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Preparing a Business Plan

July 23, 2013

I received many calls and emails after my blog, Preparing a Business Plan Only for You, and was asked to provide information on how to prepare a full business plan for an investor.  Here it is.

A business plan is essentially a selling memorandum for prospective investors.  Through it, you communicate your knowledge of what your business can accomplish to someone who might put up money.  A good business plan will clearly show investors that you are more than just a dreamer.  It will show that you’re organized, you know where you’re going and you know what you want.

Preparing the plan will give you a unique opportunity to consider every facet of your proposed business or expansion and your business strategy.  The plan can also serve as a business guide, budget and road map to future success.


Elements of a business plan:

1.  Executive summary.  This goes on the first page, and is the first thing a reader will look at… making it an important component of the business plan.  This should be a paragraph summary of the business – what the company does, why it is different from what is being done now, current status and what its future plans are.  Follow this, still on the first page, with a one-paragraph summary of what you need in the way of financing and what the funding will achieve.

The summary must grab the reader’s attention.  It must make a prospective investor want to dig deeper into the plan.  You must tell why this business is different from what’s out there and why people will buy the product, or use the service.  Why be different? Why buy?

2.  Detailed financial projections. This is showing how much money you expect to make from the business.  The figures should be projected out over five years, as the yardstick used by many investors of what the business would be worth at the end of five years.  Many times the “value” is a multiple of the fifth year earnings.

3.  Cash flow projections.  These are often overlooked in business plans.  They show how much cash you’re going to need to accomplish the projections that you’ve outlined above.  If you don’t arrange to get the necessary funding when you start a venture, you may not be likely to get it later on.  The income projections could show a very profitable company, but you must be sure you don’t run out of cash along the way to that ultimate profitability.

4.  Projected balance sheet.  A projected balance sheet shows how the company’s financial position will look at the end of each year of the projections, and in particular, at the end of the five year projection period.

5.  Detailed explanations of the assumptions. This is used as the basis for the numbers you’ve given in the projections.  Financial and cash flow projections can’t stand alone.  You must show, in great detail, what you based the projections on.  For example, monthly sales figures, types of customers, average sales per customer and per order, frequency of orders, how orders will be obtained, time table from receipt of order to shipment to customer, inventory requirements, your selling price and cost of raw materials, sales commissions, shipping costs, number of employees, salaries, the number of square feet of space you’ll need and the estimated cost per square foot.  Detail is critical here.

6.  Prior financial statements.  If you’ve been in business for a while, you must attach financial statements for at least the past three years.  If you don’t have financial statements or if the tax returns are prepared on a different accounting method than the financial statements, you must include them also.

7.  Detailed description of the product.  Include everything, good and bad, about the product.  It is important not to leave out something bad about the business or product.  If an investor, doing his own research, discovers something negative, the deal is off.  Always be up-front about the downside of your business.  Also include information about whether the product is patentable, what intangibles there are and any “secret” processes or formulas.

8.  Market research.  Include independent information about the size and health of the market,  if it is growing, how the competition is doing, what are the offshoot products, what is the potential for related, upselling and repeat sales, the sensitivity to economic conditions, availability of unskilled and skilled personnel and management, and of vendors and the importance of quality control of the product and how it is performed within the industry.  You must tell why this business is different, why it is needed, what space it will fill and why people will buy the product or use the service.  Why is it different?  Why buy?

9.  Product samples.  Don’t forget to include these, or well taken photos.

10.  Logo. Hire an artist to design a logo, even if the business is just an idea and not yet a going concern.  A professionally designed logo will add legitimacy to the project.  It may also help give the business some shape or personality.

11. Management team resumes.  Include with the resumes, a detailed description of how you and your management team are experienced in the industry and in running a business.  Describe any outsourced services you will obtain.  Mention people that are willing to serve on an advisory board or board of directors.

12. Description of the company.  Describe your future plans for the business. Where does it stand now, and why you are looking for money?  Also, tell what will happen if you don’t get the money you’re asking for.

13. Ownership structure.  Describe the current ownership structure.  Do not put in how much of the company you are willing to give up (or willing to keep).  If the investor is interested, there is plenty of time for that.  Also, if you have more than one person seriously interested, the deal will be much better for you.

