Writing a Business Plan Guide with Pictures and Free Template

A complete step-by-step guide (with pictures and free downloadable business plan template) that guides you through the entire business planning process.

For many entrepreneurs, writing a business plan can be an extremely daunting task. Many people are intimidated by the amount of content that needs to go into the business plan, and they are often unsure of how to properly write one. In this guide, we will down each of the steps that are necessary in order to complete a comprehensive business plan.

First, our sales pitch. If you are having difficulties developing a business plan on your own, our website provides a number of templates that you can use to assist you in this process. Each plan that is showcased on this website is specific to its title. The package includes a word document with a completed business plan that you can alter or modify to your needs. Additionally, each package includes a number of other support materials including Excel files that will assist you in developing the financial portion of your business plan.

Please download both files. Also, please note that the purchased version is far more comprehensive. We have 550 different business plan templates available.

On the quick side note, if you are truly struggling with developing a business plan then there are many professionals that can assist you without the process. Over the past 14 years, I have written more than 4,000 business plans on a domestic and international basis. At this point, writing a business plan is basically bodily function. Many people do feel that it is sort of cheating to hire someone to develop a business plan on your behalf. However, and although I may be biased here, this is simply not the case. Many entrepreneurs have a perfect vision of how they want to develop their business and simply struggle with putting down their concept onto paper in a presentable format. My firm specializes in developing comprehensive documents that are specific for capital raising among investors as well as financial institutions. We take our clients vision and simply transform into a beautiful presentation that any person can read and understand. As such, if you find yourself continuing to struggle with developing a document then it may be in your best interest to hire a third party to help you.

Now onto the guide. First, let’s talk about how a good business plan is written. When we develop business plans, we first produce the market research for the document. As this serves as the foundation for a good business plan, it is important to do this that first. Many people try to start the work by writing out their executive summary. However, I have found that it is best to wait until the very end to write the executive summary as a well written executive summary acts as a guide for the rest of the business plan.

Completing the Market Research

There are a number of online resources that you can use when developing your market research. First, let’s look at the important sections that need to be included in this part of the business plan. The first section is generally an overview of the economy as a whole and how a negative change in the economy can impact your business operations. Specific points that should be discussed in a one to two paragraph section including the current unemployment rate, current interest rate environment, prices of assets among all classes, as well as of where the economy is heading. At the time of this writing, October 2019, unemployment rates have remained very low while interest rates have remained low as well despite substantial increases in asset prices. The trade war between China and the United States may impact the economic climate moving forward.  Tariffs have caused the prices of many common goods to increase substantially as a majority of consumable products within the United States are manufactured in China and other overseas markets. Additionally, other issues pertaining to currency valuations can impact the economy moving forward. This is a strong example of specific things that should be discussed in the economic section of your market research.

The next section of most business plans deal with the industry analysis. This includes taking a look at the industry or industries in which you are going to be operating, the number of people that are employed by the industry, annual revenues generated from all businesses included within the industry, as well as any market trends. For most industries, they are highly established. For instance, an industry like the food and beverage service is not going to have very many changes in the way that they conduct business moving forward. Restaurants and other eateries have been around for hundreds of years, and they typically have growth rates that are in lockstep with the economy as a whole. However, if you are in a business such as financial technology – then you may need to conduct a much more in-depth analysis regarding trends within this industry. This would include discussing major competitors, any pieces of legislation or regulation that may impact your business, and other facets of operation that are going to need to be addressed on an ongoing basis.

Third, in this section it is also important to outline the average customer profile or user profile of your services or buyer of your products. This includes examining annual median household income, age, gender, as well as any specific types of character traits that are specific to the type of product or service that you are offering. In this section, many people also outline the estimated number of people within the target market that would be potential buyers. This is extremely important especially for local or regional businesses as you want to ensure that you’re going to have enough people within your market to support an economically feasible business. For instance, returning to our discussion regarding a restaurant, you’re going to want to look at population size and population density as compared to the number of other restaurants within your target market. This will ensure that in any given night there are a number of people that are willing to come to your restaurant so that it operates near 100% capacity. For other businesses, such as online businesses, you may want to take a look at the number of people within a specific country or on a worldwide basis that are potential users of your services.

