Expert answer:Components of business plan
Solved by verified expert:Refer to Ch. 3 of The Successful Business Plan (see attached). What components would you include in your business plan to gain the attention of the loan officer at a commercial lending financial institution? What makes these components important?200-300 word reply
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The Successful Business Plan: Secrets and Strategies
Chapter 3
Making Your Plan Compelling
People don’t read.
Five Crucial Minutes
Time is valuable for businessmen and
businesswomen. Rarely can they give any one
matter the attention it deserves. This is especially
true of bankers, venture capitalists, and other
investors who are inundated with business plans
and proposals; a typical venture capitalist can
expect to see more than 1,000 business plans a year.
Although you may spend five months preparing
your plan, the cold, hard fact is that an investor or
lender can dismiss it in less than five minutes. If
you don’t make a positive impression in those
critical first five minutes, your plan will be rejected.
Only if it passes that first cursory look will your
plan be examined in greater detail.
The most important aspects of your plan must jump
out at even the most casual reader. Even if your
plan is intended for internal company use only, it
will be more effective if it is presented in a
compelling, vivid form. Highlighting specific facts,
goals, and conclusions makes your plan easier to
review, more effective as a working document, and
increases your chances of making a positive impact.
As you start your business plan process, keep in
mind the kind of information, statistics, and
graphics your readers expect to see and that will
enable your plan to make a greater impact. When it
comes time to put your plan into final form, you
will then have this information handy.
“The first thing I read are the first two
paragraphs of the executive summary.
They’ve got to get that right. If they
can’t describe it in two paragraphs— if
I can’t be dragged in — there’s no way
the next five million people can be
dragged in. It doesn’t take more than a
minute to decide whether a business is
interesting.”
Andrew Anker
Venture Capitalist
The Successful Business Plan: Secrets and Strategies
“I certainly don’t go from page
one to the end when first
reviewing a plan. I skip around
to the various sections, perhaps
only reading the Executive
Summary completely.
I don’t need 10 reasons to turn
down a plan — I only need one.
So the first thing I look at, after
the Summary, is whatever
aspect seems weakest. Then, if I
cannot find a solution to the
problem, I don’t have to read
the rest.”
Eugene Kleiner
Venture Capitalist
How Your Business Plan Is Read
When evaluating a business plan, experienced business plan
readers generally spend the first five minutes reviewing it in
this order: first, the Executive Summary; second, the
Financials; third, the Management section; and next, the Exit
Plan and/or Terms of the Deal, if applicable.
The Most-Asked Questions
Funding sources primarily look for answers to these questions
concerned with the heart of the plan:
■ Is the business idea solid?
■ Is there a sufficient market for the product or service?
■ Are the financial projections healthy, realistic, and in line
with the investor’s or lender’s funding patterns?
■ Is key management described in the plan experienced and
capable?
■ Does the plan clearly describe how the investors or lenders
will get their money back?
Within the first five minutes of reading your business plan,
readers must perceive that the answers to all these questions are
favorable.
Increasing the Reader’s Interest
Three sections — the Executive Summary, the Financials, and
the Management description — must spark enough interest and
inspire sufficient confidence to make the reader decide it is
worthwhile to spend additional time reading other sections of
your plan. You may have done a bang-up job of describing
how your company will operate, but it is unlikely the
Operations section will even be read if your Executive
Summary and Financials aren’t enticing to the reader. Some
venture capitalists and investors have specific areas of interest,
or are known for giving certain aspects of a plan more weight
than others. If you know this information, highlight those areas
that are consistent with the particular investor’s funding
patterns when sending out your plan; do this in the Executive
Summary and in your cover letter.
For instance, if you know a venture capital firm is especially
interested in new technology, emphasize any patents you have
secured and the aspects of your company that represent
ground-breaking technological developments. Or, if a member
of your management team (or one of the Board of Directors) is
known and respected by a particular investor, you may want to
discuss management near the beginning of your Executive
Summary.
