What does an effective short business plan look like?
To answer this, first put yourself in the shoes of the investor, banker or partner who will read your plan. It’s simple: they want to be convinced that you can make them money. Your plan must tell them:
1. What the opportunity is. Who are the customers that will buy your product or service? What do they need that they can’t get now? How will you meet this need? How will you fend off competitors? How will you get paid?
2. What you’ll do with their investment. How will you spend their money? What projects and tasks will your company perform?
3. How you’ll be held accountable. What milestones will you reach? By when?
4. What financial results you expect. What will your revenues, cost of goods sold and profit look like? For bankers, will these be sufficient to pay back their loan? For investors, will these be sufficient to create their desired valuation?
These points can be linked together to form a compelling story. Here’s an abbreviated example that combines the above points to form a narrative:
Each year 2,000,000 people visit Florence, Italy. While most are content to stay in the city and enjoy its amazing architecture, art and food, 17% (340,000 individuals) will venture into the surrounding Tuscan countryside to experience its castles, vineyards and natural beauty. Many of them, particularly those under 45 years old, will gladly pay €120 for a one-day guided tour while driving a Vespa scooter.
For the past 2 years we have offered just such a tour and our 5 Vespas have been 92% booked during the six months from June to November. Now we want to double the number of tours we offer, strengthen our website, and add a part-time office staff to help with scheduling. We wish to borrow €25,000 in December 2012 to make this happen.
We’ll revamp our website by February 28, 2013 at a cost of €5,000. Five new “Vespa LX 50” scooters will cost an additional €12,500. With the remaining €7,500 we’ll hire a part-time staff at the beginning of May and have them trained in time for our June 1 opening.
June’s revenues will jump 40% over last year and we’ll reach full capacity by the end of the 2013 season. 2013 revenues will therefore rise by €70,000 over 2012 with a corresponding rise in operating profit of €15,000. 2014 revenues and profit will increase a further €30,000 and €21,000 respectively. The increased operating profit of €99,000 over five years is more than sufficient to re-pay the €25,000 loan within five years.
What do you think? If you were their banker would you be convinced?