Fourth, in this section we typically discuss the competitive issues that a business will face as it progresses through its launch as well as ongoing expansion. For local and regional businesses, conducting a competitive analysis is relatively easy given that you’re familiar with the area and can simply find what competitors are offering products or services that are similar to yours. An examination of competitors should include their estimated annual revenues, number of employees, and how long they have been in business. A more subjective overview of a competitor includes the strength of their brand name, how long they’ve been in business, and their market reach. For larger scale businesses, such as online businesses, it is slightly more difficult to carry out a competitive analysis given that you’re going to have to find companies that operate throughout your entire country or on a worldwide basis. Conducting this type of market research is little more of an involved process but can be easily achieved through use of search engines. When carrying out these types of operations you should use specific keywords and phrases that are specific to the products and services that you’ll be selling. This will allow you to see the more prominent competitors within your field.

One of the ways that you can make your market research stand out is by developing a number of charts and graphs that are specific to your industries. Below are some links to companies that you can use to acquire graphics specific for the industries that you operate within:



The Financial Plan

After the market analysis is done, it is time to develop the financial plan. Most business plans have a three-year to five-year pro forma financial model included. Generally speaking, it is very difficult to estimate anything beyond a three-year period. A financial plan consists primarily of three parts: a profit and loss statement, cash analysis, and balance sheet. It is also important to include other metrics such as the breakeven analysis as well as important business ratios that are applicable to your operations.

As it relates the profit and loss statement, this table showcases your revenues, cost of goods sold, your operating expenses, as well as your pre-tax profit. The profit and loss statement showcases your estimated taxes as well as any interest expense that you may incur. Below is an image of a standard profit and loss statement:

Profit and Loss Statement
Profit and Loss Graph
Profit and Loss Graph

Relating to the profit and loss statement is the cash flow analysis. Here, in overview of the cash coming in and cash going out is showcased. Although this may seem very similar to the profit and loss statement, it is actually very different. The top line of the cash analysis showcases the net profit of the business. The net profit is the income that is generated after all expenses including taxes and interest are paid. The cash flow analysis showcases any equity investment that has and made into the business, any increase in borrowings, accounts payable, accounts receivable, as well as any asset purchases that are made and any dividends that are distributed. Below is an image of a standard cash flow analysis:

Cash Flow Analysis
Cash Flow Analysis
Cash Flow Analysis Image
Cash Flow Analysis Bar Graph

When developing a financial plan, this is where most people start to have some issues. Most people commonly understand the concept of a profit and loss statement as it is simply a measure of income generated minus all expenses. With a cash flow analysis, certain metrics and deductions are made that do not impact the profit and loss statement. One of the key things to note as well is that if you are taking on a business loan to develop your business then the interest is deducted from the profit and loss statement while the repayment of principal is deducted from the cash flow analysis.

Once the cash flow is completed then it is time to finalize the balance sheet. This is a measure of all assets owned by the business minus all liabilities. Common assets that are acquired by businesses include furniture, fixtures, and equipment, the cash that is held in a bank account, as well as any inventories that are carried. A balance sheet looks like this:

Balance Sheet
Balance Sheet

As it relates to liabilities, this includes any payables that are owed to third parties, tax liabilities, as well as any outstanding business loans or lines of credit that have been taken out in order to launch or expand the business. The value of the company is calculated by subtracting the total value of assets minus the total value of liabilities. It should be noted that there are certain instances where you may have negative equity. However, this is done more of a managerial standpoint basis. If you are having certain issues developing your balance sheet or if you are an existing business then may want to consult with a certified public accountant that can assist you with developing this part of your business plan.

On a quick side note, your certified public accountant will be an invaluable resource not only for managing your tax issues and accounting issues, but also for business advisory perspective. They can assist you greatly with developing your business plan while providing you with insightful advice about the best way to expand your business or organization. Most CPAs are very affordable for most small business owners.