You can tailor the order of the Executive Summary, even the
entire plan, for individual recipients. More information about
how to research your intended funding sources and how to
prepare your plan to be sent out is discussed in Chapters 18 and
19.
The Successful Business Plan: Secrets and Strategies
Getting Your Facts Right
The worst mistake you can make in a business plan is to make
a mistake. If the reader of your plan knows a statement you
have made is not true, you have lost credibility, even if you
were just mistaken, not trying to mislead. Make certain your
facts are correct. Your facts must not only be correct, but must
also be attributable to a reputable source. As you do your
research and prepare your plan, keep track of the sources of
your information. You may want to indicate the source of your
data in your plan, but even if you do not include the source in
your written plan, you need to be able to quickly tell a reader or
potential funder where you found your information.
Length of the Plan
How long should the perfect business plan be? No magic
number exists, but here are some guidelines:
■ Limit the plan itself (not including the Financials and
appendices) to 15 to 35 pages; 20 pages are enough for nearly
any business.
■ Only a plan for a complicated business or product should be
more than 30 pages (not including the appendices). If you need
40 pages or more, your plan had better be intended for a very
motivated, sophisticated reader, or for use solely as an internal
document.
■ If you have an uncomplicated small business, you may not
need 15 pages, but anything fewer than 10 pages will seem
somewhat unsubstantial to the reader.
■ Limit appendices to no more than the length of your plan.
While they are a good way to present additional information,
appendices should not be so long as to make the entire
document appear burdensome.
■ Make sure your business plan fits easily and comfortably into
a briefcase; you don’t want your plan to be the one left behind
when an investor goes on a business trip. After all, it will
receive uninterrupted attention if reviewed on a plane.
These guidelines apply to most business plans. But if you are
confident that your business requires a different configuration,
go ahead!
What Period of Time Should Your Plan Cover?
Most plans should project three to five years into the future, or
until you have reached your anticipated exit strategy,
whichever is earlier. However, you need only include monthly
financials for the first year or two, depending on development
time. For the second and third years, quarterly financials are
usually adequate; annual projections suffice for the fourth and
fifth years. Similar time guidelines apply to how much detail
you should include when describing your business operations.
Quite thorough information should be provided for the first
year or two; for subsequent years, a more general Operations
description is acceptable.
As an entrepreneur, you’ve got
to have more skepticism than I
will have. You’ve got to
question the numbers. Some
one is going to question those
numbers; if you haven’t you’re
going to look foolish.”
Andrew Anker
Venture Capitalist
“I don’t like a plan that’s too
long. To avoid that, put
detailed plans in the
appendices so that people
can refer to them only if they
want to. A well-written plan
should be no more than 25
pages, 100 pages total or less
with appendices. If an investor
is interested, they’ll ask for
more details.”
Eugene Kleiner
Venture Capitalist
The Successful Business Plan: Secrets and Strategies
“I want to see detailed monthto-month reports for the first
year, and quarterly projections
for the next two to three years.
After three years, the numbers
become less significant.”
Eugene Kleiner
Venture Capitalist
“The important thing about a
business plan is believability. I
want to see a simple logic to the
whole plan. The more a plan
relies on leaps of faith, the less
believable it is.”
Robert Mahoney
Corporate Banker
Plans for existing businesses and in-house corporate use should
include historical performance information for the past five
years, or the duration of your business, if less than five years. If
your business is longstanding, you may want to examine trends
over the life of the business, or the last 10 years; this gives you
insight into cyclical patterns and helps you anticipate events
that are likely to recur.
Use Language to Convey Success
The language you use in your plan can give the impression you
are thoughtful, knowledgeable, and prudent, or, conversely, it
can make you seem naive and inexperienced. Your
fundamental goal is to convey realistic optimism and
businesslike enthusiasm about your prospects. Use a
straightforward, even understated, tone. Let the information
you convey, rather than your language, inescapably lead to the
conclusion that your business will succeed. Avoid formal,
stilted language. Instead be natural, as if you were speaking to
the reader in person; however, avoid slang and don’t be
“chatty.” Always be professional. Listed below are some other
pointers to keep in mind when writing your business plan.
