Do I need a business plan?
Alto Software, Inc.
Not everyone who starts and runs a business begins with
a business plan, but it certainly helps to have one. If you are seeking
funding from a venture capitalist, you will certainly need a comprehensive
business plan that is well thought out and demonstrates sound business
If you are approaching a banker for a loan for a
start-up business, your loan officer may suggest a Small Business
Administration (SBA) loan, which will require a business plan. If you have
an existing business and are approaching a bank for capital to expand the
business, they often will not require a business plan, but they may look
more favorably on your application if you have one.
Reasons for writing a business plan include:
Support a loan application
Raise equity funding
Define objectives and describe programs
to achieve those objectives
Create a regular business review and
course correction process
Define a new business
Define agreements between partners
Set a value on a business for sale or
Evaluate a new product line, promotion,
What's in a business plan?
A business plan should prove that your business will generate enough
revenue to cover your expenses, but a business plan may vary depending
upon whom your audience is. If you are writing a plan for your colleagues
and partners, for example, to expand an existing business, then the focus
of that plan may be more operational than financial. Yes, you are going to
show your partners how this expansion will mean more revenues, but they
are going to want to know the nuts and bolts of how this new venture is
going to be implemented.
If you are writing a business plan for a bank, your bank
manager will want to see that your ideas are well thought out, but the
most important aspect to him or her will be your financials. Are your
assumptions realistic? And will the cash flow of the business be enough to
ensure that you can make the monthly payments for the loan that you have
requested? If your business is making $1,000 a month and your payments are
$1,200 a month, the bank is likely to turn you away.
When considering an investment opportunity, most venture
capitalists look at the obvious trends and market niches. Transcending the
business elements, however, the most important factor in a decision to
invest in a company is the quality of the people. In real estate, the
three biggest criteria are "location, location and location."
The venture capital axiom is "people, people and people." VCs
will ask, how experienced are the people that are going to run this
business? Do they have knowledge of the industry? Have they started
successful ventures in the past?
What makes a successful business plan?
Presents a well thought out idea
Contains clear and concise writing
Has a clear and logical structure
Illustrates management's ability to
make the business a success
Bringing it all together...
Your business plan is like your calling card, it will get you in the door
where you'll have to convince investors and loan officers that you can put
your plan into action. You want your calling card to look impressive, so
make sure your business plan is printed out on good quality paper, you
have checked the spelling and grammar and that your numbers add up. Anyone
who sees errors while reading your plan will wonder whether you are going
to make similar errors in running your business.
A great business plan is the best way to show bankers,
venture capitalists, and angel investors that you are worthy of financial
support. Make sure that your plan is clear, focused and realistic. Then
show them that you have the tools, talent and team to make it happen.
Business Plan Tools