How to Write a Business Plan

By Pamela H. Riddle, Innovative Product Technologies, Inc.

As a businessperson about to begin or expand a new company or venture, an effective business plan is one of the most critical documents you can prepare. It is instrumental to your company’s successful growth and to securing proper and complete financing. However, before you begin writing, it’s essential to first perform an intensive self-evaluation of your strengths, weaknesses, and abilities (i.e., are you a well rounded business person, an entrepreneur, a technical guru, hands on “trench fighter” or a combination of these?).

Using the same criteria, how do you rate your business, and its potential to succeed (i.e., market need, etc.)? Equally important, what is the strength of your commitment and ability to assemble a management team complementary to your own skills? The recipients of your plan will either be a venture capitalist, private investor, bank or other financial institution, which receives numerous plans just like yours. Each claims to be the best and promises great success. Therefore, you must anticipate and appreciate the environment in which your reader operates. When reviewing business plans, investors want to gather as many facts as possible as quickly as possible in order to determine their level of interest. If a funding commitment is made, the investor is going to expect significant results and may also demand a level of involvement in the company’s operation.

The effective business plan seeks to secure a one-on-one interview with investors by providing believable and realistic information about your company. Consequently, your business plan should be written and designed in such a manner that it attracts investor interest by presenting a concise and comprehensive set of facts, while also giving cause for further investigation. It should detail the risks as well as the strengths of your company, along with achievable milestones that management can use as a basis to judge the accomplishments of the company over time.

The following outline is one of several formats that can be used to write a business plan. Its primary purpose is to give structure and organization to the plan while raising issues of concern around which information should be provided for the reader. Other brochures are generally available from larger accounting and consulting firms as well as in various bookstores.

Remember, only you can write the best, most effective plan for your business.

Executive Summary:

A critical component of the plan is a one-page summary of the key points that will be repeated and expanded on throughout the remainder of the document. It should summarize such items as:

· Company objectives;

· Product, market;

· Competitive advantages;

· Management;

· Projected financial results;

· Size of financing;

· Timing and size of anticipated return.

More specific information addresses the following:

Company History:

· The company’s line of business;

· Who founded the company;

· Why the company was founded;

· The date and state of incorporation;

· Major company events, or milestones, to date.

Product and Technology:

· The specific product(s) for which funding is being sought;

· The innovation that your technology possesses and the unique characteristics related to your product(s);

· The circumstances under which your product was developed. Details should be provided if the product was developed by any of your key people when employed at another company, university, etc.;

· The status of patents, copyrights, “know-how”, trade secrets or other protective and proprietary factors related to your technology, manufacturing process or product. How long will the product maintain a leadership position through proprietary characteristic, patent features, etc.;
· The existing products that your product(s) replace or improve upon. The technology embedded in those existing products;
· The difference, advantages and disadvantages of your technology over that of your competition;

· The characteristics and state of development of any prototype or working models you have developed or plan to develop. With regard to the latter, when will this be? Has the prototype been tested at full capacity? Describe the results of these tests. What are your product testing plans?

The Market:

· The size and growth of your general market;

· The segmentation of the market;

· Your market niche. Is there an existing demand for your product and why? The kinds of companies or individuals that will purchase your product or service and the names of such companies;

· The markets’ current awareness of your product and product endorsements;

· The current dollar size of the market niche for your type of product. Cite the sources of your market estimates;

· Your expectation of the market niche size, in dollars, for your products five years from now. Cite sources;

· The current and anticipated competitors serving your product market: their location (i.e., state or country); their competing product(s), either existing and/or in the development stage; and estimated annual sales and market share;

· The greatest barriers to entry for your market. How can your company and your competitors overcome these?

Management and Personnel:

· The background of your key management personnel and senior technical staff (with resumes, if available). Their compensation, stock ownership and stock options, if any;

· Identify key positions that need to be filled. When will these people be liked and what type of experience should they have;

· The number of full-time and part-time employees at each plant site- presently, and projected in five years;

· Employee compensation plans, e.g. ISO’s, ESOP’s, etc.;

· Employment contracts and severance agreements;

· Organizational charts-present and projected in five years;

· The background of the members of your Board of Directors and/or Advisory Boards.

Marketing Strategy:

· The percent of the market you expect to capture in the next one to five years;

· The current and projected per-unit selling price for your product;

· The current and projected cost of goods sold (i.e. direct labor, direct materials and overhead applied to

the product) per unit sold;

· Gross margins and profit margins;

· The number of units you plan to sell during your current fiscal year and during the next five fiscal years;

· Your current monthly or yearly break-even level (in sales and units);

· Research and4ewelopment costs as a percent of annual sales revenues during the next five fiscal years;

· Marketing and sales costs as a percent of annual sales revenues for each of the next five fiscal years;

· Your marketing plan. How you will manufacture, distribute, price, promote, and sell your product. What are your contingency plans?;

· The steps that will be necessary to dose a sale. Identify the level of management that will make the buy

decision;

· Any strategic marketing relationships with original equipment manufacturers, vendors, licenses, etc.;

· The present and projected marketing staff and their relevant skills and experience;

· Provisions for customer service;

· Provisions for warranty or product liability and related expenses;

· The backlog and quotes for each product by amount and number.

Operations:

· The size of your plant(s), land area, utilities, the length of the leases, supply of labor, etc.;

· The amount of additional space, land, labor, etc. your company will require over the next five years;

· Equipment and raw materials suppliers. Sole sourcing and reliability problems, if any;
· Any restrictive or preferential contracts.

Financial Information:

· Define the company’s fiscal year;

· Describe relationships with limited partnerships or any groups that are receiving royalties or contributing revenues to the company;

· Attach the company’s most recent historical Balance Sheet, Income Statement and Cash Flow Statement;

· Attach the most, recent accountants’ audit, review or compilation;

· Attach projections of Balance Sheet, Income Statement, Cash Flow Statement and Capital Expenditures Plan for the next five years;

· Attach & table showing authorized or outstanding stock or bonds in the company.

Financing Information:

· Detail the amount of financing needed now and during the next five years. List the amount to be invested by each anticipated financing source, the type of investment (e.g., equity, loan, leasing, etc.) and whether or not the source has made a commitment to invest;

· List the sources of financing received to date, and provide a breakdown by debt and equity;

· Provide a use of proceeds statement detailing allocation of funds to marketing, manufacturing, plant, property equipment, working capital, etc. during a specified period of time;

· Provide proposed company offering.

Regulatory Considerations:

· How do current tax, environmental, pricing and other regulatory considerations affect your proposed venture?;

· How might tax, environmental, pricing, and other regulatory changes affect your proposed venture (e.g. plant, equipment, process, markets, etc.)?

Article courtesy of the United Inventors Association Inventor’s Resource Guide, 1999.