Be Careful with Superlatives
Readers are naturally skeptical of over-reaching selfpromotion. Avoid using words such as “best,” “terrific,”
“wonderful,” or even “unmatched.” They reduce credibility.
Rather, use factual descriptions and specific information to
make positive impressions.
Instead of saying, “Our widget will be the best on the market,
clearly superior to all others,” say, “Our widget will not only
handle all the functions of existing widgets, but will also add
features x, y, and z, and sell for $3 less than our closest
competitor’s widget. No competitor of ours offers these
features at any price.”
When trying to get additional financing for your restaurant,
don’t tell the reader that the food and atmosphere are “terrific.”
Instead, provide specific information that proves you are doing
something right: “Due to the restaurant’s popularity, there is an
average 45-minute wait for a table on Friday and Saturday
nights, and a wait of 15 to 30 minutes on other evenings.”
The only exception to this rule is when you use superlatives as
part of your goal in a Statement of Mission. Then it is
appropriate to state, “We intend to make a dog food unmatched
in quality by any national brand.” Even then, however, it is
important to include the specifics of what you mean by such a
goal.
Use Positive Comments from Third-Party Sources
Everyone expects you to think your product or service is
outstanding; thus, your own glowing comments about your
company are meaningless in your plan. Instead, as you do your
The Successful Business Plan: Secrets and Strategies
research, look for statements by outside sources to give readers
confidence in your business.
For instance, a reader of your plan is likely to tune out
when encountering a comment such as: “Adeena’s
fashions are equal to those by top designers,” or “Our
restaurant serves the best food in the city.” However, the
same comment, when made by an authority, becomes
quite powerful: “Women’s Wear Daily states that
Adeena’s fashions are equal to those of the
top designers,” or “The newspaper’s annual survey rated
our restaurant among the top 10 in its price category.”
You don’t even have to quote a well-known authority;
anyone with credible, related experience will do, as this
example shows: “The breeder of the winner of last year’s
Tri-County Dog Show tested our dog food and
concluded, ‘This will be the best dog food on the market,
superior to any national brand.’”
Use Numbers for Impact
People tend to put great faith in numbers, and using
numbers to support your plan can add significant
credibility. If the figures come from a reputable source,
they have even more power.
One particularly good technique for making your plan
stronger is to state, “Our ________ is supported by. . . ,”
followed by specific figures relating to demographics,
growth of market, information from other businesses, or
market research. For example: “Our foot-traffic
projections are supported by figures that show
neighboring stores average 22 customers an
Use Business Terms
Although it is certainly not necessary to be a business
school graduate to develop a business plan, you should
know and use appropriate basic business terms. You
don’t want to be discredited or misunderstood by using
words improperly. If business is new to you, familiarize
yourself with the Business Terms Glossary at the back of
this book.
Become familiar also with the terms of your specific
industry and use those words when appropriate in your
plan. If you don’t know these already, you should be
able to pick many of them up while doing background
work for the Industry Analysis section of your plan.
However, do not fill your plan with a lot of technical
jargon in the hope of sounding impressive; there is a
good chance that someone unfamiliar with your industry
will be reading it, especially if you are seeking outside
funding.
Certain terms and trends are more popular at one time
than another. You may find it helpful to include these
“buzzwords” in your plan. As you do your research,
keep track of the terms and practices that are currently
‘hot’ with investors or industry leaders. Look to see what
they are talking and reading about. Even if you do not
include these buzzwords in your plan, you may be asked
about them in a meeting with potential funders.
Points of Style
In addition to using the most beneficial and appropriate
language in your plan, you should pay attention to the
elements of style discussed below.
“The business plan had 15 pages of
text. We also included an opening
budget, cash-flow projections,
a summary of return on investment, a
furnishings and equipment list, a map
of the area, and a site analysis based
on Planning Department information
on new and renovated housing in the
vicinity. In the business plan for our
next restaurant, we also included
publicity the current restaurant had
received.”
Martha Johnson
Restauranteur
The Successful Business Plan: Secrets and Strategies
“Style shows thoroughness.
