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BY ALAN WINK
DIRECTOR, MANAGEMENT CONSULTING; CO-DIRECTOR, TECHNOLOGY GROUP

Venture capital firms receive literally hundreds of business plans every year. How many do they really read beyond the executive summary and background on management sections? Venture capitalists will usually admit that they read fully only a small number of plans that come their way, but they will read fully a high percentage of plans delivered or recommended by an attorney, accountant or other professional they know well.

A business plan serves as a roadmap or guide for making the daily decisions that a growing business faces. Today, companies are called upon to provide written business plans to new and more diverse outside sources.

Additionally, in today’s complex business climate, even commercial bankers are likely to request a company’s business plan, while evaluating a credit facility application.

Writing a business plan should be managed just as most other business tasks are managed. It requires advance preparation, delegation, refinement and discipline. Every business plan needs to be reviewed and revised on a timely basis to take into consideration changing customers, industry and market needs and conditions.

There are three general types of business plans: summary plan, full business plan and operating plan.

A summary plan may be appropriate when a company is seeking a small amount of capital, when a company does not have an extensive history or is in the early stages of development, or when an entrepreneur with a long history of success starts another business venture.

A full business plan tends to be significantly longer and describes a company’s operations and financial projections in significant detail. A full business plan becomes more desirable as the amount of capital being raised increases.

An operating plan is typically used for internal purposes to guide a management team and serve as a road map for company operations. This is an important management tool as it enables management to plan company growth and to anticipate changes in a structured way. This plan should address the strengths of the company, but also be truthful about its problems and offer solutions.

In preparing a business plan, the key sections to consider are the executive summary, company description including mission, management team and organization structure, current and future buyers of the company’s product/services, competitive analysis, products and services, marketing and sales plan, and historical and forecasted financial information. Financial forecasts should be consistent with the company’s past performance and with information presented in other parts of the plan. Readers of the business plan want to see that the entrepreneur understands the industry and what it takes to grow a company.

Business plans need to be realistic. Common errors in judgment in business plans can include:

• Revenue forecasts exceeding long established norms
• Discussion about a "big deal" before the deal is completed and signed
• No existence of competition
• Future wealth is dependent on only getting a small market share

The best way to get a business plan reviewed is through introductions to potential investors by other professionals (i.e., accountants and lawyers). If the business plan passes the initial investor screen, a meeting maybe requested with the key executives or management team to provide a short, well thought-out and highly structured presentation to the investor. At this point, if the investor is still interested, he will begin to conduct due diligence on your business or business concept. A well-prepared business plan goes a long way to attracting investor interest.

Alan Wink is director of the Management Consulting Group and co-director of the Technology Group at Amper, Politziner & Mattia, LLP.