14. Detailed marketing plan. Cover the industry and potential customers.  Include letters from potential customers saying they’d be interested in buying your product.  These letters show you’re alive and you have a viable product or idea.  In addition, explain where you fit in the industry. Why will you be more competitive, better, unique and why you will get business?  Describe the competitors and the area that you’re going to service.  Explain how you will make sales – will it be through the internet, or with salespeople or through a retail store.

15. Explain the production process. Include the problems you might have and what your capacity might be.  The actual production numbers should be in the financial assumptions, but this is a narrative illustration of the process.  Use flow charts if applicable.  Tell if you will employ any special technology and what access you have to it, or will have, and why.

16. Relationships. Have relationshhips that the organizers have with people related or associated with them that they will be doing business with.  There must be full disclosure or any arrangements that will be outside of the company where profits or transactions will not remain or flow through the company.


Be realistic and practical.  Do not make the business plan either too ambitious or too modest.  Do not ask for $1,000,000 if all you need is $400,000.  On the other hand, don’t ask for $400,000 if you really need $600,000.  The figures given in the plan must realistically show what you need.  Don’t forget that you’ll only have one crack at a potential investor.  You cannot tell an investor who only wants to put up $250,000 that you’ll come up with a revised business plan supporting the $250,000 figure.  The original plan must support itself.

Give the plan your best shot with your best estimates.  However, prospective investors will use it as a guide to what you plan on doing.  They also bring to the table elements you might not be aware of such as their special skills, knowledge of the industry and potential customers, and sources of supply.

 How to Get Your Business Plan Read

Active investors and venture capitalists get hundreds of business plans a month.  To get more than a glance, yours must stand out as a serious and readable document.

The one page executive summary will be your first, and perhaps, your only chance at making the reader interested in the idea, but there are some subtle things you can also do.

  1. Make sure the plan is graphically appealing, attractive and pleasing to the eye
  2. Email secure pdf copies that cannot be altered. Also, pdf copies will open up as you prepared it; a Word® file might not open easily.  Have pdf copies available even when you present a printed version and offer to email them to the investor or their advisor.
  3. If printed, use rag content paper.  It costs very little extra, but it feels luxurious, and more substantial than plain bond paper.  It impresses subconsciously.
  4. Don’t use exotic type-faces.  Use a standard font.  The pages should be easy on the eye, with print that is similar to what the reader is used to reading.  Bizarre typefaces can quickly turn off a busy financier.
  5. Use 8-1/2″ by 11″ paper.  Oversize business plans won’t be recognized for what they are.
  6. Make the right hand margins ragged.  Pages with type set “ragged right” are easier to read and more spontaneous looking, more familiar to readers, and less boring than pages that have the right-hand margins justified in a straight line.
  7. Avoid fancy bindings.  Have a commercial printer bind the plan in a conventional way.  Spiral bindings are OK, but hardcover bindings are not (although they are more impressive).  Again, you want to make sure that the plan is read.  Never use bulky three-ring loose leaf binders that likely won’t fit in the venture capitalists file cabinet.


Keep in mind that the business plan is your sales literature to prospective investors.  Also, many people, other than the person you might give it to, will also be reading it.  Some people that are part of the investor’s team are partners, lawyers, accountants, appraisers, consultants, marketing and production people.  Every one of them must have their concerns addressed in your business plan.  You won’t meet most of these “other” people, and they will not share the enthusiasm of the investor you have already met.  They will dispassionately read, review and critique your business plan.  Don’t neglect to include information they will want to know.


If you’d like more information on business advisory services, including preparing a business plan, be sure to visit WithumSmith+Brown’s Power Play Book!

2 Comments leave one →
  1. Robert Nagler permalink
    July 23, 2013 8:42 pm

    Hi ED e first item to do expense for direct and indirect expenses the prepare
    a revenue report and see what the margins are,
    i will go into more detail when I SEE YOU

  2. August 17, 2013 12:07 am

    A friend emailed to me and I am posting since it has good info.


    Regarding the logo – as you know, a skilled website designer can also provide a creative logo. And speaking of a website, there wasn’t any mention of one. I would add that if the business plan is at a stage where a logo is appropriate, it’s probably because a business name has been selected. In that case, it is important to register a website name and consider what would be included on the site.

    It also wouldn’t be too early to consider whether or not a Federal trademark application needs to be filed and/or a name registered in the state for the company or business name. If the person believes that they have an excellent name for their business or product, there could be significant disappointment to learn at the last minute that the name is not available, either on the internet or as a business name in the state or as a trademark.

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