A compelling business plan is an essential part of raising Capital to start or acquire a small business (<$10 million in Sales). The best business plans are short, concise, and speak directly to an audience of investors and lenders. To that end, this article lays out the structure of a successful business plan for raising Capital for your small business.

Audience

Knowing that you’re raising Capital for a small business opportunity helps better define your audience so that your plan can address their goals. Now is a good time to mention that you should avoid raising Capital from anyone that hasn’t made direct investments into small businesses, especially friends and family. Chasing new investors is simply a waste of time because it requires twice as much work for marginal gains. First, you have to convince them of the benefits of direct investing and then the value of your opportunity. Unfortunately, their lack of experience in both areas makes it harder to make a decision, so they’ll keep putting you off with a “maybe.” On the other hand, professional investors and SBA Lenders are very formulaic in their approach, and if your opportunity meets their criteria, they will invest. In addition, professional investors tend to provide immediate feedback and criticism, but you can’t get emotional. That said, their Capital is expensive. And since your opportunity isn’t AT&T, you will have to give up some of your Equity or deliver higher returns (>14% ROE) to earn their investment dollars. Alternatively, SBA loans offer a lower Capital cost (~6%-7%), but it takes longer to get funded. For example, it can take 30-45 days for a Term Sheet (“Pre-Approval”) and another 30-60 days to close and fund due to the required paperwork.

Presentation

Traditional business plans appear on 8×11 paper in report format. Today, however, many entrepreneurs and professional investors prefer to see plans on PowerPoint or Google Slides (“Pitch Decks”) to focus discussions on the critical points. This article will work for either format, but you should work in whichever medium you’re most comfortable.

1. Executive Summary
2. Company History
3. Market Analysis
4. SWOT Analysis
5. Go to Market Strategy
6. Financial Projections
7. Management Resumes

Executive Summary

The Executive Summary should begin or include a transaction overview that quickly conveys what you’re looking to accomplish. For example, the first page of your business plan should address the following items:

• Ask: How much you’re looking to raise
• Sources and Uses: The proposed Capital Structure and use of the funds
• Financial Projections (summarized): A five-year P&L projection of Sales, Net Income, and EBITDA
• Expected Return (for Investors): ROE, ROI, and IRR
• Debt Metrics (Lenders): Senior Leverage Ratio (Debt/EBITDA) and Fixed Charge Coverage Ratio (FCCR)
• Problem and Solution Statements: Description of the challenge your business solves, and the size of the serviceable market

Table of Contents

While this seems obvious, you’d be surprised how many plans we’ve seen that don’t have one, especially pitch decks. So, naturally, the absence of a table of contents will annoy some decision-makers, and that’s the last thing an entrepreneur wants to do.

Company History

Here you’ll want to quickly walk the audience through critical milestones in the company’s history.

• Startups: You should describe how the founders identified the business problem (and solution) along with its current staffing level (roles and total headcount).
• Acquisitions: For acquisitions, you’re quickly moving the audience from the company’s founding to the present period. This section should also include information about the current staff and clearly indicate any planned personnel changes. Finally, with acquisitions, investors will pay close attention to the rationale behind the sale. Some red flags include “selling to pursue other interests,” retiring before the age of fifty or selling a business within five years of its founding. Neither conveys confidence in the business’s future viability (are you investing in the best pay-phone manufacturer in 1997?).
• Financial Analysis: (all Acquisitions, some Startups): You should depict the firm’s financials for the last three (3) fiscal years and discuss the most recent Last/Trailing Twelve Months (LTM/TTM) results on the P&L (impact on EBITDA) and Balance Sheet (implications for Cash). If you haven’t completed this kind of analysis before, you should read the Management Discussion & Analysis section (Annual Report) of a leading publicly-traded company in the same industry (going back three years).
• SWOT Analysis for Acquisitions: SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. So, you’ll assess each of these items as of the Financial Analysis completed above. The interweb contains numerous examples of SWOT Analysis, so we won’t go into great detail here other than to state that the Strengths and Weaknesses represent an internal assessment. In contrast to Opportunities and Threats, which stem from external forces.

Market Analysis

You can’t start a business without understanding who your customers are, what they want, and how they’re currently meeting these needs. This section will make or break your business plan because investors will judge the opportunity on how well you understand the market.

• Industry: Here, you want to start broad and then narrow. So, it should begin with an overview of the industry and the outlook (size, growth rate, and trends). You can usually obtain this data from the internet or analyst reports on publicly traded companies in your industry.
• Target Market: In the previous section, we discussed the industry, but now we want to focus on the specific customer or the business segment. You might begin this section by restating the business problem your product(s) solves. You should also include demographic data about the customer (B2C) or business (B2B) your company serves.
• Market Size: Based on the data above, you’ll quantify the business opportunity based on the spending characteristics of the customers you’re targeting. The spending characteristics should include how frequently your clients purchase your products, the foundation of your financial projections.
• Competitor Analysis: Here, you should describe your top three or four competitors along with their strengths and weaknesses. You probably won’t be able to get financial information (Sales, Net Income) for small businesses. However, you may validate them based on staffing levels or purchasing volume if you have vendors in common.
• SWOT Analysis for Startups: Now that you’ve assessed the market and your competitors, it’s time to present prospective investors your assessment of the challenges and opportunities facing your startup.

Go to Market Strategy

This section should restate the business’s solution and management’s plan to attract and retain customers while addressing the weaknesses and threats from the SWOT analysis.

Financial Projections (P&L, Balance Sheet & Cash Flow Statement)

Now, based on your market strategy, your business plan should include financial projections for the next five years (P&Ls, Balance Sheet, and Cash Flow Statements). If you’re seeking an SBA Loan, you’ll need month-by-month P&Ls for the first twenty-four (24) months. Your projections should also include any important assumptions used.

Management Resumes

Finally, no Business Plan is complete with a summary of your Management Team’s experience. The summaries should resemble what you’ve all seen in a business website’s “About Us” section.

Conclusion

Writing a good business plan can seem challenging if you’re unfamiliar with the process. However, time spent developing competence in this skill set will benefit you with any investment decision that crosses your path.