San Diego Business Lawyer Blog

Continued from Marketing Your Product or Service: Business Plan Part Four.

Funding: The Funding section sets forth the amount of funding necessary to start or expand your business. A strong business plan doesn’t merely ask for a fixed amount of money. It sets forth the company’s funding requirements in detail and includes different funding scenarios. It describes how the money will be spent, whether future funding will be necessary and how the current and/or expected future financial condition of the business will accommodate the debt. What does the five year horizon look like? Is the company seeking equity investment or a loan? What terms will best fit with the company’s financial strategy? The funding section should also specifically state how an injection of capital will benefit the company’s bottom line, and should delineate best and worst case scenarios. Tell the prospective investor or lender the company’s long range financial strategies, how profits will be used and what the return on investment will be. In addition, describe precisely how the funds will be used including whether some or all of the funds will be needed to pay off debt or for capital expenditures. Be sure to tie your funding needs to the company’s strategic goals. Lenders want to know that you will be able to repay your debt and investors want to know that there will be a positive return. Show them that the company has a plan to allocate resources efficiently and effectively.

Financials: The Financial section of the business plan is the dollars and cents section. It tells the reader about the company’s current financial health and its projected financial health over the next five years. This is where you crunch the numbers and it is your opportunity to show the prospective lender or investor just how sound your business plan really is. The financial data backs up the funding requests. The financial sections should include historical financial data (typically three to five years back or for as long as the company has been in business if shorter than three years). Provide the company’s accounting records including income statements, balance sheets and cash flow statements for each year, and identify any collateral. The prospective financial data should project the company’s finances for the next five years including forecasted income statements, balance sheets and cash flow statements. It is helpful to provide monthly projections especially for the first year, and quarterly projections thereafter. It’s important to discuss assumptions made to support projections. If you project increased revenue for year two based on increased advertising in the third quarter of year one, say so. Be sure your assumptions make sense and are consistent with your overall business plan. Don’t expect that the reader will make these connections for you. It’s also important that your funding requests are consistent with the financial projections. Finally, the Financial section should close with a brief analysis of the company’s financial information including an analysis of historical and prospective trends. Use of excel spreadsheets and graphs are great tools.

Appendix: The business plan should conclude with an appendix that lists all of the supporting documentation such as: resumes and letters of reference; marketing materials; supporting data for market analyses: licenses, permits, trademarks or patents; leases, contracts, and other legal documentation; corporate, partnership or LLC documentation; and list of professional advisors such as your accountant, business attorney and banker.

Continued from Describing the Company: Business Plan Part Three.

Marketing:  Once you have a complete understanding of what your target market is, it is critical to have a plan to capture a competitive share of that market.  The Marketing section of your business plan should tell the prospective investor exactly how you intend to accomplish this important goal.  Your marketing strategy should be unique, creative and effective.  It’s important to tell the reader in this section: how the company intends to penetrate existing markets; how the company intends to distribute its products; what the company’s plans for growth are; and what the company’s marketing strategy is or will be.  Explain the business’ strategies in detail.  Does it intend to expand via acquisition of other businesses or franchising?  Does it intend to expand the customer base via advertising and promotion?  How will the company use various marketing tools to grow the business?  There is no “one size fits all” marketing strategy.  However, zeroing in on these fundamental components assists in the development of a strategy that has the best chance of success.  

The Marketing sections should also set forth your sales strategy if your business relies on or will rely on a sales force.  What type of sales force will you use?  How will you recruit and train them?  Will they be independent contractors or employees?  How will they be compensated?  What type of system will you have in place to identify and prioritize customers?  Will they be contacted by phone or in person?  What is or will be the average number of calls necessary to make one sale?  Show the reader that the sales force will be productive.  

Continued from The Market Analysis: Business Plan Part Two.

Company Description:  As the title suggest, this section describes the business.  In the Company Description, the San Diego business owner summarizes the nature of the business, how the business is organized, the needs of the marketplace and the reasons why your business will succeed.  The information in the Company Description may be repetitive of other sections.  Be careful not to copy exact language from the Market Analysis or the Organization and Management sections.  Instead, use the information in these sections to help paint a broad picture of the company and how each of these factors interrelate with each other within that broad picture.
 
