Do I need a business plan if I'm not seeking financing?
How do investors read a business plan, and what do they look for?
How long should my business plan be?
Should I hire someone to write my business plan for me?
How much does it cost?
Should I use a business plan software?
How do investors read a business plan, and what do they look for?
How long should my business plan be?
Should I hire someone to write my business plan for me?
How much does it cost?
Should I use a business plan software?

Do I need a business plan if I'm not seeking financing?

Most entrepreneurs usually develop a business plan to obtain financing. However, it is the actual process of developing the business plan itself that is most valuable to them. During this process, entrepreneurs not only acquire a more intimate knowledge about their businesses, their customers and their markets, but also they get the chance at the outset to resolve most  "flaws" on paper -- thus increasing their chances of successfully implementing their business objectives.

Creating a business plan forces you to establish and quantify your business objectives and identify the resources you will need to execute your plan.

Other important uses of a business plan are:

• Internal operational planning -- ensuring that everyone in the organization is on the "same page"

• Securing contracts with major corporations and Government agencies

• Recruiting executive officers

• Establishing strategic alliance with business partners

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What do investors look for in a business plan?

Don't expect that every investor will be excited about your business plan. Investors have their own idiosyncrasies. Some investors prefer to work with traditional businesses, like restaurants. Others might have a distinct preference for technology firms. It is therefore essential that the entrepreneur conduct some background research on the investor to ensure that the investor is the right match for their business. Or the entrepreneur could also use a consultant who has established relationships with various investors.

Even when there is a match, most investors will not read your plan thoroughly. They usually focus on a few areas of the business plan, like the executive summary, marketing and finance. According to Howard Sommer, a Venture capitalist, his firm receives over 30 business plans monthly. However, they fund less than 2% of those plans. He added that their concern is that a firm has the potential to realize at least 60% return on their investment (RI) (other venture capitalist expect at least 150% RI). Venture capitalists are preoccupied with whether there is a substantial market for the client's product and whether the firm has the ability to capture and retain this market. This is essentially what long-term profitability is all about.

Commercial lenders on the other hand are more focused on whether your business has enough cash for repayment. And if your business should fold, whether you have collateral to repay them.

Your executive summary will likely be the first thing read. Make it stand out by highlighting the unique nature of your product or service, the strength of your management team, and why your business will make money. If the executive summary grabs their interest, many potential investors will move to the rest of the plan. But they probably won't read it in a sequential order. Some investors go straight to the description of the management team - they want to see if anyone involved with the company has had experience with successful start-ups, and has relevant experience in this industry. Others may go to the financials section to see when and how you plan to attain long-term profitability.

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How long should my business plan be?

The maximum plan should be about 40 pages (single spaced) and minimum 20. Anything longer than that and you risk alienating a potential investor, or you force them to skim through the document rather than read it. The more concise and readable you business plan is, the more focused your business will appear.

Focus on those details that tell your business' story, that set you apart from your competition, that make your business appear to be a good financial investment, and that show you will be profitable.

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Should I hire a consultant to write my business plan?

At the bare minimum, writing a business plan requires the following skills: marketing, accounting, finance and writing. It is very rare that a plan writer will be adept in all the above areas. That is why at BizJump, we take a "team approach" in developing business plans. Each member of a business plan team is a specialist in a critical business discipline. Furthermore, the quality of a business plan is significantly enhanced when a diverse approach is taken in its development.

However, even if you decide to use a consultant to develop your plan, it would be foolish not to be involved in your business plan development. Remember the business plan reflects your dreams and aspiration. Your input will be needed to effectively articulate those dreams.

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How much does it cost?

The typical entrepreneur has a very unrealistic idea of what it will cost to hire a professional to prepare a business plan. When I see them, they have usually already set up an office and/or a Web site, and they're ready to write a business plan, but their budget for the plan is $300-$1,000, and they want a complete plan within a week.

It usually takes a professional anywhere from 30 to 60 hours to research a plan, prepare the financial projections, and write it. Looking at a budget of $300, this comes out to a fee of $10 per hour or $5 per hour based on 30 hours or 60 hours, respectively. And looking at a budget of $1,000, this comes out to a fee of $33 per hour or $16.67 per hour based on 30 hours or 60 hours, respectively. Any plan prepared at these rates will be incomplete, will not be specific to a business, and will not be very realistic.

Logically, the business plan should come first--before making any business commitments. The plan should tell what the business will do, how it will do it, and the financial results expected.

A go/no decision for a business venture should await the preparation of a business plan. Both the plan and the budget therefore should be realistic.

Robert W. Scroggins, CPA

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Should I use business plan software?

There is a wide variety of software programs on the market designed to help you prepare a successful business plan. These programs vary, but most include a dedicated word processor, a detailed outline, and some interactive tools, which can serve as a starting point for creating a plan.

Unlike a consultant, don't expect the software to write the plan for you. It is still up to you to make sure that the plan honestly reflects your business' goals. Also, be on the lookout for software that will generate a plan in a "cookie cutter" approach. You don't want your business plan to look just like someone else's. It needs to stand out from the pack to get noticed.