Once the profit and loss statement, cash analysis, and balance are completed then it is time to carry out some other calculations. First, you’re going to want to take a look at your breakeven analysis. This segment of your financial plan will showcase how much revenue you need to generate on a monthly or yearly basis in order to reach breakeven. This is a very important metric that most business owners use in order to ensure that they can reach profitability quickly. This calculation is completed by taking a look at your total fixed operating expenses and dividing by the amount of gross profit that needs to be produced on a monthly or yearly basis. A sample breakeven analysis is shown below:

Breakeven Analysis
Breakeven Analysis

A common metrics table is usually included within the financial planning part of the business plan document. Key metrics that are examined in this table usually include sales growth, assets to liabilities, assets to equity, as well as certain metrics regarding liabilities to amount of cash on hand. Some of these metrics are a little bit more theoretical in nature given that certain circumstances do not occur in the actual business world. However, many of these metrics showcase the overall financial health of the business. Many lenders as well as many investors frequently want to see these metrics charted within a business plan.

Business Ratios Chart
Business Ratios Chart

Products, Services, and Operations

In this section analysis, it is time to showcase the products and services that will be offering to your customers or clients. This is the section of the business plan that can be a little bit more sales focused as a relates to connecting with your investor or funding source. Generally speaking, a more scientific and clinical approach is taken to writing the rest of the business plan to showcase the feasibility and economic viability of your planned business. In this section, however, you can thoroughly discuss why you are offering an outstanding product or service that will be in demand among a number of consumers or clients. In most business plans, this section of the business plan ranges anywhere from one to four pages. If you are offering a number of products or have developed a proprietary product then you can also include images in this section of the document.

One of the other things that is frequently discussed in this section of the document as well is the overall operations of the business. This includes discussing matters such as customer service, hours of operation, layout of any retail facility, and other pertinent information as it relates to properly providing the service or selling your product to the general public.

Another point that is discussed in the products and services section is the pricing that is associated with your product line. It should be noted that if you offer a number of products, such as hundreds of products, it is in your best interest to reference a product catalog that can be seen separately from the business plan. One of the common mistakes that I see when I’m reviewing business plans that people have written on their own is that they list every single product that they offer in this section of the business plan. In order to keep the business plan as short as possible, a product catalog can be included as a separate document so that a funding source can review it should they choose to do so.

The Financing

In this section of the business plan, in overview of the capital you are seeking to raise is discussed. Most importantly, a table should be created that allows you to show the funding source to see exactly how these funds are to be used. If you are purchasing substantial pieces of tangible assets then you may want to list them all within the section, but keep in mind that brevity is important. Below is a sample table that showcases what a use of funds chart generally looks like:

Use of Funds Table and Chart
Use of Funds Table and Chart

Other important aspects of this section of the business plan include discussing the equity that we provided to a potential investor should they place money with your company. Additionally, the current ownership structure the business is discussed in the section as well. Finally, this section generally ends with an overview of the exit strategies that will be associated with your business.

In nearly all circumstances, as it relates to exit strategies, a business is sold, in whole, to a third-party. While many people discuss the usage of an initial public offering, the fact of the matter is that very few companies actually go public. In fact, there are only tens of thousands of business is in the United States are publicly traded. The remaining 100 million businesses are privately owned and operated, and are eventually sold to third parties for substantial earnings premium. One of the key things that should be discussed with in your exit strategy is the anticipated price to earnings multiple that similar businesses in your industry self or on an ongoing basis. This will assist the funding source, especially an investor, with an understanding of how much the business could potentially be worth by the 3rd to 5th year of operation. In many other instances, you can also include a pro forma valuation table that showcases the potential valuation based on profitability.

The Overview of the Organization

In this section the business plan, general information regarding launch dates, mission statements, mission statements, and organizational values are showcased. This section of the business plan is usually placed in the middle of the document. In business plans that I write professionally for people, I put this as the fourth section of the business plan.

One of the key components of this section of the business plan is the development of a proper mission statement. For many smaller businesses, this can be less of a priority as are simply trying to convey that you are trying to provide a great product or service to the general public, while developing a profitable enterprise. For larger companies, especially those with proprietary technology or a proprietary operating methodology, this is a little bit trickier as you want to clearly state exactly what you’re organization is looking to achieve on a very large scale level. This is something it takes a little bit of time to develop, and you can actually keep this part of the business plan open ended as you complete the rest of the work. Many people often take one month or two to develop the proper mission statement. It should be noted that this is a relatively small aspect of the overall business plan, and most financial institutions – especially for smaller businesses – do not place much weight on a properly developed mission statement.

