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11/22/06

BUSINESS PLAN FORMATION PART 3


Now that your creativity has been tested and applied to the first two (or three if you have a tangible product) sections of your business plan, it is time for the hard work to begin!

If you think about this logically, a business plan has a very natural progression. First, in the ES, you grab the investor’s attention. You make him/her/it want to know more about your product. As such, in your Product Presentation section, you describe, in detail, your product from beginning to end. Next, the investor thinks to himself/herself, “How are we going to sell this product?” In response to this question, you wrote your Marketing Plan. Your Marketing Plan illustrates your plan to sell your product/idea/concept. Next, the investor is going to wonder, “Will this product/idea/concept sell?” In response to this query, you present your Market Analysis section.

The Market Analysis section of your business plan presents data, figures, and market trends that prove that your product/idea/concept will sell. Does this mean that you leave out any negative data/figures/trends that appear to “hurt” your product/idea/concept’s marketability? There is no simple answer. Two schools of thought exist on this dilemma. First, some believe that you should leave out any adverse information and try to paint the best picture possible for the investor. In my opinion, this option leaves you open for attack. An educated investor might ask you about this negative data and how it will affect marketability. If you have not addressed this issue, you may be left speaking on the fly or worse, saying nothing. Second, others, including myself, believe that you should recognize the existence of these possible “problems” and address how they are distinguishable or how you can work around the negative effects of any of these “problems.” By doing this, you look better. It shows the investor that your have done your homework, that you thought of all potential problems, and know how to work through them.

This section of your plan is not easy. You have to do TONS of research for this section. If at the end of writing this section you think you have found everything, research some more. Also, make sure your sources are CREDIBLE! This means, do not go to some random website and start gathering information for use in your plan. Use recognized sources from state and government agencies. For example, if you want to market you product/idea/concept in you city, you local chamber of commerce may have some useful information. If your product/idea/concept is so new that no current data would be helpful, use data from market trends that support your product. For example, if your idea is a new electronic toy aimed at 5-10 year olds, find data that shows how the electronic toy market is expanding, any increases in sales, and how your toy will benefit from this trend.

Also, make sure your statistics are current. Do not use 1999 statistics as a representation of current market trends. Also, use graphs and charts as applicable. If you are trying to show that the market you are trying to penetrate has grown over the last five years, then show a graph. However, if you are trying to show the sales of a product for a certain year, DO NOT show a graph. (Too many graphs and charts can begin to jumble your points and ruin the flow of your plan. Also, too many of these illustrations can be confusing.) *NOTE* - Everything that is underlined is a personal opinion. Know your audience when presenting, because some investors love picture representations. Use your judgment when constructing this section and you should be fine.

Lastly, make the statistics relevant and specific. The biggest problem I see with draft business plans is that they are too vague. Most read like a summary and provide no evidentiary support for their assertions. Your plan MUST be specific. Remember, you are trying to get somebody to invest money into your product/idea/concept. Wouldn’t you want to know every detail of something before you invest money? Think about it like buying a car. Presenting a vague, non-detailed, unsupported business plan to an investor is like asking him/her to buy a car by just looking at the color. I would rather see an ugly plan full of applicable substance than a “pretty” plan full of vagueness and summaries.

When writing this section, put your self in the investor’s shoes. If you were potentially investing thousands of dollars, what would you want to know? Think of all the questions a potential investor would ask. Once you have addressed all possible scenarios and found all applicable data, you should feel comfortable in this section. The only thing left to do is to compile all of this information into a cohesive format.

Next time, the Management Team...

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