plan?
First of all, a business plan is exactly what is implies: a plan. It has been shown that businesses that take the time to write a business plan are more likely to succeed, having put in the forethought of how their company will be run and operate.
You can think of a business plan as a roadmap or a blueprint, according to Joanne Elgash in her book, How to Write a .Com Business Plan. This document can help you, evaluate your company and how it can best be managed.
Business plans also act as your own personal persuasive argument. As you seek investment money for your online company, it will require convincing other people—those with money—that you are a worthy recipient, not only of their time, but also of their hard earned cash. A business plan is your chance to draw in potential investors, so be sure it’s the best it can possibly be.
Coming up with a time budget
When it comes time to actually sit down and write your business plan, it will take time. But don’t forget to include the amount of hours it will take to research and target your plan, as well. Dave Lavinsky of Growthink suggests allotting between 500-1000 hours to the process of securing capital. So, plan on about 6 months, at least, to go through the entire process of researching, writing the business plan, targeting investors and actually securing capital.
While it may seem like we’re beating you over the head with this, it really cannot be emphasized enough: make a time budget! Even though you may feel as though you’re in control and have a rough idea of how long it will take to complete, sit down and make a plan before the plan. The process of financing your online business often cuts into work hours, which can potentially cut into your profits. To avoid a loss of profits and to stay ahead of the game, schedule your financing process accordingly.
Identifying Your Audience
To whom will your business plan be addressed? This is probably one of the most important questions you will ask yourself in the process of financing your business. There are many different people out there who are potential investors in your company. Here are the typical people who will be reading your business plan.
Angels
An angel investor is typically an individual who is personally wealthy and who seeks out investment opportunities in order to help new or struggling (but promising) businesses get off the ground or pursue dreams of growth. Many times, an angel is someone who knows you personally already or someone your friends or colleagues are familiar with. However, there are also a few angels out there who seek out businesses with an impressive business plan and realistic objectives.
Venture Capitalists
Often referred to as VCs, venture capitalists are people in firms that fund businesses with an interest in growing their own capital. In exchange for their investment, a VC will then gain a share of your company. VCs like to see a company that’s done its research, is willing to take big risks and can feasibly make big returns on their investment. The downside is that VCs come into contact with hundreds of business plans a year. To ensure yours ends up on the top of the pile, we’ll teach you how to write an excellent executive summary in a bit.
Lenders
Another group of potential eyes that will scan your business plan include lenders. Lenders can include a whole variety of banks that distribute bank loans and even small business loans distributed by SBA. Again, professionalism is of utmost importance. While you may be able to get away with a less than spectacular business plan with a potential angel investor that is a friend of the family, lenders want to be sure their money is going to the right sort of company, i.e. a company that will be able to make its loan payments.
Gathering Information
Now, with prospective audience members in mind, you can begin compiling the information necessary to create your business plan. But wait just a second! Aren’t you forgetting something?
Where exactly will all of this information come from, anyway? Good question. Besides researching the marketplace, your competitors and other information as outlined in the section below, you will also need information on your own company. If you keep good records, this should be no problem, but if you don’t, before you even begin to scribble out a mission statement, gather the appropriate files you’ll need. A few things you should have on hand before you begin include:
- Financial records: this is about money, after all. Be sure you have your tax returns, history of sales and profits and other documents that indicate the financial wellbeing of your company.
- Marketing: If you own a business and are seeking to expand it, you should have a history of marketing techniques that have worked for your company.
- Your product: What is it that you sell? Whether it is a tangible item or a service, be sure you can describe it in detail and know all that it takes to produce and distribute it.
Market Research
It’s one of the most dreaded parts of the business plan: market analysis. But you can save yourself from a major headache by planning ahead. Again, before writing anything for your business plan, do your research. What is the projected growth of your company? Who does your product or service target? How does your product benefit people? How is your product better than the competition? What is your company doing that outshines the competition?
You want to be able to show potential investors that you are market savvy and know just what it will take to make your product sell like hotcakes. You also want to be able to show that you’re not one for taking shortcuts. Here’s a tip: potential investors love to see business plans that show a ton of research was involved. Why? Because this sort of in-depth research shows that your company is willing to do the legwork to ensure accuracy. It shows that you have taken serious time to consider the serious implications of growing your business and have thought out just how you will do it in a realistic manner.
By putting in lots of research time and coming up with convincing numbers in your market analysis, you will be able to impress VCs, angels and lenders with your grasp of the business you’re in. That will definitely pay dividends when they start evaluating your proposal!
Writing the Business Plan
Alas, it has arrived. The moment of truth where you are finally let out of the pin and allowed to place that pen to paper. But writing the business plan, as you may have already gathered, requires a lot more than just a few fancy flourishes of the pen and a clever turn of phrase. Rather, you should think of the business plan composing process as a big project that can be broken down in several smaller parts.
Components of the Plan
It’s important to use the standard outline for your business plan. VCs are accustomed to viewing business plans that appear a certain way. Deviating from the formula too much will either confuse your potential investors, frustrate them, or make you appear clueless when it comes to business plan structure. And if you don’t have the structure right, the VC very well may ponder what else you have failed to research.