The Marketing Plan

Of all the sections of developing a business plan that I enjoy writing, the marketing plan is my favorite. This is primarily due to the fact that you can outline exactly how you want to position your product or service and business to the general public. In this section, is important to start with a bullet outline of specific objectives that you’re going to look to achieve on a yearly basis. This includes discussing how to maintain a major presence on social media, carrying out comprehensive print campaigns, as well as developing a loyal customer base that will refer customers or clients to your business on an ongoing basis.

One of the things that I often include in the section of the business plan is a breakdown of all revenues generated by the business by product category. Below is an image of what this table looks like:

Revenue Center Chart
Revenue Center Chart

As you can see, in this example I show that three different products and two different services are being provided to the general public. This is an important table as well as an important part of the marketing plan as it shows exactly where your revenue centers and profits are coming from on a yearly basis. This is something that can be thoroughly discussed within the marketing plan as it relates to pushing specific services to your potential customer base.

An overview of the yearly sales, in word format, is often discussed as well in this section. Primarily, in overview of first-year sales and second-year sales are thoroughly discussed while third year to fifth year sales are mentioned briefly to showcase the operations of the business once it is fully established.

The marketing strategies that you’re going to use to promote your business need to be thoroughly discussed within the section of the business plan. Generally, this section should run one to two pages. This includes, again, discussing all the ways in which you will promote your business. One of the interesting things about writing a marketing plan these days is that a heavy focus must be placed on online marketing activities. This includes the use of a proprietary website as well as maintaining a presence on popular social media platforms such as FaceBook, Twitter, and Instagram. Many marketing plans also include a discussion regarding usage of platforms like YouTube to develop video commercials and presentations that will showcase products and services to the general public. One of the interesting things about online marketing is that many of these platforms are completely integrated with one another. If you develop a video presentation for your business you can seamlessly share it on other social media platforms once it has been uploaded to YouTube. These are all topics that should be very thoroughly discussed within your business plan.

For local and regional businesses, special importance remade in regards to showcasing a traditional print marketing campaign, distribution of mailed flyers and brochures, as well as establishing relationships with other organizations in your target market. Many small business owners find that they are able to generate a substantial amount of business by becoming members of their local chambers of commerce as well as joining a number of other small business organizations. For instance, when we develop a business plan specific for a real estate brokerage we focus heavily on that individual and business becoming enrolled in his many organizations as possible in order to develop a referral and business network.

The Personnel Summary

In this section of the business plan, we outline of the organizational structure is provided. Below is an image of a simple organizational structure specific for a delivery business:

Organizational Chart
Organizational Chart

Additionally, this section of the analysis also includes a chart showcasing the different types of employees will be hired, their pay, and headcount of the business. A sample chart showcasing this looks as follows:

Personnel Summary Chart
Personnel Summary Chart

One of the other common things that is put into this section business plan is the biography of the founder. This includes discussing all relevant biographical information, work experience, and educational credentials. This can be kept somewhat short and it should not exceed more than three to four paragraphs. Generally, we write a biography for the owner and then reference the fact that a resume or curriculum vitae is available upon request or is it included as part of the overall business plan package.

SWOT Analysis

This is usually one of the appendices that we include in each of our business plans. A well-developed SWOT analysis focuses on the strengths, weaknesses, opportunities, and threats that are going to be faced by the business on ongoing basis. Generally, we do this in a bullet point fashion and it should not be more than one page.

Critical Risks and Issues Section

As any entrepreneur knows, nothing ever goes according to plan. As such, it is important that a page that is specific to the issues that a business may face is included as well. This is of tremendous value to any potential reader – including private investors and financial institutions – as it will show that you have properly prepared for major issues that may occur as you progress are your business operations. Generally, we break this down into five sections.

