You’ve been a business executive for more than 10 years. During the last few years, you have essentially run a business as the manager of a division of a company. You have earned millions of dollars for your employer, while earning a modest salary for yourself.
“What if I started my own business?” you keep thinking to yourself. “Could I as a business owner become so successful that I can keep millions of dollars in profits for myself?”
The answer “yes” might seem obvious, but it’s not. In fact, running a division of a company and running your own company are two completely different skill sets even if both enterprises have the same number of employees.
If you want to run your own company, you are the individual who needs to raise the capital from investors to start, maintain and grow the business. That means you need an effective business plan. Here are eight tips that will help you create such a plan.
What is the market for the product and/or service you want to manufacture and/or sell? You might think that there is one because the division you are currently running is flourishing, but the market could be worse in the future. Facts from a market survey that shows your idea will succeed should be inserted into your business plan. A more pessimistic survey could convince you to work on a different product and/or service that will be marketable.
And experience. You need to know when to create a business plan and when to present it to investors. Writing a business plan when you’re a lone wolf will not be effective. You need to find a few people whom you trust to work for you. Listing their skills and accomplishments in your business plan will make it more effective. Investors are more apt to be interested in a new business with five accomplished people than one.
A business plan that, for example, claims your company will be the Facebook of businesses sounds egomaniacal. Investors might think, “If the owners of this new business are that good, what do they need me for?” They also might think you’re immature and not especially professional. The business plan should be as specific as possible about the product and/or service and why it will flourish in the marketplace.
Most investors are in a hurry. They might seem more inclined to spend a considerable amount of time reading every word of your report because of the potential financial stakes, but they’re also human beings. Generally, investors want to read a well-written report with colorful (and informative) graphs and charts. That might mean you should hire a writer, editor, and graphics designer to help devise your business plan.
Investors know a new business will take a while before it generates profits and revenues. An effective business plan will show investors that you expect losses at first. The plan should detail the extensive financial commitment you plan to make as the company is launched and realistically project when that investment will pay off. The figures are best presented in charts and graphs. “Graphs, charts, and images can help bring your concept to life,” reports “5 Tips for a Great Business Plan,” a Forbes magazine article. “Plus, it breaks up the text and helps a plan flow better.”
The business plan should detail how much money you and your partners are investing in the business and should detail how much more money you need from investors. It should also detail what the investors’ money will be spent on. Will it be on managerial salaries? Salaries for future employees? Product development? Product distribution? Investors are more apt to be willing to invest money if they know what it’s being spent on — and they might be more confident in your venture if they see that you’re willing to take financial risks.
Your business plan should include an extensive and detailed narrative, but it must also include a one- or two-page summary of the plan before the narrative. Prospective investors must be able to explain the plan to other prospective investors in one minute. An effective executive summary will help them do this, “Because bankers and professional investors receive so many business plans, they sometimes go right to the executive summary for an overall view of what your plan is all about,” reports Entrepreneur magazine in “How to Create a Business Plan Investors Will Love.”
Your attorney should help you decide the structure of your business. Should it be a corporation? A solo proprietorship? A general partnership? A limited liability company? A limited liability partnership? The attorney should help you present the advantages of the business structure you choose to the prospective investors in the business plan. And he or she should give you advice on whether any information presented in the business plan could pose a legal problem.
These eight tips are just a start. You should also consult experts such as the U.S. Small Business Administration for more advice. Good luck.
This article was originally published in Valuation Viewpoint, December 2014.
