Have you identified secondary markets that may be pursued if you have success in your initial market? If so, how will you enter those markets?
Do you know your business? How well? This is your opportunity to go into greater detail about your abilities and the unique resources your organization will offer.
Specifically, how will you carry it out? Go all out here in describing how you'll produce and deliver your product or service and how you'll assure consistent quality. Describe your location, relationships with any suppliers, distribution system and pricing strategy.
What are your financial projections? This question will take more than five minutes to answer and be worth more than all the others combined. The basic elements to be provided here should include:
A multi year revenue projection
This will be only as good as your market research, and it will never be perfect. "Financial projections are important because of the thought that goes into them, not because of their putative accuracy in forecasting," says Paul Hawken. "You cannot forecast five years into the future without a detailed examination of virtually every single aspect of the business and economy. Not only are plan and strategy revealed, but so are the myriad details that comprise a successful business. It's of vital importance that they be carefully and slowly crafted."
Monthly cash flow projections
Profit and loss projections
Capital expenditure projections
In general, "be careful not to use the hockey stick approach to forecasting," says Stolze. This is the plan that foresees little growth in sales and earnings for the first few years, followed by a sudden rapid surge toward unrealistic returns.
"Many are the business plans I've read where after tax margins of 40 percent and higher are projected in an industry where 10 percent to 15 percent is considered good performance," Stolze says.
An excellent resource for your work in this area will be Industry Norms and Key Business Ratios, published by Dun & Bradstreet. Here's where you'll find out what typical profit margins are for businesses like yours. Your local library should have a copy; if not, ask your local Small Business Administration office.
Is It a Wrap?
These, then, are the basic questions that should be covered in your business plan, and I'll leave it to you to decide how elaborate yours needs to be. Once completed, does this mean we're done with the business plan? Never! A business plan is a living thing, never truly complete when you start up and always evolving as your business develops. The value you get from it at the outset will be proportional to the effort you put into considering and responding to the guideline questions above. If you've addressed them all, and your business idea still sounds plausible, you've done very, very well. Success is likely.
But you still need to answer a few more pesky questions, the responses to which you needed to know to prepare your business plan, but which I want to mention as reminders and for special attention.
Who's Putting Up the Money?
The first question is financing. Who's footing the bill for your dreams? As soon as you begin pursuing a plan that requires financing beyond your own means, you begin to confront in your business a different point of view. This new view of your enterprise, which you now must share, is focused entirely on the likelihood of predictable, near term success, and has little to do with the overall merit of your business concept.
"Most entrepreneurs are looking for someone to invest in an idea, but the venture capitalist seeks to invest in an opportunity. There's a real difference," says Sandy Weinstein, a partner at KPMG Peat Marwick Thome in Toronto.
"Where the entrepreneur envisions the ultimate success of a valuable idea, the venture capitalist sees only an opportunity in its infancy," he says. "The entrepreneur's objectivity may be clouded by an emotional attachment that comes from spending countless hours and personal funds on the idea. Venture capital investors remain detached. They realize that a detailed feasibility study, product development and professional marketing are required before an investment will return even one dollar. These differing points of view can make it difficult for entrepreneurs to accept that venture capitalists expect a great deal in return for their investment. Annual returns of 25 percent to 35 percent may be requested, along with an equity position approaching 50 percent and a controlling position (at least until certain conditions are met)."
This clash of purposes comes as a surprise for too many would be entrepreneurs. As you prepare to seek financing, pre pare as well for its effect on your business philosophy.
