Gene Marks is a CPA, columnist, author and small business owner. Gene is partnering with Deluxe in celebration of National Small Business Week.
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Want to write a business plan for your startup? My biggest advice is not to go too overboard. You’re not filing to go public, and the Wall Street Journal isn’t going to report on what you wrote. Most importantly – and let’s admit it – your plan is probably going to change about three hours after you think you’ve finalized it! But business plans are important. They serve as a vital, written document that tells your community – your investors, bankers, partners and key people – about your business and where you plan to take it. It’s a document that anyone who is interested in giving you their money will absolutely read. It doesn’t have to be hard. Just make sure you include these three very important things.
You can have an awesome idea. A super cool product. A patent on the next best thing. You can make all the assumptions and promises you want about how successful your company will be. But any good investor will tell you that in the end, they’re investing in people. That’s you. Who are you? Who is your executive team? Where were you educated? What is your experience? Who do you know? What is it about you that an investor would want to risk their money? What are you putting into this business? What kind of risk are you taking? What do you like to do in your spare time? Business is about people. You must start with introducing yourself to those people that you’ll want to do business with you.
Of course you have to have financial information about your company. If you’re a startup you’re not going to have a whole lot of history – and that’s fine. People don’t invest in the past. They invest in the future. They’re not going to care about your prior profitability so much as they care about your future profitability. They want to see your projected income statement and cash flow for the next two to three years (anything beyond that is science fiction, don’t you agree?). Invest in a good accountant to help you put this together. And please, be careful. Your investors weren’t born yesterday. Make very conservative assumptions. Don’t assume that your revenues and profits will grow ten times during the year. Don’t project that your company will be valued more than Facebook by the end of next year. Be honest, credible and critical when you prepare your forecasts. Believe me – your investors will.
When you look at any public offering document – like the SEC Form S-1 or S-3, you’ll see right at the onset that the company looking for money lists it’s “risk factors.” These are basically all the reasons why investors SHOULDN’T invest in the company! They include things like competition issues, financing needs, product challenges, management holes, legal pitfalls, etc. Get a few copies of some recent S-1’s (you can easily find them online) and you’ll be amazed at the terrible things companies say about themselves when soliciting money from prospective investors. It’s required by SEC regulations – and it’s a good thing. You don’t want people giving you money without them knowing all the facts – the good and the bad – about your company. Sure, there are plenty of other things you could include in a business plan and as you grow and look for future financing you’ll expand the document. But if you just include these three things in your initial plan, you’ll be in good shape.