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Expert Answers to Biz Questions

Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.

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The Biz Question

What exactly is a business plan?

I hear the term "business plan" brought up a lot, but I get "dazed and confused" about what it really means. Can you break it down in simple terms for a beginner like me? -- Erin

Answer from our Guest Expert Kent Capener of Capener Consulting

Dear Erin:

Don't feel alone! Business plans are not simple things, but I'll try and answer your question. Basically, there are two types of business plans. One is used to provide money to the business either through borrowing or through investors. The second is a plan of operating the business.

As the term implies, a plan is just that: a plan. Incorporating the philosophy of the business (you) into a cohesive document, that when read by a disinterested party, will have the same, or as close to the same, understanding of your business as you do. (The trick is if they actually read it and paid attention).

Over time, there have been formats tried, tested, rejected and accepted. Generally, though, for a business plan to obtain funding, it must contain, at a minimum, sections that explain in detail what you're going to do regarding the applicable elements of your business. Those sections are:

Executive Summary -- A succinct summarization of your business, strategies and goals.

Proposed Transaction -- If equity, how much and for what purpose.

Introduction -- You introduce your concept of the business and why it's feasible.

Summary Financial Information -- One or two page summarization of the five-year income statement in the projections.

Key Investment Considerations -- These are the key points that make your business worth investing in.

Marketing -- Stating your strategies, tactics and budgets.

Operations -- Who does what, when, how, and how much do they get?

Finance -- A key management element.

Risks -- Be real. What could happen and how will you manage it.

Management & Organization -- Self-explanatory, but very important. Often, investors base their decisions on the management aspect alone.

Appendix -- Contain exhibits, which are supporting documents that support or confirm your conclusions in the plan.

Projections -- These must cover a variety of time-periods, such as five-year, monthly, years one and two, quarterly, year three, and annually years four and five. The projections should contain the following:

  • Income Statement Income Statement Analysis
  • Balance Sheet
  • Working Capital
  • Cash Flow
  • Revenue
  • Cost of Sales
  • Volume
  • Personnel Costs/Stock Plan
  • Summary Financials
  • Marketing/Advertising Budget
  • Equity Analysis
  • General & Administrative Expense

So, Erin, that's a lot, I know. This is just a basic outline of a business plan and what it does. For more details, I encourage you to check out my book, How To Write Your Own Professional Business Plan. It's an all-encompassing "how-to" including eighty pages of answers from projections dilemmas, to what to include, what to think about when you are writing and hundreds of other questions. I wrote it to help people be able to write a professional business plan themselves. Here's more info...

Hope this helps!

Kent Capener of Capener Consulting

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