Creating Your Business Plan

Until September 2003 I had not written a full-fledged business plan before in my life. While I was always a planner, I always planned informally, on one page checklists or handwritten sales forecasts. I kept the plan in my head for both of my companies, Virante, Inc. and Broadwick Corporation. I had never attempted to raise significant capital, and thus never needed a plan. However, in early September 2003 ago I had a meeting with a potential board member for Broadwick. In reviewing our company, he asked to see our business plan. I said I would send it over to him. Of course, we did not have one. That weekend I sat down and wrote for about twelve hours and finished it off, complete with executive bios, our fifteen page marketing plan, projected organizational charts, and a projected (pro forma) income statement.
While you will not need a business plan per se until you reach the point when you are ready to raise funding, it is good to have one right from the beginning. Writing the Broadwick business plan allowed me to take a step back from the day to day operations of the company and take a look at where we were, both financially and in the timeline of executing our strategies, and where I wanted us to go over the next two years. It was especially helpful to take the time to write down all our current and projected expenses. It helped me determine if we needed to raise additional funding or if we would be able to organically grow from operations cash flow. The pro forma pinpointed the exact month, based on all my current knowledge of every expense and revenue source, that we would turn cash flow positive and the exact month we would reach cumulative break even. In short, it was a valuable experience for me to write that business plan.
If your idea is developed to the point you are ready to start a business around it, I’d highly suggest writing a business plan for it. Your plan will not be a static document, but rather a lively, dynamic work that changes and grows as your business grows. In your plan you should include the following basic elements:

The Executive Summary  - A quick overview of all elements of the business plan, highlighting what exactly it is you will sell, how you are different from your competitors, why your team will succeed, how much money you’ll need to launch the business, and what the expected return on investment will be for investors based on your projections.
The Team – Explain who you are and who will be helping you build your business. What is their background and experience? Who else will come on board once you launch and/or receive funding? Why will your team fit together well? Who will be needed as your business expands? Within your team section, you’ll want to include an organizational chart of what you envision your firm looking like in a year and then a few years down the road. As an example, here is the one year out projected organizational chart for Broadwick Corporation.


The Product or Service ¬– What it is that you sell? What differentiates your product or service from those of all your competitors? What unique technology/intellectual property, if any, do you have? How does the product work?

The Market – Who are your competitors? What strengths and weaknesses do they have? What is the size of your market? Is it growing? What share of the market can you reasonably capture?

The Marketing Plan – How will you position yourself in the marketplace? What is your distribution strategy? Who is your target customer? What strategies will you use to make sales and build awareness of your company?

Challenges & Risks – What are the problems you may run into? What are the potential challenges you will face and how will you deal with these? What world events or competitor or government actions may impact your business? What are the risks?

Pro Formas Financial Projections – Create a full projected income statement, monthly through year two and then quarterly for years three through five. Here are the steps needed to do this:

1.    Start by writing down all the categories of your current expenses and those in the future.
2.    Fill out the actual dollar figures for any data to date and projections for the future, month by month for year one and quarterly through year five.
3.    Project your sales volume and revenues for each of your revenue streams.
4.    Subtract your monthly expenses from your monthly revenue to determine how much money you will lose or earn in each month. This is called your net monthly income.
5.    Find the point where this number turns from negative to positive. That point is when you will have reached cash flow positive.
6.    Below the net monthly income row, create a cumulative net income row in which you add up all the prior monthly (or quarterly) net incomes.
7.    Find the point on this row where the number is the greatest to the negative side. This is how much money you will need, at minimum, to start your business, based on your projections.
8.    To be safe, double this amount and make this amount your goal for how much money you need to raise to start your business.
9.    Find the point where your cumulative net income turns positive. This point is called cumulative break even.
10.    Finally, create a break-even analysis graph similar to the one we include later in this section to illustrate the time and money needed until your company turns profitable.

Once you have your business plan completed, if you are in the U.S. you may wish to schedule an appointment with the local chapter of the Service Corps of Retired Executives (www.score.org). They’ll review your plan with you and provide feedback. If you know any business owners or successful entrepreneurs, ask them to lunch and for feedback on your plan. To protect yourself, if you do show anyone your business plan whom you do not know well, be sure to have them sign a confidentiality and non-compete agreement. Do note that venture capitalists and most investors will not sign these. However you are protected by the industry ethic.