Top 3 Reasons To Write A Good Business Plan

BUSINESS PLANS ARE WRITTEN FOR 3 MAIN REASONS:

1.) To get a bank loan or financing loan.

A bank is only interested in seeing you are making enough money to  pay off the loan and what assets they can attach to the business loan for their security.

2.) To get an investor to invest.

Investors are especially interested in making money off you.   They want a return on their money of 3 to 5 times in 3 to 5 years, sometimes even sooner.  Investors also want a piece of your business.

3.)  For you.

Your business plan needs to have a lot of flexibility, rather it needs to lead you to your dreams…

10 Immutable Law’s Of Writing A Successful Business Plan

1.) You will write more than one business plan

I wrote a different or updated business plan every year while I was the CEO of The Vermont Teddy Bear Company.   My first one was in 1981, and my last one was the when we went public.   That business plan was called an offering document, that basically stated what we were going to do with the money made from selling 1,300,000 shares of stock for 10 dollars each.

I thought my first business plan was great.   I took the time to learn the individual pieces of a business plan with help from The Small Business Administration. I put together a corporation and begin selling my teddy bears in Burlington, Vermont from an outdoor peddler’s cart.   I thought I was going to make enough money to take care of my family and myself…I was wrong.   The next year I wrote a plan to increase my wholesale business, by recruiting sales reps from all over the country to sell my bears at Gift Stores and department stores around the United States.   Again that plan failed.   I kept trying to sell my teddy bears in the toy market by attending toy shows and events like that.

It wasn’t until I change my business plan and wrote one saying that the business that I was in was not the toy business but the market of gift-giving.  That was my best business plan to date, I got really good at planning.

The next plans highlighted how we were going to use radio advertising to sell our teddy bears throughout the United States.  Our sales went from 400,000 to 1.7 million to 5.6 million to 10.6 million to 17 million dollars.  Our work force grew from 15 to 600 people.  It took good planning to accomplish those goals and be named the best company in America.

The second last plan I wrote was a business plan for a public offering which made our company worth over $110,000,000.  My penny stock that I started the company was worth over $20 dollars a share.

Point here is that writing a business plan is very important to your success it’s important that you embrace it and understand the important pieces of it.   Trust me you will get better if you keep on trying.

Business plans are really an assumption that you’re going to make or sell something or provide a service and people are going to buy it.  You forecast your sales.  That’s the hard part.

So many new adventurers into business have some idea but never considered how they could sell that idea.   They think their idea is so good people are just going to want to buy it because it’s their idea.  Nothing could be further from the truth.   It’s the sales forecast part of the business plan that changes.  You fix your marketing and selling part of it or you will fail.

2.) The marketing and advertising part is the most important part

The marketing, selling and advertising portion of your business plan is the most important part.  If you don’t know how to do the marketing, advertising, and selling part of the business plan, chances are your business plan will fail.

It does not matter how good your think your idea is.   If you cannot sell it, you will fail.

Another very important reason why the marketing and selling part is very important, is because it adds the most value to your company.  An idea is worth about 10% of a company, the financing is worth about 40% of a company, and the marketing and selling is worth about 50% of the company.

Understanding this is key to your success, especially if you are looking for an investor.  An investor might like your idea, but if they think you have no idea on how to sell it, they will want to take control of your company day one because investors know that the marketing is the most important part.

The single biggest reason why the Vermont Teddy Bear Company was such a successful IPO (initial public offering) was that the sales and marketing was a proven formula.  The more I spent on advertising the more sales I got.  My cost for the advertising and marketing was 25% of my gross sales.  This means, for every 25 dollars I spent, I got back $100. This number was verified in audited financials for over 4 years.

3.) Cash flow will tell you all the answers for your business plan

A cash flow is the most important part of a business plan period.  It tells you how much money you start with and how much money you want to spend.   A cash flow done right lets you know how much money you are going to need to raise or borrow.

Two parts to a cash flow:  how much money you’re taking in (sales) and how much you are planning on spending, like wages, rent, legal, phone, marketing, equipment etc.

A cash flow projection does many things:

  • It lets you know how much money you need to raise or borrow
  • It shows you the months you will be cash poor and the months you will be cash rich
  • It sets your sales goals – VERY IMPORTANT
  • If done properly, it shows you how much money you pay yourself
  • It helps investors, bankers, partners, see how you plan on spending your money
  • It can tell you that you are in the wrong business.
  • It is a path or road to making your dream company come true.

A cash flow can be done in many ways.  It is really a good guess on your part of what you think you can bring in and what you think your costs will be.   I recommend that you spend very little time on your costs and more time on your income part.

Let someone knowledgeable, (Business plan pathways!) look at your cash flow and ask questions about it and make suggestions.

I have seen too many cash flows from members that I work with that shows how much they think their new company needs to spend on equipment or products, when they have no sales or sales plan in place.  Big mistake!  That is a sure sign of failure.

