faq

QUESTIONS & ANSWERS
1. What parts of the business plan are the most important?
2. Do I really need a business plan?
3. What should be included in my business plan?
4. Aren’t business plans really just a lot of marketing fluff for investors?
5. How long should my business plan be?
6. How much time will it take me to complete my business plan?
7. Do I have to secure distributors and suppliers before writing my business plan?
8. What if my product is so unique, I don’t have any competitors?
9. Where do I go to find accurate information about my competitors?
10. How much strategy should be included in my business plan?
11. Should I require a potential partner/investor to sign a Non-Disclosure Agreement before providing them a copy of my business plan?
12. When should I invest in a professional logo or corporate image?
13. How do I decide how much marketing budget I should have?
14. I don’t have much money to spend on my marketing budget…what are my options?
15. How much can I reasonably charge for my product?
16. Is it realistic to outsource my sales force?
17. How can I attract good talent on a budget?
18. What financial statements will I need to prepare?
19. How many years of projections should I include in my financial proformas?
20. How detailed should my financial documents be?
21. Where can I look for additional funding?
22. How can I increase my chances of finding appropriate funding sources?
23. How do I make sure I maintain 51% ownership and control of my company?
24. When should I start looking for serious investors?
25. I don’t have time to run my business and write my business plan. What should I do?
This list is always improving. If you have a question you wish to submit, please send it to info@acord.us and it may be added to the list. Regardless, I will send you a response to your question.
ANSWERS
1. What parts of the business plan are the most important?
Almost without exception, the Executive Summary is the most crucial piece of your business plan. It is really the only section you can make sure that every potential investor will read. For that reason, you should write your Executive Summary very last and make sure it can be read in its entirety in less than three minutes and still provide the highlights of the entire document. Beyond the Executive Summary, investors will turn to other parts of your plan depending on several factors. Some readers like to skim the entire document (not always front to back) and see what jumps out at them. Others will think about your business concept and try to determine what the weakest part of your business will be and turn immediately to the section that they think will be the hardest for you to control. Still, individuals may have a strong background in finance or technology and may begin with the section with which they are the most familiar. Because you never really know who will be reading your document or what they will be looking for, it is very important that the entire document be extremely thorough, detailed, and concise.
2. Do I really need a business plan?
It is always a good idea for business executives to have a business plan. In some cases, the simple exercise of creating a business plan encourages the executive to consider various aspects of his or her business that he or she may not normally spend much time on. Properly written business plans also provide clear goals, detailed timelines, and key milestones that are important to track if the company wants to stay on course, on budget, or on time. In this case, a business plan is very much like a map during a road trip. You don’t necessarily have to have one but if you are traveling unfamiliar territory or the roads change frequently, or if you need to stick with a tight timeline, the map can be very useful and in some cases, absolutely necessary. Of course, if you are partway through a trip and you wish to make alternative plans and choose a different route (either scenic or short-cuts) you are really stuck with your original route unless you have the proper tools to view your options and make a change.
Beyond the safety reasons of “it’s nice to have when you need one”, business plans will be absolutely required if your organization chooses to seek outside funding or take out a loan from a bank or other financial institution. Investors and bankers will require that a business plan be presented as part of any financial package and the more detailed and accurate a business plan is, the better chance the business stands of receiving the funds. Finally, even if you have the luxury of remaining self-funded and never need to take another penny from an outsider, business plans are becoming more important in early stages of developing key relationships with potential partners, landlords, joint-ventures, distributors, and in some cases, even important sales deals or contract negotiations.