The development risk paragraph focuses on issues that could occur during the course of start up. The primary development risk for most startup companies is their ability to acquire the capital that is being sought in the business plan, while concurrently launching revenue-generating operations.

The financing risk paragraph focuses heavily on the usage of funds, and what would happen in the event that the business does not work out as planned. For instance, an example of discussing the financing risk for restaurant would be to focus on the fact that a substantial amount of furniture, fixtures, and equipment as well as other tangible assets are going to be purchased with any debt capital or equity capital from a funding source. The high margins that are generated from food and beverage sales generally offset ongoing risks relating to this type of financing. In the event that a business is liquidated, the tangible assets can be used to pay back any funding source.

The marketing risk paragraph is followed after the financing risk paragraph. This discusses the marketing strategies that will be used in order to promote interest in the business and its products and services. It should be noted that many marketing strategies are relatively expenses, and they can often not produce the revenue results that are anticipated in a business planning document.

Valuation risk is followed by the marketing risk section. This discusses the potential returns on investment for an investor should the business not produce as much profit as anticipated in the financial plan. This can be done on a bulleted point basis.

Finally, exit risk is discussed. For many businesses, it takes anywhere from 1 to 2 years to properly prepare and sell a business to a third-party. As such, issues pertaining to liquidity as well as how long it would take to properly sell the business for an appropriate price to earnings multiple should be discussed in this paragraph.

Although this is a lot of content, this can all be included on one page.

Reference Sources

In this section of the analysis you should include a list of all reference sources ever used in regards the business plan.

Executive Summary

This now takes us to the executive summary. Of all the sections of the business plan, this one is the most important sections is it is designed to capture a reader’s attention immediately. There are a number of different ways that you can go about writing your executive summary, but we have developed a streamlined approach that allows the executive summary to state exactly what you’re looking to achieve all acting as a guide for the rest of the business plan. A well-written executive summary should be about two pages in length.

First, your opening paragraph to discuss the type of industry they are operating within, the name of the business and where you’re located, and how much capital you’re looking to receive in order to launch or expand operations. The names of the founder and owners should also be included within this paragraph. One of the other things that we include is the anticipated start date or quarter of starting or expanding revenue-generating operations.

Second, a two paragraph overview of the products and services that you are selling should be included next. This includes any specific information regarding any proprietary technology or proprietary service that you will be offering to the general public.

Third, an overview of the management should be included as well. This is important if your business requires specialized expertise is required by the owner or any key member of the management team. You do not need to put a substantial amount of biographical information in this section edits it is covered in the personnel summary. References to varying aspects of the business plan should be included as well. For instance, if you reference your background in having a substantial amount of retail experience then you should direct readers to the section of the business plan that discusses your background by chapter name.

Fourth, a quick overview of the anticipated profit and loss statements over a three-year period should be included as well. A sample image of house this looks is shown below:

Profit and Loss Summary Chart
Profit and Loss Summary Chart

Finally, an overview of how you intend to expand the operations of the business should be included as well. This includes discussing substantial reinvestment into marketing infrastructures, developing new product lines, creating new service lines, expanding inventories, as well as the potential development of additional locations if this is applicable to your business.

Expanded Profit and Loss Statements and Cash Flow Analysis

In this section business plan, it is common to include a profit and loss statement and casual analysis that is showcase monthly for the first year of operation as well as quarterly for years two and three. These charts looks as follows:

Profit and Loss Year 1
Profit and Loss Year 1
Profit and Loss Year 1 Cont.
Profit and Loss Year 1 Cont.
Year 2 Profit and Loss Statement
Year 2 Profit and Loss Statement
Year 3 Profit and Loss Statement
Year 3 Profit and Loss Statement
Year 1 Cash Flow Analysis
Year 1 Cash Flow Analysis
Year 1 Cash Flow Analysis Continued
Year 1 Cash Flow Analysis Continued
Year 2 Cash Flow Analysis
Year 2 Cash Flow Analysis
Year 3 Cash Flow Analysis
Year 3 Cash Flow Analysis

Preparing Your Business Plan For Distribution

The vast majority of business plans that are developed are transmitted electronically as either a word or PDF document. We strongly recommend that if you are distributing the business plan that you send as a PDF document as this is locked and cannot be edited by any third party. Additionally, if there is a substantial amount of sensitive material in your business plan then you can create a watermark that acts as a numbering system to parties that have received the document. This will ensure that any proprietary information or intellectual property cannot be shown to a third party. One of the common things that is also included in a business plan is a standard nondisclosure agreement. This can be included in the business plan right under the table of contents or it can be attach as a second document that must be signed by a third party before the business plan is distributed.

