a business plan is the intersection of everything inside the business (costs, products, services, personnel, etc.) and everything outside the business (competition, market trends, political forces, etc). Forces inside the company meet those outside the company and a business plan is born.
Many entrepreneurs put too much emphasis on the inside forces and ignore the outside. No business is an island; no company operates in a vacuum. Even as you are tackling all the tiny details that need to be included in your plan, be sure to keep a grip on the big picture.
A winning business plan outlines goals, clearly communicates strategies and establishes plans for both the best and worst case scenarios (as well as any and all scenarios in between) that might befall your company. Seasoned entrepreneurs and investors know to expect the unexpected and at the same time anticipate the challenges inherent in each particular business.
In great business plans, you not only sell your business concept, you sell yourself. Your entrepreneurial spirit and passion are critical factors to a potential investor. Communicating your team’s experience, abilities and track record will take you even farther. The key is showing how your experience and abilities will support your business and help it to excel.
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Rich Dad Tips
• Seasoned investors aren’t fooled by “hyped” words hastily written to compensate for a lack of experience or education. If you are starting out and don’t have relevant experience, it’s best to show that you are surrounding yourself with an experienced team of advisors and employees. Business is a team sport.
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A good business plan can help you determine what you need to make your business a success – from personnel to financing, location to advertising. But to truly make your company succeed, you must pay attention to what you find during plan preparation. Be thoughtful. Don’t do the plan, figure out you need $300,000 and then try to wing it on $150,000. Be realistic in your planning, then be just as realistic in following the plan.
The hardest part of crafting a good business plan (or even a bad one, for that matter) is overcoming inertia. Most people have a great idea and fail to take action because of a fear of failure. A body at rest tends to stay at rest; a body in motion tends to stay in motion. Inertia is what keeps a body at rest (along with a comfy couch, a good TV night, high-speed internet service, whatever). Kick inertia in its thermodynamic behind, get off your couch and get started. Now. Don’t wait until you finish this book. Don’t even wait until you finish this chapter. Go now and grab a pen and a notebook and start taking notes. Sometimes the simple motion of moving a pen across a page is enough to get the rest of your body in motion.
Just as you must overcome inertia to construct a business plan, you might also have to overcome fear. A business plan sounds complicated. But it shouldn’t be. A complicated business plan is often worse than no business plan at all. Your plan should be understandable in its language (overly technical terms that confuse are not welcome); it should summarize where appropriate (leave the details for appendices); and it should truly describe your business (leave the boilerplates for metal shop). It needs to be short and to the point. Keep it simple, but make it complete. Treat your plan as if it is the only information a potential investor, lender or manager will have before making a decision enabling the success of your business.
Writing a business plan is a labor of love, but also an exercise in logic and forethought. Embarking on the task of planning on paper a business that will likely consume your life should serve several critical functions:
1. A business plan helps you clarify, focus and research your business’ development and prospects. Now, keep in mind that planning does not mean predicting the future (crystal balls are not required), but rather it means being aware of a wide range of likely futures and being prepared for them as they occur. Try to imagine the questions you might have if you were a shareholder, investor or representative of a financial institution. You will need to be able to succinctly explain the purpose of your plan (let alone the business); the vision, goals and strategies you have for your business; and any achievements and/or performances you have had to date (think financial, sales and technical). You will need to describe your product(s) or services in relation to the market and industry as a whole.
2. A business plan provides the framework to create a company’s mission, goals and key strategies. In addition to explaining each of these in great detail, this book we will insert “street smart” principles from Rich Dad’s B-I Triangle into relevant sections.
The B-I Triangle’s foundation is a company’s mission, team and leadership. Its primary elements are cash flow, communications, systems, legal and product. For a complete explanation of the B-I Triangle, read Rich Dad’s Guide To Investing by Robert Kiyosaki.
3. A business plan can serve as a basis for discussion with third parties, such as shareholders, agencies, banks, investors and the like. (Mapping out the financial position and projections for your business can be used to get funds, whether your company is established or just in the startup phase.) Most banks and lenders will need to have at least the basics of your business on paper in order to discuss the merits of your business or idea. Most must report to others (such as a loan committee) and won’t want to take you along to talk over their shoulders. In order to develop a good, useable business plan, you must understand your business finances. Funding requirements, possible sources, likely terms and projected return on investments are all real concerns to investors and lenders, as they should be for you as well. So be sure to be realistic. The temptation to exaggerate can be great, but resist. Back up your numbers with more numbers, with reasoning and with research. Though using a business plan as part of a request for funds is a legitimate use of a business plan, watch out for making this the only function. Your business plan is your road map to the future.
4. A business plan is a benchmark against which actual performance can be measured and reviewed. It allows you to quantitatively measure reality against goals. A business plan is an organic document, a perpetual work-in-progress. Comparing projections to actual numbers will help you measure performance and thereby give you what you need to keep your plan useful. Just as you don’t want to fly blindly into a business, nor do you want to implement changes on a whim. A business plan will help you get started on the right foot and then keep you moving in the right direction.
There are as many outlines for business plans as there are business plans, with each of them being minor derivatives of each other. They are all basically the same and tend to be comprised of four standard segments:
1. The Business. Also called Business Strategy or Business Description, this section might include such subsections as Business Opportunity, Organization and Operations, Legal Structure, Business Model, Operating Procedures, Operations Description, Management, Personnel, Strengths and Weaknesses, Core Competencies and Challenges, Business Accomplishments, Location, Product Offering, Product or Service, Records and Insurance. By the time a reader completes this section, he or she should have a thorough and concrete understanding of your business. This section discusses all pertinent aspects of your business. It covers every aspect of production from idea to service after the sale, including the management, personnel, equipment, paperwork and property involved. For service businesses the product is the service.
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Rich Dad Tips
• In the Business section, make sure you “sell” the one reason your business will be able to generate excessive cash flow. Remember that you are selling by communicating your experience and education, not by promoting your company with empty words and promises.
