The do's & don't's of writing a winning business plan

Black Enterprise, April, 1996 by Carolyn N. Brown

IT IS RARE FOR BUSINESS OWNERS TO SECURE A BANK loan for seed money. But's that's exactly what Gilda and Amir Salmon did. They snagged a $30,000 small business loan from Bergen Commercial Bank in Paramus, N.J., and the Paterson Economic Development Corp. in Paterson, N.J., to help finance their namesake salon two years ago. A solid business plan helped seal the deal.

Through their well-honed plan, the couple showed financiers that their small coiffing operation could compete in the commercial downtown sector of Paterson, N.J., where mom-and-pop shops were increasingly being overshadowed by mini-malls.

"The business plan is the first thing bankers ask to see," says Amir, president of Gilda & Amir's Salon Inc. "They want to know how much of your own money is invested in the business and what you have to offer as collateral. For us, it was $5,000 in savings and our house."

The bank also scrutinized the management section of the company's plan as well as its financial projections. "We outlined our combined 15-year experience in the hair care field. We also showed that we had an established following, with an average clientele averaging about 200 customers per month," Amir adds.

Because he provided extended financial estimates, Salmon says the bank gave him an additional $5,000 (the maximum amount available through the Development Corp. was $25,000). He notes that the one-to-three-year projections were conservative, with estimated earnings of $100,000. In fact, the business has exceeded those expectations; Amir predicts that profits will double this year.

While enthusiasm alone may convince your friends and family members that your business is destined for greatness, investors and bankers want the facts. They want an objective, in-depth analysis of the business opportunity with all the attendant risks and obstacles laid out in your business plan.

Whether intended to attract a prospective financier or define a structure for management, your business plan is a blueprint for operating your business. Most entrepreneurs make the mistake of seeing a business plan as a start-up tool alone. In fact, it should be viewed as a living document that is referred to and revised throughout the life of your business.

"A business plan is a road map that gives a business direction," says Joseph Mancuso, founder of the Center For Entrepreneurial Management Inc. and author of How To Write A Winning Business Plan (Simon & Schuster). "It gives you your destination, and that's tremendously important, not so much for you, but for everyone involved, from employees to investors," he explains. "They don't want to just blindly follow your short-term directions; they want to know where the company is headed."

Like many fledgling business owners, the Salmons now realize that a business plan is a work in progress. They're in the process of rewriting the plan for their seven-employee concern.

"We outgrew our plan in the first year of operation," explains Amir, 31. "We need to more clearly spell out the duties of our board of directors. We also failed to give our employees any real direction about the business and knowledge about our products."

The Salmons, who also serve as platform artists for Joico International, a worldwide hair care products manufacturer, will include in their revised plan how that relationship with Joico will impact their revenues and market presence.

Some business owners write several different versions of a plan, tailoring them to specific players, (i.e., bankers, investors, distributors, suppliers and customers). Whatever its goal, the basic format of a business plan is essentially the same.

WRITING A WINNING BUSINESS PLAN

Experts agree that there is just no substitute for thinking your business through and taking the time to put it down on paper. Mancuso explains that doing so will expose the bugs of your business, adding, "If you can work them out on paper, you will save yourself some serious time and money."

If you're writing just one to start, it should serve several purposes: It should be a development tool for the company's founders; a planning and evaluation tool for managers and other key people; a mission statement for customers; and a sales document for raising capital.

It should be as long as is needed to tell your company's story. Most experts agree that 25 pages is an ideal length, and that a start-up plan shouldn't exceed 50 pages. A good one, they say, will take at least six months to write. And remember to adhere to a basic format.

The Executive Summary. Just as the term implies, you should summarize the company's objectives, history, management and financials in this opening section. Discuss the nature of the business, location and state of operation. Provide clear descriptions of your product, customers, suppliers and address obvious concerns. You need to identify your niche and state any specific advantages you hold over your competition.

Lay out your primary goals and achievements. If you envision turning a profit in three years, say so, and refer to financial projections to back it up. Also, describe current milestones reached and their results. The summary should give the feeling that your venture can be profitable.