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Martin Belyaev
Martin Belyaev

How To Write A Business Plan


A comprehensive, carefully thought-out business plan is essential to the success of entrepreneurs and corporate managers. Whether you are starting up a new business, seeking additional capital for existing product lines, or proposing a new activity in a corporate division, you will never face a more challenging writing assignment than the preparation of a business plan.




How to Write a Business Plan


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Take the case of five executives seeking financing to establish their own engineering consulting firm. In their business plan, they listed a dozen types of specialized engineering services and estimated their annual sales and profit growth at 20%. But the executives did not determine which of the proposed dozen services their potential clients really needed and which would be most profitable. By neglecting to examine these issues closely, they ignored the possibility that the marketplace might want some services not among the dozen listed.


We have had experience in both evaluating business plans and organizing and observing presentations and investor responses at sessions of the MIT Enterprise Forum. We believe that business plans must deal convincingly with marketing and investor considerations. This reading identifies and evaluates those considerations and explains how business plans can be written to satisfy them.


Organized under the auspices of the Massachusetts Institute of Technology Alumni Association in 1978, the MIT Enterprise Forum offers businesses at a critical stage of development an opportunity to obtain counsel from a panel of experts on steps to take to achieve their goals.


The MIT panel advised the entrepreneur to recast his business plan so that it emphasized the short payback period and played down the self-serving discussion about product innovation. The executive took the advice and rewrote the plan in easily understandable terms. His company is doing very well and has made the transition from a technology-driven to a market-driven company.


You can obtain letters from users even if the product is only in prototype form. You can install it experimentally with a potential user to whom you will sell it at or below cost in return for information on its benefits and an agreement to talk to sales prospects or investors. In an appendix to the business plan or in a separate volume, you can include letters attesting to the value of the product from experimental customers.


Similarly, in a business plan relating to the sale of certain equipment to apple growers, you must have U.S. Department of Agriculture statistics to discover the number of growers who could use the equipment. If your equipment is useful only to growers with 50 acres or more, then you need to determine how many growers have farms of that size, that is, how many are minor producers with only an acre or two of apple trees.


A realistic business plan needs to specify the number of potential customers, the size of their businesses, and which size is most appropriate to the offered products or services. Sometimes bigger is not better. For example, a saving of $10,000 per year in chemical use may be significant to a modest company but unimportant to a Du Pont or a Monsanto.


Entrepreneurs frequently do not understand why investors have a short attention span. Many who see their ventures in terms of a lifetime commitment expect that anyone else who gets involved will feel the same. When investors evaluate a business plan, they consider not only whether to get in but also how and when to get out.


In one MIT Enterprise Forum presentation, a management team proposing to manufacture and market scientific instruments forecast a net income after taxes of 25% of sales during the fourth and fifth years following investment. While a few industries such as computer software average such high profits, the scientific instruments business is so competitive, panelists noted, that expecting such margins is unrealistic.


At the more desirable extreme is a venture that has an accepted product in a proven market and a competent and fully staffed management team. This business is most likely to win investment funds at the lowest costs.


The cover should bear the name of the company, its address and phone number, and the month and year in which the plan is issued. Surprisingly, a large number of business plans are submitted to potential investors without return addresses or phone numbers. An interested investor wants to be able to contact a company easily and to request further information or express an interest, either in the company or in some aspect of the plan.


Businesses differ in key marketing, production, and financial issues. Their plans must reflect such differences and must emphasize appropriate areas and deemphasize minor issues. Remember that investors view a plan as a distillation of the objectives and character of the business and its executives. A cookie-cutter, fill-in-the-blanks plan or, worse yet, a computer-generated package, will turn them off.


Write your business plans by looking outward to your key constituencies rather than by looking inward at what suits you best. You will save valuable time and energy this way and improve your chances of winning investors and customers.


The business plan is the blueprint for your business, the who, what, where, when, how, and why. It provides a single place to keep all your ideas, the roadmap that will help you pursue these ideas, and the overview so that you can share your vision with others. In this session you learn about business plans, including the key elements of a business plan, ways you can use your business plan, and best practices to write your business plan.


Your business plan is your blueprint for starting your business, your script to tell the story of your business to others, and your comprehensive analysis of the opportunity for your business. Business plans motivate you to state your goals, analyze your strategy, implement your strategy, and share your vision. Business plans are valuable for new as well as existing businesses.


Could you start a business without writing a business plan? Yes. Is it recommended? No. The process of writing a business plan will force you to think carefully about your ideas and plans and will help you evaluate whether it makes financial and practical sense.


For example, you might think you can earn a profit with your product, but when you examine all the parts in your business plan, you may realize that the packaging and marketing you plan to do for your product cost more than the selling price, when you include all your business costs as well. This may help you decide to wait on your marketing plans until you have more sales, or perhaps investigate less expensive packaging options.


Writing a business plan allows you to combine all the aspects of your business in one place so you can evaluate the pros and cons together, as well as calculating whether a profit is actually possible given the plans you have in mind.


As part of an academic program: You may be taking this MOBI course as part of an educational program or entrepreneurship training, in which you are creating a fictitious business. As part of this program, you may be required to prepare a business plan for this fictitious business in order to learn about and analyze each aspect of starting a business. In this case, your business plan is an academic exercise to improve your entrepreneurship skills, and it is largely for your own personal use, or perhaps that of your teacher or course moderator as well.


To apply for financing: In this scenario, you are creating your business plan to share with a financial lender in order to apply for or request funding for your business. In this case you are preparing a business plan for external audiences (the lender), and the financial assumptions, projections, and analysis are going to be most important.


To record your business ideas: If you have a business idea that you are thinking of pursuing, creating a complete business plan for your idea is an excellent planning tool. It gives you one place to put all your ideas and to examine all the different information needed to move forward. You may or may not choose to share your business plan with others, at least initially, but it is your roadmap that you update as you learn more about your intended business and the market. As you continue on your entrepreneurial journey, you may decide to share your business plan with others, including potential partners, customers, employees, or investors. Keeping your business plan up to date will ensure you are ready in the event you have an opportunity to share your idea.


To launch your new business: Since your business plan is your roadmap, it can be used to execute on your business idea to start your business. In this scenario, you might want to include a greater amount of detail for every aspect of starting your business and update more frequently as you go. For example, include addendums for marketing plans and calendars, sales activities, supplier contracts, financial statements, and more.


To establish a freelance or independent business: In between Personal Use and Starting a Business might fall Independent Contractor, Home-Based or Freelance Business uses of a business plan. Sometimes aspiring entrepreneurs pursue a business idea on the side. These types of businesses allow a person to start small and grow, maybe beginning with just one client. The gradual start of this type of business may not require all aspects of business analysis and planning required by other businesses. At the same time, it is important to learn what is required to operate an independent contractor, home-based, or freelance business, so these minimum requirements would be the most immediate focus of the business plan for this use.


To acquire an existing business or franchise: Business plans can be used to evaluate existing businesses to get a sense for the health of the business and areas that are doing well or need attention. This can be important whether you are taking over a family business (family succession) or buying a business or franchise. There may be different considerations when creating a business plan for an existing business, but it is equally important to gather the facts and details yourself to do an accurate analysis. 041b061a72


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