3. What should be included in my business plan?
Your business plan should not be the dumping ground for every random thought you’ve ever had about your business. In order to truly be a useful document, it should include only information that provides useful insight to the operation and environment surrounding your current and future business operations. While exact contents vary from one business to the next, every business plan should completely describe its products, its customers, its method of doing business, how it markets itself and sells its product, how profitable it is, how it is positioned in the marketplace against competitors, the current and forecasted outlook for its specific industry, key players on the management team, current and future business opportunities, and strategic guidance for how the company is going to be managed for the next 3-5 years. A strong business plan not only presents this information in a thoughtful, concise manner, it also provides an underlying compelling argument as to why the company in question is going to significantly outperform its competitors in the long run and what current programs will help it achieve this success. For a complete outline of a generic business plan, please contact us at info@acord.us.
4. Aren’t business plans really just a lot of marketing fluff for investors?
It is a blatant untruth that business plans remain unread in their original envelopes while business investments are discussed on the golf course and signed over an expensive cognac in a private dining room. Business plans make up the basis of much of the early conversations with potential investors and most serious investors spend 25-30 hours digging into the details of your plan and validating the concepts and numbers contained inside. While it is true that you need to present your business as a viable business opportunity and sell the reader on the validity and sustainability of the business concept, it must be backed up by hard evidence in order to do so in a compelling manner.
5. How long should my business plan be?
Business plans fight the struggle between being complete and being concise. You must present all the pertinent information surrounding your business and its operations but you don’t want it to be overwhelmingly long that an investor would prefer to use it as a doorstop instead of cracking the cover. While the final answer really depends on individual companies and how good of a writer you are, most businesses can accurately present their case in 30-50 pages.6. How much time will it take me to complete my business plan?
Business plans are really never completed because companies continually revise and build on their existing business plan year after year after year. However, it would not be unusual for a first-time business plan writer to take several hundred hours to write a comprehensive plan including research, editing, and financial statements. While individual results will obviously vary depending on one’s business acumen, prior experience with start-ups, writing skills, etc., ACG generally spends 50 hours writing a single business plan.
7. Do I have to secure distributors and suppliers before writing my business plan?
You should begin writing your business plan the first day you consider it as a valid opportunity. You may get partially finished and discover that a certain new piece of information would preclude you from even entering the market.. Alternatively, preliminary financials may suggest that you will never be able to make money you need to support the ongoing business expenses. (That, incidentally, is one of the main purposes of a business plan…not to convince others to invest in your idea, but to convince yourself that the concept is valid and profitable in the first place.) On the flip side, while you do not have to have your business completely operational before writing your business plan, the more hurdles you can clear before releasing your business plan to others, the more impressed they will be by your ability to make progress and the more secure you will be in operations before taking the risk that the business plan may fall into the hands of a competitor.
8. What if my product is so unique, I don’t have any competitors?
That simple statement will wipe any memory of your product and your company from the minds of any investor faster than you may realize. Everybody has competition. What you probably mean is that nobody is doing exactly the same thing in exactly the same way. In the rare instances when that may be true you can uncover real competitors by asking yourself questions like “What are my target customers currently using to solve this same problem?” (If the answer to that question truly is that your potential customers are using nothing to solve the problem, then your competition is the status quo…but it’s still competition. Henry Ford’s competition for many years (and still is in many cases) was the horse, the bicycle, and the railroad.) Another question you could ask yourself is “Who else could quickly copy my idea and offer an alternate form?” or “What existing company is going to be the most anxious about losing sales when I release my new product?” Honestly considering the previous questions should provide you with all the competition you care to handle.
9. Where do I go to find accurate information about my competitors?
There are several tricks to finding useful information about competing organizations. For publicly-owned companies the more obvious sources include government filings like 10-K and 10-Q (see http://www.sec.gov/edgar.shtml). The Internet provides many useful including the competitor’s website, news items, job postings, (you can tell a lot about a company by what kind of positions they have open and how many.) You can also get useful information directly from the company itself using their marketing information, sales brochures, press releases and earnings statements / conferences. Industry experts from the big financial firms such as Solomon Smith Barney and JP Morgan provide statements and release research on a regular basis as well as economic information from Hoovers Online, Dun & Bradstreet, Standard & Poor, and business related publications such as Wall Street Journal and Business Week. For more information about competitive intelligence using one of our partners send a request to info@acord.us.
