should allow a business plan to reflect management's thorough understanding of its company, its products, and its market. The organization of the plan should be apparent so that investors can find what they want quickly, without getting distracted by material that does not interest them. There are many formats an entrepreneur can follow when writing a business plan. The key is for the resulting plan to present the company's opportunity well. Here is an example of one acceptable format and the type of information investors expect each section in the plan to provide:
Sample Business Plan Format
Table of Contents
1. Summary. Investors expect a short summary of the important aspects of the company's proposal at the beginning of the plan. The summary should highlight the company's opportunity in a way that leaves no doubt in the reader's mind what the company has and what it needs to succeed. If the summary is confusing or poorly presented, the venture capitalist will probably read no further.
The summary should contain brief statements about:
It pays to write the summary first and to revise it several times. Have friends and business associates review this portion of the plan and ask them: Did it hold their interest? Did they understand what the company is making and why its product is unique? Did they remember how much outside capital management needs and how management intends to use it? Revise the summary if any of these points are missing or unclear.
2. Company and industry. This is the background section of the business plan. It should contain a concise history of the company, when it was formed, how management decided on its product, and what operations have been conducted. A brief description of the product and who its customers will be should also appear here.
This section should give management's analysis of the company's industry and the opportunity it provides to the company and its product. The company's competition in the market should be described. What are competitors doing and how will the company's strategy be different and better? If there are economic, technological, or social trends that management believes will affect the company and its market, they should be mentioned.
It is important for this section to be well researched. Venture investors will conduct a thorough review of the industry and of management's analysis of it. If the company's analysis appears shallow or unsophisticated, they will not invest.
Most investors will have their own view of the company's industry. They will not, however, know the industry from management's point of view or why management thinks the industry holds an opportunity for their company. If this section does not express the company's opportunity clearly, management should not be surprised if no one invests.
3. Products (or services). This section should contain a detailed description of the company's product. The description should emphasize what distinguishes its product from others in the marketplace. Diagrams and pictures can be used if they will help investors understand the product and what makes it distinctive.
The plan should be candid about the product's shortcomings as well as its strengths. Is it ready for market? Can it be easily copied? Will competitors bring out the next generation of the company's product soon? A venture capitalist will not expect the product to be perfect. If management pretends that it is, it will only make him suspicious. In being candid, however, it is also important to describe the product enthusiastically.
This section should describe whatever protection the product has from competition. If patented, the nature and importance of the patent should be explained. This may involve explaining why a particular patent claim is important to the distinctive features of the product, or why it would be difficult, costly, or time-consuming to engineer around the patent claim. If the protection of the product depends upon trade secrets or copyright protection, that should be explained.
Finally, if management knows what the company's next product will be, it should be mentioned here. Few products dominate a market for long. Venture capitalists realize this and like to know that management has given some thought to what comes next.
4. The market. This is an important and difficult part of the business plan. Here management must describe in detail why the market for the company's product is such that the company can expect to achieve its sales goals despite the existing competition. It is here that management must explain and justify its choice of marketing strategy.
In describing the market, management should identify the major buyers for the company's product. Are they more interested in price, quality, or features? How does the company's product meet these interests? The results of any research management has conducted with customers should be described. Are customers interested in the product at the company's price? If so, how concrete is their interest? If not, why not, and how does their lack of interest affect the company's plans?
Give the magnitude of the market the company is going after in whatever measurements are appropriate - units, revenues, etc. Who are the players? How much will the market expand, and how much of the market must the company capture to succeed? Describe in detail the factors that are moving the market and the direction in which it is going. Is the company's product positioned to take advantage of the trends?
Avoid overestimating the size and growth rate of the market. Base the company's estimates of market size and projections of market growth on discussions with potential customers, distributors, and competitors. Also, review the available market surveys, but do so critically. Markets change quickly, and the most respected market survey is often considered outdated by insiders.