If you are planning to submit your document in paper format, then we strongly recommend that you take it to a printer that can put the business plan into a binder or nicely laminated folder. These companies typically charge a minimal fee for printing out a 30 to 50 page business plan and including them in a bound manner.

The Table of Contents

Most business plans follow a 7 to 9 chapter format. How you structure the business plan is completely up to you, but this is the common two types of formats that we use when developing a business plan. The seven  chapter business plan our formatting is as follows:

Chapter 1 – Executive Summary

Chapter 2 – The Financing

Chapter 3 – Products, Services, and Operations Overview

Chapter 4  – Strategic and Market Analysis

Chapter 5 – Marketing Plan

Chapter 6 – Personnel Summary

Chapter 7 – Financial Plan

SWOT analysis

Critical Risks and Problems

Reference Sources

Expanded Profit and Loss and Cash Flow Analysis

In a full-scale nine chapter business plan, which include certain elements additional to a standard format a plan we use the following table of contents

Chapter 1 – Executive summary

Chapter 2 – The Financing

Chapter 3 – Products, Services, and Operational Overview

Chapter 4 – Overview of the Organization

Chapter 5 – Strategic and Market Analysis

Chapter 6 -Key Strategic Issues

Chapter 7 -Marketing Plan

Chapter 8 – Personnel Overview

Chapter 9 – Financial Plan

SWOT analysis

Critical risks and issues

Append reference sources

Expanded Profit and Loss and Cash Flow Analysis


Overall you can you can see that developing a business plan is a pretty in-depth and involved process. Generally speaking, it takes about two weeks to four weeks to develop a proper business plan. Professional writing services, like the ones that we offer on a customized basis typically take about a week to complete. One of the ways that you can greatly expedite this process is by acquiring a template that already has the necessary market research and financial model ready to be modified.

On this website, again, we have 550 different business plans that are all specific to their title. Each of these plans includes all the necessary industry research, economic analysis, and Excel model that would be needed to complete a business plan on your own. In areas that you need to determine on your own, we provide a comprehensive guide on how to most effectively complete the sections of the document.

In closing, thank you very much for taking the time to read this article and we always encourage everyone who has any questions to leave feedback in the comments below or you can email us directly at info@bizfundingresource.com. You can also reach us during normal business hours via the live chat.

Business Plan for a Venture Capitalist

riting a business plan specific for a venture capitalist or private equity firm is very difficult. Unlike a business plan that is specific for a bank or lending institution, a venture capital firm is going to want to see that the business is able to generate a substantial return on their investment on a year on year basis. Generally speaking, most venture capital firms and related private investment companies want to see a return of 30% to 40% per year compounded for at least five years to seven years. This is due to the fact that these firms must answer to their investors who have provided them with the funds that they use to invest in third-party businesses.

When you are developing a business plan specific for a venture capital firm – you’re going to need to have a number of tables that would not commonly be found in any other type of business plan. A very aggressive focus needs to be placed on the profit and loss statements, cash flow analysis, balance sheet, breakeven analysis, business ratios page, and information regarding the burn rate of the business. Most private investment companies are going to want to see a substantial diagram of how the company will be using their capital over a one year to two year period (burn rate). This is due to the fact that there are a number of clauses within investment contracts between entrepreneurs and venture capitalists that allow the venture capital company to retake control of the business in the event that the entrepreneur does not hit specific milestones. These clauses can include an overview of how the cash is to be used over a 12 month to 24 month timeframe. As such, proper business planning is needed so that when these investment contracts are developed – the newer has a very clear understanding of what goals need to be had in order to remain in control of the company.