A friend of mine, who blacktops driveways, was telling me he wishes he could have his own business of blacktopping.  He said it would take about $300,000 in equipment to get started.  I said to him, you can rent the equipment right, by day or week or month.  He said yes, and then I said why would you buy equipment for $300,000 when you don’t even have one customer?   For him to get started in business it would take very little money (maybe business cards and advertising) but it would take time and sales skills to get customers.  Once he gets a customer, rent the equipment.  Once he gets a lot of customers, then and only then think about buying equipment.

I have seen too many plans that shows too little money being budgeted for sales and marketing.

I did a cash flow every year when I was the CEO of Vermont Teddy Bear.  I did a projected amount of how much I was to spend a month and how much I thought I would have in sales that same month.  If my sales projections were off, I would then adjust my cash flow spending.  If I knew that my cash was going to be a little short, for example, in January when we were getting ready for Valentine day.  I put every effort into not running out of money.

For your business to be successful, you need to embrace cash flow statements.

4.) Do not spend your time on your mission statement trying to save the world

The mission statement shouldn’t be saving the world or creating jobs or even how you will be giving money away from all that money your new business is going to make.  I firmly believe that new entrepreneurs think they have to do good to justify why they want to own their own business…not true.

These kinds of mission statements have nothing to do with your business plan.  Of course you might want to do good with your business, so those kinds of ‘do good mission statements’ should only be for you to keep in the back of your mind.  Your focus needs to be on creating a company that is successful.

Partners, Investors, bankers or even your spouse doesn’t care about those kind of ‘do good mission statements.’

A mission statement should be saying something about how you are going to build your company.   The Teddy Bear Company had a mission statement that said we’re going to be the world’s best teddy bear makers, making bears in Vermont.  We did become the best teddy markets.  It didn’t say anything about giving away profits.  Of course, we did give to nonprofits when we had profits to give but giving away money was not our core mission.  Our core mission was to become a profitable company and to go public so our investors could recoup their money back 3 to 10 times what they put into the company.

The employees in the company cared about making money too, and if we gave away company profit to other causes instead of increasing their wages, I am sure they too would not be happy.  Instead of taking care of the world I focused on taking care of my workers, partners, banker’s, customers, reputation and family.

5.) There are three kinds of business plans

Three types of business plans:

1.) A business plan you write for yourself.

2.) A business plan you write for banks.

3.) A business plan you write for potential partners or investor.

It is very important that the business plan you write for potential investors, shows:

-how big the market is that you are going after and how much you’re asking them to invest.

-how much equity they will get from the investment

-how much they will make back in 2 to 5 years

From this information an investor will be able to determine whether your deal is a good deal.

I have read a lot of business plans designed to raise money from investors, who thinks that investors are interested in making 10% or 15% back.  This is wrong.

The business plan you write for a bank is different because the bank is interested in how you are going to pay back the loan.  They are looking at your cash flow and looking to see where you’re going to make money, secondly how you going to pay that loan and most importantly how they will secure that loan with solid assets, like a house or equipment.

The third the business plan, you write for yourself.  This business plan that you do for yourself has many options and many variables in it.  This business plan you keep to yourself.  If the bank doesn’t loan you money, then what?  If an investor does not invest then what?  If you don’t meet your sales goals, then what?

6.) A successful business plan will make your business great

A successful business plan is one that has all the correct pieces in it.  it is a plan that shows market and that market size, need for that market and a solution for that market.  It will have a good management team, a good board of directors, a good offering document, and a solid cash flow statement.

7.) you can raise money with a good business plan

A well written business plan can raise you the money you think you need to make your company successful.  It has been said many times to new entrepreneurs, “there is money out there, you just need to figure out how to get it.”    The best way to figure that out is with a great business plan.  A great business plan has a good value for an investor, a way for him or her to make money, a lot of money, on your business.  they want to make 2 to 5 to 7 times their money back in 3 years.  You need to build a plan that shows how you are going to do that.

I did that in my business plan for the Vermont Teddy bear company by showing that I could increase the value of the stock they were buying by increasing my income, profit and with a proven marketing and sales method.  The stock they bought for they bought for under one dollar was worth over 20 when we went public.  Going public was the exit strategy for my investors.

8.) Before you finalize your product or service (your idea to make money) understand markets and need

By the time all of us reach 50 years old, 50% of us will either have started a business or will have wanted to start a business. Of that 50%, over 90% will fail. The single biggest reason they will fail is because they do not understand this simple business concept of Market and Need.

If you want to open a pizza business in a town where they are way too many pizza places already, you will fail. The market for pizza eaters is oversaturated. So find a town where the market needs another pizza business and you will have a much better chance of succeeding.

The Vermont Teddy Bear Company was failing in its first year because I thought the city of Burlington Vermont, would buy my American made teddy bears from an outdoor peddlers cart. The market for teddy bears was too small, Burlington only has about 40,000 residents and most did not care at all about teddy bears. When I changed my market to men who needed to buy a gift for Valentine ’s Day, my business soared. The men purchasing something for their loved ones on Valentine’s Day is a huge market and at the time my only competition was flowers, jewelry and candy.

If you think you want to start your own business, don’t think of an idea first. Think of markets first. Then think of your idea by supplying the market you choose with a need for that market.

