Writing a winning business plan
Ask FSB's guide to putting yours together.
(FORTUNE Small Business) -- Dear FSB: How can I write a winning business plan with ever-changing financial information?
- Emmanuel, Nairobi
Dear Emmanuel: Writing a business plan can be one of the most frustrating tasks for a small business owner, but it is also one of the most important.
First off, stop worrying so much about the numbers, experts say. The most crucial aspect of a business plan is you.
"The key section [of a business plan] is 'management,' because investors are highly concerned about the relevant skills and experience of the CEO and their ability to interact effectively with the CEO and executive team as the company grows quickly or requires challenging decisions," says Fred E. Wainwright, adjunct associate professor of business administration at the Tuck School of Business at Dartmouth and the executive director of the school's Center for Private Equity and Entrepreneurship. "The relationship between an entrepreneur and investors on the board of directors of a company is in many ways like a marriage - rapport, patience, and communication skills are essential."
With that in mind, a winning business plan starts with a two-page executive summary that concisely addresses the following topics, using text, charts and graphics:
- Mission (be simple and inspiring)
The body of the business plan should contain all the sections listed with more detailed explanations and supporting data. Twenty to 30 pages is sufficient; any excess data can be placed in appendices.
"The second most important section is market size," Wainwright says. "The market needs to be large enough to justify the potential of the company and its eventual valuation if it captures significant market share. The entrepreneur's demonstrated ability to assess and size the market via surveys, focus groups, customer feedback, and industry reports will go a long way toward generating interest and confidence from potential investors."
And, saysWainwright, don't try to sell potential investors on numbers you couldn't possibly predict. Projected financials - income statement, balance sheet and cash flow statement - should be approximated to the nearest thousand.
"Nothing makes an investor's eyes glaze over like financial projections five years out that are in dollars and cents," he said.
Take your time to carefully consider the assumptions behind the projections.
"Investors like having the sense that the entrepreneur is committed to underpromising and overdelivering in financial performance rather than attempting to guess or impress with faulty estimates," Wainwright says.
Still hungry for more information? The Small Business Administration has compiled an impressive collection of business plan resources.