On a side note, it is very important that the entrepreneur work with an attorney during the entire negotiation process. There have been numerous instances when an entrepreneur has actually lost their company given the fact that they have not hit the milestone set forth in the investment contract. A qualified attorney can put – in layman’s terms – an explanation of each thing that the entrepreneur must achieve in order to maintain control of their business will also remaining within the letter of their investment contract. One of the downsides to working with venture capital firms, private equity groups, and similar entities is that they are able to routinely submit a substantial amount of control over their investment throughout the life of the business. This is especially true with new work just to establish companies that deal specifically in technology.

As these businesses typically do not generate any revenue at the onset of their operations, these investment groups can easily extract patents and other intellectual property from a corporate entity in the event that the business does not become profitable. As such, an entrepreneur should have a substantial understanding of what they’re getting themselves into when they accept investment from a venture capital group. As we have discussed a few times in this website, most entrepreneurs are so hungry for capital that they are willing to take the first deal that comes to them given that they feel that no other company will be able to offer them the money that they need. However, even though only 1 in 250 companies are financed through venture capital – once an initial offer is made it can be assumed that other companies would express a similar interest. Additionally, entrepreneurs will often use the initial offer for a venture capital group so that they can approach other companies to match or exceed their offer. Again, this is why an attorney is an invaluable resource of assistance when going through this process as they will be able to negotiate on behalf of the business and on behalf of the entrepreneur. We will continue these discussions in further articles that we post to this website.

One of the more challenging things to deal with when developing a business plan for a venture capital group is the valuation tables that are frequently found within this document. There should be analysis regarding internal rate of return, net present value, the profitability index, and other common these metrics are used to determine the valuation of the company. This can be both an art and a science. One of the difficult aspects of doing a valuation on a business that does not yet have any assets or is producing any income is at an appropriate discount rate must be applied to the overall cash flows of the business over a specific period of time.

Generally, for technology-based businesses that have not yet begun revenue generation – discounted rate ranges anywhere from 30% to 60% depending on how risky the investment is. The higher discount rate always represents a much more risky investment for a angel investor or private investment group. This is also one of the key negotiating points when working with a private investment group is what discounted cash flow rate will be applied to the valuation. One of the other things that many people do within a venture capital focused business plan is to take a look at the known valuations of established public companies that operate in a similar capacity.

These valuations are almost always based on a price to earnings multiple. For major technology companies, the P/E ratio can easily exceed 50 to 100 times the previous year’s earnings. Of course, there is some level of irrational buying and selling of the stocks given that people are putting a huge premium on the future earnings of the business. During the dot-com bubble of the early 2000’s, the valuations of Internet-based businesses were outrageously high which precipitated in a stock market crash. However, industry has become much more in tune with what appropriate valuations are for specific types of technology businesses. One of the other industries has seen a significant amount of increase as it relates to valuation is the biotech industry. This is going to continue to be the case given that there are now numerous advances being made on a yearly basis as it relates to the use of biological focused technology.

If an entrepreneur is having trouble developing the valuation tables that are again common within a venture capital focused business plan and they need to speak with a certified public accountant that can assist with these matters. An accountant can put in a number of different tables that show all the type and types of valuations and provide the underlying reasoning for evaluation. Given the rapid growth of technology on a worldwide basis, a number of people have become experts in the field of valuing general technology businesses, biotechnology businesses, and other companies that are frequently financed by venture capital firms in private equity groups. It should be noted that these valuations can be extremely expensive with experts charging $10,000 to $30,000 to complete the study on behalf of an entrepreneur or new company. In the long run, especially if the business has received a significant amount of interest from private investors – the investment of having a business value and valuation expert complete the study may be worth it given that it may provide the door with substantially more equity than they initially thought.

As with all business plans, an expansive marketing plan is going to be needed. This is especially true for technology-based business given how competitive it is to have a brand name become highly visible within this market. Most venture capital firms want to see that a qualified marketing and advertising firm will be hired in order to promote the company’s service or product line. One of the ways that many technology businesses become popular is to the use of social media marketing especially when they are offering a highly unique piece of technology that is going to change the way that things are done in the world. As such, a marketing firm should have a public relations division that can assist in entrepreneur with expanding their visibility for their brand name as well as any product or service that they are providing to the general public. This, of course, can occur even before the business starts to generate revenue so that there is a significant amount of press available for when the company commences revenue generation.

