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Small Business Guide

JUNE 22, 2000

SMART ANSWERS

Building Your Business Plan: Where to Begin, Part 2
A well-researched, detailed document can help your proposal stand out


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Q: I'm writing a business plan for an e-commerce company. Where can I find guidelines, and how do I make it attractive to potential investors?

-- L.M., Farmington Hills, Mich.
This question is being answered in two installments. This second part gives tips for making a plan that will appeal to investors. Part 1 addressed business-plan guidelines and pointed out some good places to find help on the Internet (see BW Frontier, 6/20/00, "Building Your Business Plan: Where to Begin, Part 1").

A: John B. Vinturella, a New Orleans-based entrepreneurial consultant and author of The Entrepreneur's Fieldbook (Prentice Hall, 1999), offers some tips on how to make your plan stand out:

Spend time writing a succinct and persuasive executive summary, but write the body of your business plan first.

Make your document graphically pleasing and well-indexed. Number copies sequentially so that investors will know that only a few copies are being distributed. Include a cover letter addressed to a specific contact in the VC firm and follow up with an e-mail or phone call. Include a phone number and e-mail address where the investor can reach you with questions.

Use references or introductions from sources respected by venture capitalists. Ideally, you should have your plan referred through an accountant or attorney with a strong venture-capital practice.

Spend time researching potential venture-capital investors so that you send your plan only to those who specialize in making investments to companies in your industry.

Make sure the cash-flow statement correlates to the balance sheet and income statement, and mirrors the timing of the funding requirements stated in the plan. Investors will study the cash-flow statement to determine when cash-flow breakeven is expected and when periodic needs are anticipated. Set realistic forecasts so that the initial request covers the capital needs until the business completes milestones leading to higher valuations in future rounds.

Investors will concentrate on the financial details. Make sure you're clear on how much of the company is being sold, how the financing is split between debt and equity, how shares are being priced, how you are valuing the company, and what your exit strategy is.

Investors will also look at the people involved in your deal, particularly the founders, directors, and other investors. Include letters of reference for your key players and a summary of the track record of experienced management-team members. If there are gaps in the team, you must persuade investors that you have a strategy for filling them.

If some of those associated with your venture have achieved previous entrepreneurial success and cashed out so they can return to being entrepreneurs, make special note of that. It's considered a big plus to be able to attract previous winners.

Let your investors know about the backgrounds of your financial advisers, legal counsel, risk-analysis and insurance advisers, intellectual-property and patent attorneys, media-relations counsel, and marketing counsel. The perceived quality and reputation of the outside advisors who you have assembled can make the difference as to whether or not a business plan gets serious consideration.

Have a question about running your business? Ask our small-business experts. Send us an E-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.


By Karen E. Klein

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