10. How much strategy should be included in my business plan?
There is a lot more to playing chess than knowing how to move each piece. Unless your business plan includes preemptive moves that provide long-term sustainable competitive advantages, your organization will never become a major player or be able to shape the market to its advantage. Understanding your role in the game requires significant planning and your organization must know how to differentiate itself from the competition if it is going to return consistent profits. Learn how to leverage the professionals and Advisory Board members of ACG can provide you with deep industry expertise and improve your ability to control the game by contacting us at info@acord.us.
11. Should I require a potential partner/investor to sign a Non-Disclosure Agreement before providing them a copy of my business plan?
As a matter of practice, it rarely hurts to try to get a signed NDA whenever you can. Dealing with inexperienced investors, potential partners and prospective employees usually provides few problems. However, the story changes when you begin to work with more professional Venture Capitalists. (VCs) There is often debate about whether or not to ask for a VC to sign a non-disclosure agreement (NDA) before providing them with a copy of your business plan. Many VC’s have a policy of not signing these simply because they have to review so many plans. In addition, since many of these VC’s sit on various boards of what could be natural competitors, they are legally bound to act in the best interests of those companies and may be required to disclose information that would otherwise have a negative effect on that company. Still, others may be happy to provide their own standard NDA. (It is worth remembering that many of the Venture Capital organizations around the world have a code of ethics that their members adhere to and these will often include the treatment of confidential information.) You should also be aware that you may be setting a precedent if you allow some copies of your business plan to go out without a non-disclosure agreement that could void any previously signed documents. As always, I strongly suggest that you never start a company with a lawyer as a partner but you should have one on retainer. If in doubt, it is always better to seek professional advice on these matters before proceeding.)
12. When should I invest in a professional logo or corporate image?
There are so many things to spend money on when you’re getting a company off the ground that it becomes a never-ending debate about where you spend what limited resources you have. You can’t open your doors for business unless you have access to a space to do that business. Your employees may need desks (but you might get by with an unused countertop from an aunt’s remodeled kitchen). With that in mind, you should have a corporate image and business papers designed as soon as you can afford to spend money on it. You don’t want to make this one of your last expenses because you need to establish a professional image in everything you do as soon as you can. Professional signage and printed letterhead and business cards go a long way to establishing your credibility. However, you don’t want to have an office full of printed marketing supplies and no office to put them in. For more information on our partner programs with professional graphic artists who specialize in this line of work, contact us at info@acord.us.
13. How do I decide how much marketing budget I should have?
Generally the easiest basis for a marketing budget is to set it as a percentage of sales. Depending on the industry, companies could establish a marketing budget from anywhere from 1% of gross revenues to 15% of gross revenues. A quick analysis of your competitor’s income statement should provide a good basis of how much they are spending. Too often, small businesses estimate their sales revenue, cost-of-goods, overhead and salaries, and then gross profit. Anything left is considered available funds for marketing support. That's not such a good idea. If you are the new competitor in the marketplace, you will have to spend more aggressively to establish your market share objective.
14. I don’t have much money to spend on my marketing budget…what are my options?
First of all, don’t be fooled into believing that advertising only covers the amount you pay for television or radio commercials and billboard space or flyers. Everything you do is marketing! Every interaction you have with an outside client, partner, or supplier should be included in your marketing strategy. This includes things like the design of your business card, the location of your store, the way your salespeople are dressed, the tone and message of your receptionist answering a telephone, your response (or lack thereof) to a request from your website, and even the presentation and design of the invoices you send to your customers each month. Everything your organization does builds a particular view of your business in your client’s mindset. Companies spend billions of dollars on television advertisements explaining what great customer service they have but a bad attitude from one sales rep during a three-minute phone call negates the entire marketing budget for the caller. There are countless books on “word of mouth” advertising because it can be a tremendous success. If your organization can’t afford Super Bowl advertisements, consider giving your receptionist a raise or basing sales representatives bonus on customer satisfaction instead of raw sales figures. Take the time to learn how to ask for referrals and make sure you follow up not only with the new customer but also by saying thanks in a meaningful way to the individual who gave you the referral. Sometimes the best use of your marketing dollars is to spend it on internal process improvements or as a bonus to those individuals who work closely with your customers.
