A business plan is a blueprint of what your business is and what you want it to become. The business plan describes a serious problem suffered by individuals or organizations. It shows how your solution to that problem is much better—not just marginally better—than those that already exist. The plan shows how you will implement your solution, grow your company, and create ownership value.
Generally, business plans take two forms—one is the plan you write to raise capital, and the other is the plan that represents ongoing evolution of your business. You will find that both forms must be updated frequently to incorporate your latest progress and achievements.
This section focuses on the plan you write to crystallize your business strategies and raise capital. Numerous resources exist in print and online to assist you in writing a business plan. These sources range from business plan software like BizPlanBuilder (Www. jian. com) to the Small Business Administration's website at Www. sba. gov, to classic works such as the Venture Capital Handbook by David Gladstone.
Later in this book, the use of the private placement memorandum (PPM) to raise capital for your business is discussed. The PPM is a somewhat stylized disclosure document, prescribed by federal and state securities laws. The PPM serves a different function than the business plan. The PPM is a legal retail document and the business plan is a strategic wholesale document. In other words, when you go to individual investors to raise capital, you use the PPM as your offering document. When you approach larger investors, sometime called angels and institutional investors, including banks or financing institutions, they are more likely to ask for your business plan. (See Chapter 7 for details.)
A business plan allows you to address the essential issues of your new business, such as the unique benefits and competitive advantages of your products or services, your market opportunity and marketing plan, and how you intend to capture a defensible share of the market. The financial statements (income statement, balance sheet, and cash flow analysis) accompanying the plan will give you, your management team, and potential investors a roadmap of the next three to five years of your business. Your financial projections should not exceed five years, as too much can change in that amount of time. Three years is generally sufficient. What matters is that you select a reasonable time frame during which you can achieve your stated goals.