Use lots of white space, so I can
make notes in the margins. Use
a binder that keeps the
document together, preferably
one that keeps the plan open to
the page I‘m on. Use bullet
points. Use a block style rather
than indented paragraphs.
Don’t misspell my name, and
don’t address me as ‘Mr.’
Imagine that you have to hand
your plan to a customer. So if
you don’t know how to make a
document look good, get some
help.”
Ann Winblad
Venture Capitalist
hour on weekdays and 43 customers an hour on Saturdays,” or,
“Our choice of the young adult market is supported by U.S.
Bureau of Census figures projecting a growth of 32% in that
age category over the next five years.”
It is vital to bring data from your Financials into the text of
your plan to indicate specifically why you will be able to
achieve certain goals. For instance, state: “Our new production
method will reduce each unit cost by 43% (currently projected
savings: $1.57 per unit), thus allowing us to offer additional
features at a competitive price while still maintaining our profit
margin.” Do not expect the reader to pick out these kinds of
specifics just from looking at your Financials; the information
must be incorporated into the text.
Use Bullet Points
Bullets are symbols that precede information offset from the
text (such as the small boxes before the three sentences below).
Bullets:
■ Draw attention to specific information.
■ Make long material more inviting to read.
■ Eliminate the need to write whole sentences.
Bullet points are an excellent way to convey information, and
they make writing your plan somewhat easier. Because they are
read faster than text and quickly get the reader’s attention, use
bullet points only with information you particularly want the
reader to notice.
Be careful not to clutter a plan with too many bullets; use them
selectively. Bullets seem to work better with short items than
with long ones. Also, each list of bulleted items must be
presented in a consistent manner, such as starting with a verb
or being a complete sentence. Keep in mind that lists can be as
few as one item or as many as ten, but a long list weakens
effectiveness.
Your bulleted items also become excellent candidates for slides
in a computer/slide presentation, such as a Powerpoint
presentation, that you may later put together for meetings with
potential investors, department
heads, or other readers of your plan.
Know How and When to Be Redundant
Writing a business plan gives you the rarely granted right to
repeat yourself. People do not read a plan from start to finish;
they turn first to the sections that most interest them and then
skip around. For this reason, it may be beneficial to refer in one
section to conclusions you have reached in another.
The Successful Business Plan: Secrets and Strategies
For instance, when addressing the issue of staff training in your
Operations section, you can refer to the importance of highquality service to your target market, and underscore the
wisdom of choosing this market by restating information
provided earlier in your plan: “Surveys indicate high-quality
service is demanded by our target market — women ages 35
to 49 — who, as shown in the market analysis, spend the
most per capita on our product.”
Two cautions about repetition, however: 1) only repeat
information that is important and impressive; and 2)
don’t repeat information within the same section.
Using Visuals in Your Plan
In the case of your business plan, a picture may be worth
more than a thousand words. A thousand words, after all,
most likely will not be read, but a picture will definitely
be looked at. Graphs, charts, and illustrations also are
visually appealing; they catch the reader’s attention,
forcefully explain concepts, and break up the monotony
of the text.
As you do your research and prepare your plan, look for
items that can have a strong impact if presented in a
more visual form, such as positive statistics on the
growth or size of market. You may also want to include
some of these in any computer/slide presentation you
later put together.
Photographs and Illustrations
Photographs can be extremely effective, especially if
your company is producing a product that is unusual or
difficult to understand. You can include pictures of your
location, specialized equipment, or packaging but not of
yourself or individual members of your management
team. Photographs should be placed in the appendix
only.
Illustrations help present information about products or
marketing materials still in development. While
generally placed in the appendix, a small illustration can
be inserted directly into the text. If an illustration is not
of good quality, don’t use it; a business plan is not the
place for exhibiting amateur art.
Graphs and Charts
Graphs and charts are excellent tools for communicating
important or impressive information, and you should
find ways of including graphs or charts in your plan.
Place charts, particularly of half-page size or less, in the
text rather than in the appendix; this will …
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