Organization & Management: The next section in a typical business plan is Organization & Management.  It sets forth in detail the company’s organizational structure, ownership and management structure and identifies the owners, management team and/or board of directors and their qualifications.  This section tells the reader whether the company is a California corporation, limited liability company, partnership or sole proprietorship.  It then identifies the owners, their percentage interest in the company, the role each will play in the company’s operations and describes their respective experience levels in the industry and exactly how that experience will benefit the company.  It is often helpful to provide the reader with an organizational chart that covers all aspects of the company’s operation and tells them who does what.

The Organization & Management section also describes the qualifications of key management personal and corporate officers, and the salaries and benefits offered to keep them.  It shows the reader that the company is in good hands, and intends to maintain that level of quality over time.  It’s important to set forth the details of the owners and management team’s qualifications, including their names, percentage and type of ownership (if owners), position and description of their primary job duties and responsibilities, unique experience and skills, employment history and track record with other companies and recognition in the industry.  What are their achievements?  In short, prospective investors want a resume for each person that will have influence over the success of your business.  

Continued from Writing an Effective Business Plan: Part One.

Market Analysis: A market analysis should be conducted before starting any new business venture whether or not one feels compelled to draft a business plan. Having a marketable product or service is fundamental to any San Diego business’ success, and the market analysis is probably the most important part of the business plan. A sound market analysis requires the identification of the target market, analysis of the market’s geographical and financial limitations, analysis of the barriers to entry into the market, development of plans to capture a share of the market and a competitive analysis that includes assessing the strengths and weaknesses of your business and those of your competitors. The market analysis is your opportunity to impart your knowledge of the industry to the reader. However, it shouldn’t be based on your general knowledge and anecdotal evidence alone although this can be helpful. Where possible, your market analysis should be supported by actual market research and the underlying data. This can be accomplished with the help of a marketing research company or at the public library by analyzing existing market surveys, research and data. Begin your market analysis with an overview of the market and follow with a more detailed analysis.

As you describe the target market, remember that ” target=”_ is the key. Focused business plans that describe a succinct segment of the population as a customer base are more appealing to others and more importantly have a greater chance of success. Trying to target the entire population (being everything to everyone) dilutes potential. Identify the characteristics of the targeted market. What are its demographics? What are the actual needs of the potential customers? How are those needs being currently met? Are there cyclical or seasonal variations? What is the current size of the market and what is its potential for growth? What are the market trends and is there or will there be a secondary market to exploit? What media has influence over the market? Once clear on the market definition, describe how the business will capture its share of the market either via price points, discounts, volume or other means. If market tests have been conducted, what were the results?

Writing an effective business plan requires more than just summarizing good ideas.  An effective business plan details your strategy for success.  It starts with the formation of the company and ends with an exit strategy.  A well drafted business plan prepares you for the task ahead, informs prospective investors and lenders and is probably the most important step any young San Diego entrepreneur takes on the road to success.  New business ventures are of course risky and time consuming, and there can be little doubt that planning is fundamental.  Yet, young business owners often overlook the significance of the written plan and neglect to consult with experienced professionals.  While a detailed analysis is beyond the scope of this article, an examination of key business plan elements is instructive.

Ultimately, the development of a business plan should be accomplished only after significant due diligence and where possible with the assistance of others specializing in marketing analysis.  The information in a business plan tends to interrelate requiring thoughtful attention to each section.  The goal is to highlight common themes without being repetitive.  Consider consulting with trusted advisors such as a San Diego business attorney, accountant, banker and insurance agent.  These folks will help frame some of the financial and legal boundaries important to the company.  The typical business plan includes the following sections: Executive Summary; Market Analysis; Company Description; Organization & Management; Marketing; Service or Product Line; Funding; Financials; and Appendix.
 
The Executive Summary:  The executive summary is a concise summary of your business plan’s highlights.  It typically consists of the name and location of the business, the date it was begun, the names of the founders and their respective functions, the number of employees, a description of its products or services and the company’s facilities, information regarding existing investors and lenders, a mission statement (sometimes as short as a two word slogan, but always enough to leave the reader with a clear picture of the company’s vision), a summary of company growth (for existing businesses) and a summary of the company’s future plans.  This information is set forth in more detail later in the business plan.  The executive summary should be short and concise and the information may be set out in bulleted fashion except for the mission statement which should head the section.  For new businesses, it’s a good idea to include information about the target market including identifying potential problems, and summarize how you intend to take a share of the target market.  The executive summary is the first thing the reader sees.  It is your first bite at convincing prospective investors and/or lenders of the business’ viability.  

Table of Contents:  Include a Table of Contents after the Executive Summary to allow the reader to easily locate specific sections.