Drafting an Effective Business Plan

When writing a business plan, there are many things which should be addressed, but also some things which should be omitted. Here are four items included in many business plans, and one item which should be left out:
1. Executive Summary
2. While the Executive Summary usually appears at the front of a business plan, it is usually written last, after the other parts of the business plan have been collected. The Executive Summary offers a brief overview of what the intended business is, what any critical assumptions may be, and general idea of the potential return an investor might expect. It might also include a brief listing of the company history, and even some of the key personnel involved, as well as their qualifications.
3. Pro Forma Financial Statements
4. These can include Pro Forma (another word for “imaginary”) Income Statements, Balance Sheets, Cash Flow Statements, and possibly a break-even analysis as well. It is helpful to have three versions of each: one which assumes an optimistic forecast of results, a second which assumes an average case forecast of results, and a third which assumes a pessimistic forecast of results. This helps provide investors with the reassurance that different scenarios have been considered, as well as a rough idea of what should be expected. Pro Forma Financial Statements are generally used more for planning purposes rather than a strict guide as to expected financial results, but are nevertheless very important to include.
5. Marketing Plan
6. A good marketing plan is essential to all businesses. It should explain the major market segments being targeted, give reasonable guides of market capitalization for the industry being entered and sensible goals for market share expected, as well as by what time frame this will occur. While some tactical marketing details might be left out (unless particularly relevant), good coverage of the overall marketing strategy should be provided.
7. Operations / Productions / Distribution Plan(s)
8. Depending on the business being created, one or more of these may be required. Operations Plans detail how the business will be run, which is more useful for service industries. Productions Plans are more appropriate to product or good manufacturers. Most product businesses will need some explanation of distribution as well, including which channels will be used to deliver products to their final consumers.
9. Expected Terms of Deal For Investors
10. Unlike the other items above, negotiations should not begin anywhere within the business plan! Savvy investors (such as venture capitalists) will use any suggested terms as the starting point for negotiations, instead of an end point. Should a deal become likely, it would be wise to bring in outside experts who have negotiation experience, and who can look out for your best interests (such as attorneys, accountants, etc.).
In summary, a good business plan should have an overall summary, pro forma financial statements, a marketing plan, and plans for operation, production, and distribution (if relevant to the business). Negotiations for investment terms, however, should be left out of the plan completely.

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