Writing a business plan often strikes fear into the hearts of business owners and entrepreneurs. That’s because, traditionally, writing a business plan is seen as a painful experience filled with anxiety and nail biting. What’s the solution to this madness? Write a fast and simple business plan that generally outlines your idea. And don’t spend very much time writing this document. If you write more than ten pages, you’re too far ahead of yourself. You don’t yet have the facts, which can only come from testing the product on potential customers.

Your business approach might benefit greatly from developing an Agile Business Plan™. This concept is based on writing a simple document that describes your business model, but is written after the first iteration of your product. I advocate following the same methodologies as those described in the first section of the book, ‘Plan, Finance and Start Your Business Right Now!‘. The book defines how to use these fast ‘agile’ strategies to launch (or revamp) your business.

A business plan is only a useful tool when you have a very good understanding of your customer. Here’s the important message:

Wait to write a business plan until you’ve gone through at least one iteration of developing your product and listening closely to customer feedback.

A business plan is still very important; just don’t let the process of planning get out of control. The exercise of creating a business plan forces you to think clearly about the company’s potential. But as your knowledge of the product you’re creating grows, so should your business plan—accurately and based on facts rather than assumptions. You define the business as you go along, in the same manner as you develop the product— iteratively.

Refining Products and Business Models

Product development and business planning go hand-in-hand, as the testing process often reveals the business model. You can develop your business plan along the same timeline as your iterative product testing and development. Your business model may change dramatically after you develop a prototype and begin making iterations.

The fast, iterative approach to agile product development provides a natural timeline for refining and improving your business model. Refining a business model takes place after each iteration.

One of the primary goals of testing your product is to find the most appropriate business model. If you write a plan without testing your idea, the plan is often useless as soon as the ink is dry. You have no way of knowing critical information before testing the product.

As you update your planning document with data derived from each level of testing and subsequent product rollouts, you’ll find that the plan is no longer a just a plan. The document can evolve into an operations manual based on actual facts.

Flexible Business Models

Flexibility in adopting new ideas based on feedback is key to the evolution of your business. One of the problems with a business plan is it’s just that—a plan. An unproven idea. Avoid becoming caught up in sticking exactly to any plan you’ve created, whether it’s a written business plan or a plan in your head that you believe is the only possible outcome. Your customers should dictate how your business evolves, not your plan. Nothing is ever written in concrete. Your focus revolves around developing a solid product and understanding your customer. Anything less falls short of giving your customer what they want and prevents you from driving maximum revenue into the company.

Write A Fast And Simple Business Plan

With a simple business plan and the results from a test period, you can begin to understand how much cash will flow in and out of the business. You should also have a good idea whether you’ll have sufficient net revenue to make the business worthwhile. Importantly, you’ll know how much funding is likely required to start the business and if the company will generate enough cash to pay back any loans or investors. For the most part, businesses run into a cash crunch when they fail to accurately identify how much capital is needed to support the business through its first three years.

Primarily, the most important reason for writing a business plan is to discover, for yourself, whether your business idea has merit. You must convince yourself whether starting a business is worth the effort. Is the business model worthy of your time or of presenting to investors? Why would an investor give you money before seeing proof that the idea has been tested on some level and is likely viable? Small businesses typically take at least three years before achieving any degree of success. That’s a lot of your life to invest in a business that may or may not succeed. It’s tremendously practical to decide whether the business is a good idea before spending that kind of time and effort.

If you believe that starting your business is a foregone conclusion, remember that the jury is out until you have the facts in hand. Keeping an open mind dramatically improves your odds of success. Test rather that assume.

After you’re convinced the product is viable, your task is to write a short business plan that’s based on what you’ve learned from the development process and to define goals for the next iteration.

The best way to write a business plan is to write it simply and quickly.

Don’t spend a lot of time writing the business plan. Write a very short business plan with simple, ballpark financial projections. There are three main areas to focus on:

• Describing the product from the customer’s point of view, not yours. Why will the customer buy the product and what problem does it solve for them? How much are they willing to pay (not how much you think they should pay). If you don’t know this information then you shouldn’t be writing your business plan yet.
• Understanding how much everything costs to make your product and how much net profit you’re likely to earn. If you’ve tested a prototype of the product, then you’ll likely know this information.
• Setting goals to achieve in the next iteration of the product.

That’s it. At least, that’s it for the first iteration of your business plan. The business model will become more sharply focused with each iteration, providing an increasingly clearer picture of the business. You’ll have a much better understanding of your financial forecasts, costs, personnel, marketing, operations and future products.

This is an on-going process that becomes the lifeblood of your company, as incorporating customer feedback organically leads to innovation. Knowledge of what your customer wants translates into a strong, positive cash flow driven by a flexible, adaptive business model. The bottom line? Innovate and thrive.

 
»» Go To The Next Section:  How To Write A Simple Business Plan

The goal for series of blog postings is to provide you with a very fast and simple way to write the first iteration of your plan. This is a basic and rough outline of the business concept. You should not waste time trying to estimate the net profit down to the exact penny. This is information you don’t yet know. For now, set aside a limited amount of time to write a very short business plan that outlines the most basic of facts. Just get the essentials in order. Think of this exercise as akin to developing a concept paper that frames the first pass at your business model. You might want to limit the number of pages to ten or less (less is better), just to keep the concept contained and your time limited.

