Business Plan FAQ
Q: Why do I need a business plan?
A: You may not. If you're running a kitchen-table business with no rent, employees or inventory, then you probably don't need to predict how much revenue your business is going to generate next year or how much it's going to cost you to make those sales. If, on the other hand, you have something more ambitious in mind - opening a restaurant, launching a fashion line, starting an Internet company or expanding your current operations, then you're going to have to put some serious money behind that idea - and, whether that capital is coming from you, your family or an investor, you're going to need a roadmap to show you how you're going to get to your destination and how much time and money it's going to take to get there. That roadmap is your business plan.
Q: What if I already have a business plan?
A: Many clients come to us with a written summary of the idea that they wish to pursue, the product or service they want to produce and the market they intend to target. Some clients have even taken a stab at forecasting how much revenue and profit they hope to make over the next several years. And that's a great start - but it's generally not what we'd consider to be a business plan. We create our business plans using a technique called "bottom-up forecasting." First, we zero in on the key metrics that make your business tick, then we build a financial model showing how these moving parts fit together and, finally, we spin out three years of quarterly sales, profit and cash flow projections. And that's before we even sit down and start writing the executive summary, market analysis, competitive analysis or product description.
Q: What's so great about "bottom-up forecasting"?
A: Think of it this way. Let's say you're planning to create an upscale fashion line for women. One way to try to forecast your company's sales is to find out how many high-end dresses were sold in your local market last year and assume that, once you launch your line, you can expect to get at least 1% of the market simply by showing up. (Sound silly? Plenty of dot com companies raised millions of dollars this way in the late 1990s. Unfortunately, investors have pretty long memories.) With "bottom-up forecasting," we work with you to research the key market metrics - in this case, the average wholesale price of the dresses that you plan to sell, the number of department stores and chains in your local market that are likely to carry them, the number of dresses each store is likely to buy from you each season and other factors - to calculate what your sales are likely to be. We use the same technique to calculate your cost of goods (the cost of producing each unit of product or service you sell) and your quarterly operating expenses. And, because we plug these numbers into an Excel spreadsheet, you can instantly see how changing your prices, product or marketing strategy will affect your top and bottom lines.
Q: What if I don't know Excel?
A: Don't sweat it! We'll create all the spreadsheets necessary to build the financial model and projections that potential investors want to see. Throughout the process of developing your plan, our patient and professional business plan writers will take you by the hand and walk you step by step through the forecasting process to teach you how to use our spreadsheets to craft the most successful strategy for your business. By the time the business plan is done, you'll be ready to defend every number in every cell of those spreadsheets to even the most hardened and skeptical investor.
Q: When can I get an executive summary to show to potential investors?
A: We start with the numbers and don't start writing the narrative portion of the plan until the financial forecast is done. Assuming that your industry's metrics are readily available and that we get your full and prompt cooperation in reviewing the spreadsheets that we send you, we can generally complete the model in about four weeks. After that, we'll write the explanatory text that explains each assumption that went into the forecast, then draft the sections of the plan that describe the product, the market, the competitive landscape and the management team. The executive summary comes last. And, when you think about it, that makes sense. How can you write the headline before you know the story?
Q: How soon will my plan be done?
A: Again, assuming that we get your full and prompt cooperation in reviewing the work in progress (which, we understand, is not always possible for startup entrepreneurs with day jobs or early-stage CEOs busy building their businesses), we can generally complete your business plan in about six weeks. This typically comes out to 50 hours of our consulting time.
Q: How do I know that my plan will get funded?
A: You don't. Seed capital is the toughest kind of money to raise, and that's why most of it ends up coming from friends, family and the entrepreneur himself. So, if you're a startup with no customers or cash flow, don't expect to get a loan from a bank or $1 million from a venture capital firm. Pray for an "angel" to take a shine to you and your idea, then send him your business plan to prove that the numbers add up. Many of our clients have been successful in using our plans to raise capital, but there are no guarantees.
Q: Can you help me find investors?
A: Because we are management consultants and not investment bankers, we are not licensed by the Securities and Exchange Commission to help you raise capital from investors. That said, all of our consultants are experienced entrepreneurs who can coach you on fundraising strategies and help point you in the right direction. Remember: Even if you've never raised money before, the best pitchman for your company is you.