Writing A Business Plan And Chasing Capital

Walsh Enterprises Business & Financial Advisors Huntington Beach, California USA http://www.awalsh.us walshal1@aol.com (714) 465-2749 Writing a Business Plan and Chasing Capital A Primer for Beginners Reprinted from a blog posted December 2008 at www/walshal.wordpress.com

I’ve had a large number of inquiries regarding business planning and capital-hunting for new ventures, so I’ve jotted down some thoughts from my experience as a guideline for the beginner… So, you’ve come up with a new business idea. Being a rational person, you’ve recognized that you can’t just go off half-cocked so you’ve thoroughly researched the matter and worked out what you think is a winning strategy based upon all the information that you could gather (If you haven’t, I can only suggest the old saying that “A fool and their money are soon parted”. If you want to waste some other “fool’s” money, good luck.). Now you want to commit it to paper so you can go after seed capital and have a “bible” to follow in your business startup. The business plan is partly for your benefit, and partly a marketing tool to raise money - so it needs to satisfy both criteria.

I have a standard formula that has worked well for me, as follows: • Start with a one page summary of the proposed business. • Flesh out the summary with a more detailed narrative of the business strategy, and how you intend to go about it. The length of the narrative will depend on the level of business complexity involved. In most cases, I’ve found that five to ten pages is adequate; however I’ve written narratives as long as 100 pages for complex deals. • Follow the narrative with a 3-year Financial Forecast that is primarily focused on showing how the Investor(s) will be repaid and compensated. In essence, you need to build a 3-year Balance Sheet and Income Statement based upon your best estimates of revenues, costs & capital-spending requirements. Do it in the form of monthly and annual summaries. Break down the categories of costs & revenues, and the timing of these events, to the best of your ability. Include a “pull-down” line that shows cashflow back to the investor(s). Why 3-pages? – That’s the longest period of time that most investors will expect to have their money tied up.

• Add a one-page biographical summary regarding the background & capabilities that qualify you to successfully start and operate the business. • Finally, include a one-page summary that reiterates what you want from the investor(s), when & how you want it, what you’re willing to give up in return, and how they’re going to be repaid and compensated.

Each section should logically flow from the prior sections, with appropriate cross-references as necessary. The Business Plan is strategic in nature, so you don’t need to get into every gritty detail of business operations. It should, however, address all costs and revenues to the best of your ability. It should also show that you’ve addressed all identifiable risks. Keep in mind the perspective of the investor(s) who will be reading the plan: “What do I have to put in - what do I get back out (and when) – what is the entrepreneur putting at risk themselves - has the entrepreneur addressed all the risks that they will be exposing my money to – does the plan make sense – and is the entrepreneur qualified to start and run the business?” The investor(s) is not emotionally involved in your “baby” like you are. To them, it’s just a business proposition that they will be weighing on it’s financial merits.

Stay flexible in your Business Plan, and in your thinking, about how the deal with the investor(s) will be structured. If you want their money, you will have to find a structure that they will live with. They won’t be shy about telling you their requirements. Choose your words carefully. You don’t have to use big fancy words, but use them sparingly; don’t be over-wordy and don’t repeat yourself over & over. Write the plan with an air of competent humility. You want to convey quiet competence to the investor(s), but a little humility doesn’t hurt – after all, you’re asking them to give up their hard-earned money – and they probably have more business expertise than you (that’s how they got the money to invest in the 1st place). You will have to present your plan, so write it in a style that you’re comfortable with and facilitates your oral presentation.

You don’t have to spend a lot of money on fancy glossies or a professionally prepared document. Plain computer paper will do fine. A little bit of color & graphics can help make it more interesting to read and help highlight critical points; if used sparingly. Investors will be a lot more interested in what you say, and how you present it, than in fanciness. They also know that beginning entrepreneurs don’t have money to throw around on such things. Of course, if there are pertinent photos or graphics that help make your point - by all means use them. For instance, if you’re pitching a real estate development proposal you’ll want to include photos & a description of the land, and architectural renderings of the project. The plan is your best snapshot at a point in time. Business realities will force changes; virtually from day-one. Investors know that from their own experience. Just try to be as realistic as you can.

Don’t be greedy in your expectations. If you expect an investor(s) to put up most of the money, and thus take most of the risk, they will expect to be compensated accordingly. They will also want to exert some level of control over management of the business; directly or in an advisory role. That’s not necessarily a bad thing. They very likely have more business experience and expertise than you. They also have a vested interest in your success. Very likely, they can help you succeed. Keep in mind that your Business Plan is a representation of your skills and abilities as a business person. Don’t short-change yourself. If you still think at this point that a Business Plan isn’t necessary, then there’s nothing further that I can say to help you.

At this point, some of you will be tempted to contact me and ask for introductions to investors. I’ve spent years identifying qualified investors, learning their likes & dislikes, and earning their trust. I only approach them after I’ve vetted a business proposal and carefully scrutinized the Business Plan (in most cases, preparing it). I’ve rejected far more business proposals than I’ve chosen to work on. I’m always a key player in the presentation so that I can assure it’s quality-control (I won’t get a second chance at these people if I do a shabby presentation, so I’m very picky about who I represent and I get my ducks in a row before I walk in the room). I have only done this once on a free-gratis basis, for a very good friend, and even then I only advised; she prepared her own plan and obtained her own startup financing. If done properly, Business Plans and Capital presentations are a very laborious process. Late Note: The current environment for raising venture capital is horrible. Only the best will succeed. Good Luck! Al Walsh

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Writing A Business Plan And Chasing Capital

by Alan Walsh on Jul 12, 2009

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