Raising capital is a difficult process that has complexity, aggravation, headache, and heartache. However, while it is a difficult process, it is not impossible, and diligent entrepreneurs can often receive the funding they need. The information contained below will help you understand the dynamics of a properly written business plan.

First, of course, the legal disclaimer

Please note that the information in this article is not to be used as consulting, accounting, or legal advice. The following information is provided with the understanding that this article is not a substitute for professional advice, and is merely for informational purposes. TheFinanceResource.com is not responsible for the use of any information contained below or for the factual accuracy of any statements made below.

The Article

The first step to raising capital is to develop a business plan that showcases your business in a rational manner. This includes a description of the business, the products and services offered by your business, market research about your industry, market research of your customers/competitors, proforma financial statements (what you expect to earn over the next three to five years), and the potential pitfalls, risks, and problems of the business. Too often, we see business plans that either focus solely on the products/services of the business, or exaggerate the financials or promise of the business. A great business plan shows the business in a positive light, provides reasonable financial forecasts, and also shows an understanding of the problems/risks of the business venture. Potential investors want to know that you have thought through a business venture thoroughly, and that you have drafted a plan that will clearly outline how the business will start, and how the owner will deal with the problems and risks of the business.

A business plan should have the following elements:

• An executive summary – The introduction to your business. This section should contain a brief introduction about the business, the owner/senior management, how much money is being sought and on what preliminary terms, the products/services to be offered by your company, and a brief summary about the financial highlights.
• An offering summary – This part of the business plan provides a brief overview of the investment that management is seeking. This section should contain statements regarding how much money is sought, how these funds will be used, the company’s exit strategy, and preliminary terms offered to an investor(s).
• Products and Services Description – This part of the business plan should describe, in detail, the products and services you intend to market. This description should contain a very clear understanding of what you offer, but do not overwhelm this section with positive claims about your service. The key is to describe positively; you are not selling your products/services to the investor.
• Overview of the Organization – This section describes the corporate entity, the mission statement, organizational objectives, and a biography for each founder or senior officer of the business.
• Market Research and Strategic Analysis – This analysis should contain a description of the general economic environment, an analysis of your business’s industry, a demographic profile of your customers, the scope of your market, and an analysis of your potential competitors. If your business has significant operating complexity, legal issues, or external factor issues, you should include documentation of in this section of the business plan.
• Marketing Plan – This should document how to you intend to promote, market, and advertise your business. This includes specific information of where you should advertise, how you will market your products/services, and how you will promote early and ongoing sales.
• Personnel Summary – This section should contain an examination of the corporate hierarchy, and a list of employee positions and salaries, and the number of employees that you expect.
• Financial Plan – This section is the most important part of your business plan. The reason you are starting a business is to make a profit, and the key to developing a strong business plan is to develop a semi-conservative financial statement that shows the profit/loss (monthly for the first year, and quarterly for the next two to five years), cash flow analysis (monthly for the first year, and quarterly for the next two to five years), balance sheet (yearly), breakeven analysis, sensitivity analysis, and business ratios. You may want to have an accountant or consultant help you with financials if you do not understand how to properly draft a set of financial statements.
• Problems and Risk – This analysis should contain a list and description of the problems and critical risks of the business, and how you intend to deal with them. Be specific and be honest. Every potential investor knows that EVERY business has issues and problems, and the key to running a successful business is to understand these issues and to develop a proper plan for managing the risks.

Once you have finished your initial draft, it is imperative that you review it, and review it again. It takes time to perfect a business plan, and with each revision, your business plan will get better. It is also important to remember that your business plan is only a roadmap to the development of your business. It is highly unlikely that your business venture will follow the plan that you have outlined. This is especially true in regards to the financials of the plan. It is imperative that you develop a sensitivity analysis for your financial plan. You should constantly question the validity of your model, the product/service that you are selling, and the price point of your market.

Also, as you develop your business plan, study your competition carefully. See how they are operating their businesses, try to estimate the amount of business they are generating, and what they can improve about their business. Do not assume that you have no competition for the market you are entering. You will always have competition, and this is true even if you have a great patented product you are selling. At some point, someone will sell a product that is substantially similar to yours. If you really find that you have no competition, then you should reevaluate your business model. No competition may mean that there is simply not enough business for you to run a profitable business. The best thing to see is bad competition. Companies that are providing products/service that are similar to yours, but aren’t doing a good job means that you can enter the market and blow them out of the water.

If you are having trouble writing your business plan, drafting the financials, or developing the market research, then it may be in your best interest to hire a firm that can help you write your business plan. There is nothing wrong with receiving professional assistance that knows how to write a proper business proposal. However, at the end of the day, no one will care about your business the same way that you do. For many people, the hardest part of writing a business plan are the financial statements that you must develop. If you are not familiar with financial statements, then you should definitely buy an introductory accounting book and begin to teach yourself accounting. You can also enroll in many online and community college courses that will give you a firm understanding of this science. It is absolutely necessary for a business owner or senior manager of a business to have a command of accounting and how financial statements are prepared. Otherwise you will have no other way of understanding where your revenues are going.

Profit is the bottom line of any business, and any business concept you have should focus equally on developing a great product and creating a great profit. A business will not survive long without generating profits.

It is also important to remember that a business plan is not a legal document, and when you find an interested investor, it is important to hire the proper legal and accounting professionals to assist you in negotiating the investment, filing the proper forms, and ensuring that all issues relating to the investment are done in a legal and prudent manner. The business plan is not a contract, it is a sales and planning tool to generate capital. The contract between you and an investor is known as a private placement document.

In conclusion, a well developed business plan that examines the product/service you intend to sell, how much you intend to make, the market you are entering, and your competition. Do not make the mistake of turning your business plan into a product brochure. Banks and investors want to see that you have an economically viable business, and you are not there to sell them your product, you are there to sell them your business.