How to write a strong business plan

Folio: The Magazine for Magazine Management, March 1, 1993 by Joseph E. Daniel

I looked at a lot of business plans before writing the one we use at Buzzworm. Since our goal at the time was to raise capital (and it's nearly impossible to raise money without a business plan), we put into it many of the elements of a private-offering memorandum. I recommend that you follow a similar format, as most investors prefer a single document that contains all the pertinent information.

Keep it brief and to the point, and as accurate as you can make it. However, don't be afraid to put a little sizzle on the steak when describing future potential. Investors want to know what is real, but they also want to know the upside--which is, after all, why they are investors. Work with a competent securities lawyer when drafting the legal sections.

There are some elements all business plans have in common. These include a cover page (drafted by your attorney) containing basic information about your private stock offering; a one-page table of contents; the principal risk factors (a legally required section that also must be drafted by your attorney); and legal and accounting information, which is simply the names and addresses of lawyers or outside accountants involved in the plan's preparation. The final section should be media clips. Right from the beginning, you should be after any press you can get, even if it's just the hometown paper. When outsiders report on your magazine, it goes a long way to validate the project for investors.

But the sections that will make or break your plan--and where you should put your best effort--are the following:

Executive summary: This is probably the most important page of your entire plan. Here, you summarize in a few short paragraphs the information that will compel the potential investor to read further. Serious investors receive dozens of business plans every week, so if you write an executive summary that "hooks" the investor, your job is already half finished.

The company: At first all that will appear here is a brief description of the company's purpose (e.g., to publish a magazine about ...) and a legal description (written by your attorney) of the securities being sold and how they will be used. Once you're established, you should update this section to include money raised, who owns stock and in what amounts.

The magazine: Here, you describe in detail the concept of your magazine, outline its editorial mission and describe your design and production procedures. As you evolve, you should add editorial successes, such as awards won.

Marketing: Here, you attempt to "prove" your concept. Include in-depth documentation of your market and competition, and detailed plans on your newsstand strategy, subscription sales and ad sales (including revenue and number projections in all three areas). The more specific you are on distribution avenues, direct-mail plans and advertising targets, the more credible you are. Once you've been publishing for a while, this section should also include a detailed performance history. We do ours in both prose and bar graphs. I also include a discussion of other marketing activities, such as trade shows, controlled circulation and syndication of editorial material.

Projections and valuations: Most investors would like Profit & Loss and Cashflow projections summarized for five years, with detailed information on the first two years. Since magazine accounting can be quite complex, a good computer model makes this job easier.

This is one area where it pays to call in a good consultant--particularly if this is your first magazine. It can be quite sobering to discover that those great response rates you've been counting on are so far from reality as to be humorous. You should also include basic assumptions to support your projections, and a brief discussion of "best case" and "worst case" scenarios.

You should follow your projections with a short section on the valuation of your magazine. Your stock price is ultimately determined by how much money you think you'll need to turn profitable, how profitable you can become, how long will it take you, how much you could eventually sell the magazine for, and what percentage of the company you want to retain. A few guidelines: Most investors are comfortable with a five-year investment, but because of the risk involved want to see an annual compounded return of around 30 percent. Magazines commonly sell at multiples of between five and 10 times earnings or one times revenue, but you may want to seek some professional guidance in fixing value. All investors want an eventual "out," so include payoff possibilities, such as a sale to another publishing company, a buyback by employees, a public offering, etc.

Once you're underway, include past financial statements (independently audited) and budget comparisons of actual to projected numbers in order to preserve an accurate financial history.

Personnel: At first you'll have no real staff, but you should have competent people "on board" when you begin to raise money. Investors scrutinize this section because ultimately they are investing in people, not an idea. In our plan, we introduce everyone on our staff, our intern program, the consultants we work with and the members of our board. Anyone in a managerial position gets a detailed bio. As the company evolves, you will use this section to disclose management compensation and security ownership of management and principal shareholders.