9.) A good business plan will make your company more money

A good business plan will make your company more money. If you understand financials, like profit and loss statements and balance statements, then you understand that the balance sheet is really the most important. It has ratios in it that investors, bankers, and even suppliers will want to look at. Assets ratio to debt ratio is one of the most important numbers.

If you write a business plan that has debt on it, and little or no assets, that is a losing business. It gets a little more complicated than that, but it is important that your build a solid plan that gives you’re the best chance at making more and more money.

If your asset to debt ratio is a good one, say more than 2 to 1, you have a good chance of borrowing more money when for example a big order comes in. A good ratio makes it much easier to run your business so you can make the right decisions on making more money.
Also, a good balance sheet is what investors look at when considering an investment. Even though your balance sheet is a “pro forma” balance sheet (projected), it is good to make it look good for investors.

10.) Share your business plan with an experienced business person to make the plan even better

When Steve Jobs was asked what was his best skill, he answered, “I am a good recruiter.” What Steve was saying is that he needed others to help him succeed.

That’s his or her baby, people often say about an entrepreneur business. It becomes your baby. You are the person most responsible. And one thing you should admit from this day forward is that you don’t know everything. Admitting that, makes you even more powerful and improves your chance of success.

Writing a business plan, a good business plan, is hard. Especially for a person who has never been in business before. I just met with a new member, who I advised him on thinking of his business as an asset. I said to him… “you are going to put a lot of your time and energy into this business idea, it is going to be your baby, and if you do it right, your baby is going to be worth a lot of money someday. Your job is to increase the value of each share of stock, from once cent (most corporations start with stock worth one penny) to 10 dollars. That is how entrepreneurs make money.” He had not thought of his business that way before.

The Vermont Teddy Bear Company started with 200 shares, value of one cent each. When I went public, I had increased the number of stocks from 200 to 6,000,000. On the day I worked out my deal with the Investment Banking Company who took us public, I had raised the value of that one cent stock to over 20 dollars and increased the number of shares I had greatly. I did not do this alone; it took an advisor or two, plus good recruiting to help me get there.

I started Business Plan Pathways to help entrepreneurs succeed. To help others for a very low cost. I want to be your bench coach to help you see things and not waste money or time. I want to be like your pediatrician of your baby, your business, because I am a very good business doctor, with lots of experience.

If you don’t select to work with Business Plan Pathways, you still should seek someone with knowledge and experience who will give you’re their time and learn your business to help you succeed.

Check in daily!  Like us on Facebook! 

Cash Flow Statements

Learning how to write a cash flow statement is key to any successful business plan. Once you get the hang of it, they are actually fun to do.  This is where business goals should be set and you know get an approximation of what it how much it will cost to run your business and what sort of up-front costs one might need.  Take a look at this basic cash flow sample.  Practice writing your own cash flow statement.  If you get stuck or have any questions, shoot us an email and we will be happy to help!


sample cash flow
 

 

 

 

Implantation plan for your business idea

  • Ideas require action

Lots of brilliant ideas never see the light of day.  Those ideas are worthless until they become real at the point of action.  Focus your ideas into a reality as quickly as you can while you are still enthusiastic about them?

  • Look at trends

We all know that we need traffic in order to produce sales.  But don’t forget to look at trends also; is your website growing or slowing down?  How fast?

  • A network of sites

When you’re launching a new website, why not think about launching some satellite websites at the same time?  If you link them as a network, the main product may have a bigger impact

  • Check your enthusiasm

It’s a strange thing, but you don’t like an idea but think it will make you a lot money, often it won’t work.  Your enthusiasm is the fuel that keeps the project going long-term.

  • Measurements

Don’t leave results to your imagination.  Measure your impact with all the metrics available to you.  You should be aware of whats happening with you money, trends, and any other factors involved in your business.  The sooner you know about problems, the faster you can resolve them or cut your losses.

  • Closing projects

Not all your project will work.  That’s true for everyone.  The sooner you close a project that’s not working, the faster you can use those resources for something else.

  • Stay curious

Curiosity is one of the greatest tools.  Asking questions about why things are the way they are and how they can be change can be the start of innovations and improvements

  • Learn from your projects

We all learn my trial and error.  Something the best way, sometimes the only way to learn is through your own mistakes.  If you wait until you find the perfect formulas, you will never take action.  Instead, take action, learn from it, and more on the next thing.

  • Make a plan

Make the most detailed plans possible.  Write down your goals and predict any possible dangers.  The more thought you put into your plan, the greater the likelihood that you will foresee problems or discover efficiencies that you can use.

  • Discipline

There is no success without discipline.  Discipline gives you the ability to be on top of things quickly.  When problems occur, you’ll be able to deal with them more easily since you’re already aware of what’s going on in your business.

Need, Solution, Market, and Competition: The Template to a Successful Business Plan

If you are planning on starting a business at any point in your life, writing a good business plan is absolutely crucial.  You should be able to write a 5 page summary of your business and plan using this business plan template: Need, Solution, Market, Competition.

The following needs to be crystal clear when writing your business plan: Continue reading “Need, Solution, Market, and Competition: The Template to a Successful Business Plan”