15. How much can I reasonably charge for my product?
Pricing is one of the more underrated issues in today’s place of business. Local gas stations usually set their gas prices based on their nearest competition. Similar products copy competitor’s pricing based off of published list prices. Where you ultimately set your prices depends on a great many factors and will have a direct impact on sales. How you set your prices determines long-term profitability. Rather than basing your list price as a certain markup percentage over costs, contact ACG at info@acord.us for more information on pricing models and strategies.
16. Is it realistic to outsource my sales force?
Companies develop core competencies in areas that are most important to their executive team. Generally, if your executive team has a strong background in finance, your company will have the cleanest balance sheets and the best margins out of all your competitors. If instead, your CEO came up through the ranks of the sales force, your company may have the highest customer satisfaction ranking and impressive sales figures. If, after considering your competitive position, the future needs of the marketplace, and your internal staffing, you decide that you would rather emphasize a different aspect of your organization, outsourcing any given department may be a smart move. However, in your final analysis, be sure to consider that you are essentially giving up control to an outside party. Make sure that whatever you are gaining in return is worth the exchange.
17. How can I attract good talent on a tight budget?
Good talent is attracted in the same way you attract good customers…by providing exactly what they are looking for in the best package. Since the recent dot com bust many employers and employees have come to realize that salaries are not the only reason people select a job. While salary is certainly a key part of that decision, other factors include opportunities for growth, a healthy work environment, stability, good leadership, and strong product lines. Early attention on some of the other key factors will not only allow you to lure new talent more easily (to the point where some of the best may actually seek you out) but will also provide higher productivity, lower turnover, better relationships with partners and customers, and improvements in the bottom line. For more information on building a meaningful corporate environment and a healthier worklife contact us at info@acord.us.
18. What financial statements will I need to prepare?
Your complete proforma financials should include five years of Income Statements, Balance Sheets, Statements of Cash Flows, Key Drivers / Metrics, and a Sources/Uses analysis. (See Question 21 for more information or contact us at info@acord.us for further details.)
19. How many years of projections should I include in my financial proformas?
Your completed financial statements should include high-level financials for five years with a month-by-month presentation of the first 2-3 years. (See Question 21 for more information or contact us at info@acord.us for further details.)
20. How detailed should my financial documents be?
In most conversations with investors, potential partners, and bankers, your financial statements should provide a minimum of projected Income Statements and Balance Sheets for the next five years of operations. Providing any more detail at early-stage conversations will only cause confusion and problems. If an individual wants further information you should be prepared to provide it immediately but they will rarely want to see more information during the first few meetings. As your relationship develops with the individual, you should be willing to provide more detailed information on both the Income Statement and the Balance Sheet including month-by-month projections for the first 2-3 years as well as Statements of Cash Flow, Sources / Uses and a summarized sheet including all of the major metrics and key drivers for the entire set of financials. Finally, in later conversations the entrepreneur should be able and willing to provide information for break-even analysis, what-if scenarios, as well as comparison ratios with competitors and margin analysis. In a nutshell, you need to have very detailed information very early so that you can demonstrate your competence in the financial understanding of your company to the satisfaction of even the most scrutinizing investor. What’s more, once you give the investor a set of financials, he or she will expect those high-level numbers to remain the same throughout the course of your discussions and they absolutely must match the detail information that you will provide later. Just because you don’t provide all the details up front does not mean that you can work on them as you move along. Unjustifiable financial statements and unrealistic expectations are two of the most common reasons for a would-be investor to drop your business plan and see what’s on pay-per-view. ACG standard financial package analysis provides two pages of assumptions, three high-level 5-year summaries, and 47 pages of detailed materials. For more information contact us at info@acord.us.