In closing, writing a business plan for a venture capital firm is a very different undertaking then receiving a business loan. A much more illuminating presentation needs be made given that many venture capital firms review hundreds if not thousands of business plans on a weekly basis. One of the things that many entrepreneurs will do in order to stand apart is to actually produce two documents. One is known as the traditional business plan and the other is a one page summary showcasing exactly what the business does very succinctly and how much capital they’re looking to raise. This elevator pitch can be invaluable especially if you do not feel like distributing the full-scale business plan to the general public.

Bootstrapping a Business

One of the most common ways that a new business is started his by a direct investment from the owner. This is commonly known as bootstrapping especially if the entrepreneur is working on a very small budget in order to get the business up and running. While this may be a struggle in the beginning stages of the business, the benefits for bootstrapping or self funding a business are tremendous.

Foremost, the owners able to start the business completely with their own capital and they are going to be able to retain a 100% ownership interest as the business grows. If the owner is able to bring the business to profitability within a two-year period than they are going to be an excellent candidate for a business loan away working capital line of credit for expansion purposes. This eliminates the need for a private investor which would dilute the ownership interest of the business substantially.

Most banks and lenders are very receptive to providing capital to companies that have been in profitable operation for a two-year period. As we discussed throughout this website, there are a number of different loans and start fund financing available for start up businesses, but they do come at a price and there these are only available for specific industries. For companies that require a substantial amount of working capital, most banks and lenders are not willing to provide this money and that it is for something like a professional practice including doctors, lawyers, accountants, or other individuals that a hold  professional license to practice.

One of the other benefits to using your own capital start a business is that when it does come time to raise capital – even if you need funding from a private investor – the terms which will receive the funding will be substantially better than that of when you’re startup business. Companies that are operational in profitable already have a substantial amount of value built into the company – and as such, they can negotiate a much lower ownership interest in the business among a private funding source. Most importantly, this will allow the entrepreneur to obtain substantial control over their company even in the event where things do not go as planned and the private funding source need some additional capital. This is going to be one of the key things that we discuss on a continuous basis throughout this website at his as it is a topic that we are frequently asked about on an ongoing basis.

Bootstrapping a business or using owner provided funds for company also allows these companies to grow at a much quicker pace given that less time is allocated towards having the source capital. Smartly, many technology businesses rely significantly on the talents of their owners and related companies are able to start their businesses for a very low cost. As such, if your business does not require substantial amount of startup capital and it may be in your best interest to use your own funds in order to get things up and going before you seek outside capital.

One of the ways that entrepreneurs will frequently fund their business with is through the use of credit cards. This is an expensive option for most entrepreneurs given that most credit cards are unsecured and have an annualized interest rate ranging anywhere from 10% all the way to nearly 30%. As such, unless the entrepreneur is able to generate substantial amounts of revenue from the usage of buying assets via a credit card and is typically in the best interest to you savings or other types of capital in order to fund business operations. In some cases, retirement phone funds can be used for this establishment of a new business. However, there are a significant number of considerations that need to be put in place if the individual is going to use retirement funds from a 401(k) or individual retirement account. This is primarily due to the fact that there are tax consequences with using funds from these accounts. As such, if an entrepreneur does intend to use funds from a retirement account and they absolutely need to speak with a certified public accountant in order to ensure that they are remaining within the letter of the law as it relates to the removal of these funds. Your account when were related professional may need to establish a new account or file appropriate paperwork in order to showcase the fact that the money being used from a retirement account is being used for a qualified purpose. As always, if you intend to start a new business then you should always consult with a certified public accountant, lawyer, and related professionals before engaging in any activity as they do have varying tax consequences.

In conclusion, bootstrapping a new company can be when a rewarding experience or sport newer given that they did not need any outside capital in order to bring the business to profitability. It also provides a significant advantage as it relates to raising capital down the road given that the terms that are going to be offered are going to be much better than when the business was just a concept or start up.