Finally, evaluate the competition realistically. Evaluate competitors' products and their histories in the marketplace. Consider the market share and reputation for aggressiveness of each of the company's main competitors. Explain why potential customers buy from the company's competitors and why some of them will switch to a new supplier.
5. Marketing. This section should contain an analysis of the company's marketing strategy and projections of the unit sales management believes the company can achieve.
The company's marketing strategy should be explained in detail. The company's sales techniques and pricing policies should be described in relation to the distribution channels it will employ. How did management arrive at its pricing? How does that method compare with the pricing practices of the company's competitors?
What part will advertising play in the company's marketing? What type of advertising will be employed, and who will direct the effort? How will the company sell and distribute its product? Will it use a direct sales force, independent agents or distributors? Discuss why management chose the sales and distribution channel it selected. Explain how management will organize the company's sales effort and how that effort will compare with that of its competitors.
6. Management. This section should contain resumes of the important members of the company's management team and describe what function each person will perform. The resumes should emphasize relevant experience, training, and education. Business accomplishments that illustrate the ability of management to make the company successful should be highlighted.
If the company's management team has weaknesses, as all do, discuss them candidly and describe what plans management has for overcoming these weaknesses. Also, describe briefly the accounting, legal, advertising, banking, and other professional relationships the company has established.
7. Development plan. This is the section in which management discusses how it will go about achieving the company's objectives. What is the current status of the company's product? If it requires development work, who will do it? Will the company use an outside design house for some of the work? If company employees will do the work, are they all on board, or does management still have to locate key personnel?
The development plan should describe the company's requirements for space, facilities, equipment, and personnel. Will the company begin manufacturing immediately or contract out manufacturing at first? If the company will do some assembly work or testing, explain why and how. Describe who the company's suppliers will be and how management will control quality, production, and inventory.
8. Overall schedule. This schedule should show when management plans to accomplish each of the milestones that are critical to the company's success. A well-considered and realistic schedule demonstrates management's ability to plan the company's growth. It also displays management's ability to identify the critical tasks to be achieved by the company and how they interrelate.
This section should contain a flow chart analysis that shows the timing of the company's product development and operational activities and when the company plans to meet the important thresholds in its marketing plans. Some of the events management might cover include:
The schedule might also show:
Be realistic in the schedule. Follow it with a narrative discussion of those events that are most likely to be delayed and how those delays could affect the company's overall schedule. Also, explain what management can do to make up for any schedule slippage that occurs.
9. Risks. Every venture capitalist knows that new businesses are risky. They may not, however, understand which risks are most dangerous to the company or how management intends to neutralize them. This section enables management to discuss those risks and how it plans to overcome them. By doing this thoroughly, management increases its credibility with investors and demonstrates its foresight. Some risks that might be discussed include:
Every major risk of which management is aware should be addressed. Nothing is gained by omitting important items from the list of risk factors. Many managers find it useful when preparing to write this section to first put down in a separate writing the five risks most likely hurt the company is a material way and then to write out the practical steps the company is taking to minimize those risks.
10. Financial statements and projections. This section should contain historical financial statements of the company's operations and projections of future operations. The projections should be for a period of three to five years. They should include profit-and-loss forecasts, cash flow projections, and pro forma balance sheets broken out on a monthly basis.
Narrative explanations should accompany the financial projections, highlighting important facts and assumptions contained in the projections as well as conclusions management wants the investor to draw.
11. Appendix. The appendix should supplement the business plan and support management's conclusions. Use the appendix to attach full resumes of key management members when those resumes elaborate on relevant experiences. Copies of key contracts or commitments from suppliers and customers that demonstrate the viability of the company's product or concept can be included. If there are any surveys or studies that emphasize the company's good prospects or explain a key concept, photocopies of relevant portions of those surveys can help an investor understand the company better. See: Brokers, Business Plan, Downside, Due Diligence, Exits, Five Factors, Market Research, Packages, Projections, Summary, Three Questions.