21. Where can I look for additional funding?
Over the past several years entrepreneurs have developed a bad habit of immediately seeking venture capital funding for every idea they can come up with. Even though the United States leads the world with one of the most functional systems of venture capital, the truth is, VCs provide less than 10% of the overall investments in new business each year. They are extremely focused in the types of industries they are interested in, the amount they are willing to invest, and the stage of the company in which they are considering. In order to be successful, fund-seekers need to be aware of the entire spectrum of potential sources of money.
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22. How can I increase my chances of finding appropriate funding sources?
Having a compelling product, a strong business plan, and realistic financials are a good start to finding potential investors. Then, rather than trying a shotgun approach of sending your business plan to everyone in the phone book, you would be much better off targeting specific investors who you know ahead of time are 1) interested in your industry, 2) have complementary companies in their current portfolio, 3) invest in companies at the stage you are currently in and for the amount you are looking for and 4) have a point of contact that can introduce you to someone on the inside. Entrepreneurs waste postage by sending business plans to unknown and un-referred recipients. Another huge problem with the shotgun approach is that the would-be money seeker does not do his or her homework and instead of investing 20-30 hours understanding the market and the interests of various players, he or she simply sends a business plan to everyone and expects the recipient to do the homework that the entrepreneur was too lazy to do. Instead, the delivery person for Federal Express wears out another pair of shoes and the targeted investor has another coloring book for his or her kids.
23. How do I make sure I maintain 51% ownership and control of my company?
The entire concept of 51% ownership allowing a founder to maintain control of his or her company is false. The truth of the matter is that due to minority shareholder rights and complications of dealing with outside investors, the entrepreneur essentially give up being all-powerful creator the moment he or she sells a single share of stock. Keeping investors happy can be a full-time job requiring significant attention from the CEO on a daily basis. If you are thinking of taking equity from an individual other than yourself, you need to seriously consider the consequences of this action before you take the investment. Beyond that, the best way to keep realistic investors happy is to be completely honest, communicate with them regularly, and succeed beyond your wildest dreams. Often investors bring a strong network of professionals to the table and leveraging their experience is a good way to round out a spotty management team. In the long run, if you don’t feel comfortable enough with an individual to give them 51% of the company from the outset, then you probably have a poor fit and you should seriously reconsider selling them even a small percentage of the company.
24. When should I start looking for serious investors?
There are four general phases of financing that most start-ups go through. The first round is typically less than $10,000 and is funded entirely by the entrepreneur or original team and their personal savings and bank accounts. The second $50,000 is usually raised by close friends and family members and gets the business past the first 3-6 months of operations. The third round is generally the seed round and is the first round that involves unknown, outside investors bringing in several hundred thousand dollars. At this point the company gives up equity for roughly 20% of the company and begins actual production or actual operations on a regular basis. The fourth round is considered the first formal round where the company sells 20-30% of the company’s stock for somewhere between $1 and $5 million dollars. Additional rounds may be added as the company demands and a typical “second” round would net an additional $10 million until the company gets to the final round of going public of IPO. For more information on ACG’s funding strategies and equity distribution plans contact info@acord.us.
25. I don’t have time to run my business and write my business plan. What should I do?
One of the biggest advantages to working with ACG is the raw work hours that we bring to the table. By focusing our energies on your business plan we can leverage resources and expertise that would normally be unavailable to your organization. The result is not only a stronger, more compelling business plan that will give your company strategic direction for years to come, but we can complete the project more efficiently and with minimal impact on your existing staff and daily operations. To find out more about how you can benefit from this strategic partnership contact us at info@acord.us.