Six Basic Business Plan Topics

A fast business plan briefly (and I mean briefly) addresses six topics. The following is a writing exercise, complete with simple writing assignments. You should complete this assignment in hours, not days. The point is to write a paragraph on each topic to help you think through the basic concepts of your business and get it down on paper. You don’t need to buy business plan writing software yet. Wait until you’ve convinced yourself that the idea is viable.

To begin, you can simply start writing notes in a notebook or typing your thoughts into a word processing program. You can layout the financial section in a spreadsheet if you prefer. Using a spreadsheet is helpful but not necessary yet. You’ll be creating sections that address six topic areas.

The six basic topic areas that you’ll write about are:

• The Business Idea
• Products or Services
• Marketing
• Management and Operations
• Financial Forecasts
• Writing The Executive Summary

For now, focus on writing just a paragraph or two for each topic. Writing these sections gives you the chance to think through each topic and begin to clearly define the company. Focus on just getting the basic idea down.

In the next sections, we’ll go through each topic and discuss how to think about these essential five topics of your business. As we go along, I’ll give you clear directions on how to quickly write each section. In each section you’ll be given a series of simple questions to answer, laid out in the form of a writing assignment. Try answering the questions briefly, then come back later and expand on each point. Don’t get bogged down on any one question. If you don’t know the answer, just make a note that you need to research that topic and come back to it later. Most importantly, just keep writing…

 
»» Go To The Next Section:  Write A Simple Business Plan: The Business Idea section

Your Business Plan Writing Assignment:

In your Business Idea section, write brief answers (one or two sentences) to these questions:

1. In what industry is the business? (Example: The business is in the Restaurant Industry.)
2. Where is the business located? (Example: The business will be located in San Francisco, CA.)
3. Is the business a start-up or an existing business? State the company’s current situation (prelaunch, start up, existing, etc.) and, if it’s an existing business, when it was formed. (Example: I am investigating the financial opportunity for a start-up restaurant business.
4. What products or services will the business provide to its customers and what problem does the product/service solve for the customer? (Example: The restaurant will be a fast food business selling sandwiches, as there are no other fast food sandwich businesses nearby, etc.)
5. Who are the company’s primary customers and why they need your product/service? (Example: The target customers will consist of the local business population and students from a nearby university who want a good, fast sandwich for a fair price.)
6. From where will the business buy its inventory? Or, if your business provides a service, who are the service providers? (Example: We will source the ingredients for our products from nearby wholesale suppliers.)
7. How is the business legally formed (Sole Proprietor, LLC, Corporation) and who are the owners? Describe the owners experience in the industry, or who the owners will rely on for guidance if their experience is limited. (Example: We will discuss the suitable legal formation with our attorney if we determine that pursuing the business is appropriate. The owners have five years experience managing fast food restaurants.)
8. How much money, or capital, have the owners invested in the business so far? (Example: The owners have invested about $2,000 in their research efforts.)
9. State the purpose of the business plan (start up investigation, funding, planning, etc.). (Example: The purpose of this business plan is to determine whether the business idea can generate sufficient net income to warrant going forward with the idea.)
10. Discuss the biggest strengths and (importantly) the biggest weaknesses. Give a lot of thought to what the problems might be with the concept.

 
»» Go To The Next Section:  Write A Simple Business Plan:  Products and Services section

After reading this section, the reader should know exactly what the company sells; from where the company gets its inventory, if any (or from where it sources them); and the gross margin for each product.

Your Business Plan Writing Assignment:

Write a paragraph describing each product or service the company will offer. At the end of each paragraph, state how much the company will charge for each product (which is the retail price or revenue). Make sure your retail price is realistic, based on your competitor’s pricing.

Then write down how much the product will cost the company to buy or manufacture (this is called the cost of goods). Make sure your cost for that product is realistic, based on quotes from suppliers. Now, subtract the revenue from the cost of goods to figure out the gross margin per unit for each product. The gross margin is how much money you keep, before paying the company’s expenses (like your salary).

The section will look something like this:

Product/Service #1: Write a product description and discuss realistically why customers will buy the product (and not just because ‘it’s great!’). Discuss briefly why customers will choose your product over your competitor’s product. Then state from where the company will purchase the product or how the product will be manufactured (or describe the service providers the company will employ.) Then do the math to come up with each product’s gross margin:

Gross Margin per Product

Retail Price (Revenue): $10.00
Cost of Goods:             -$ 5.50
Gross Margin:               $ 4.50

Do this for each product or service you’ll offer. You’ll need this information for completing the Financial Forecast section.

Use this information to find your Gross Profit Margin percentage, commonly referred to simply as your ‘margin’. The margin is how much money you keep from each sale. The money you keep is what you use to pay the bills. Generally, it’s easier to make a living selling high-margin products. Anything less than 15-20% leaves little left over to pay salaries and expenses. Here’s the math to find your margin:

(Revenue-Cost of Sales)/Revenue

Here’s how that translates using our example:

$10.00 minus $5.50 = $4.50 divided by $10.00 = .45 (or 45%)

 
»» Go To The Next Section:  Write A Simple Business Plan:  Marketing Plan section

Your Business Plan Writing Assignment:

Write a few sentences that answers each of these questions:

1. Describe in detail the company’s industry. Go online and find recent statistics that show the size of the industry and include those statistics in this section.
2. Describe exactly the company’s target customer. Why do they need your product? Where are they? Go online and find recent statistics that show the total number of customers that exist in your region.
3. Name at least three ways customers currently find the type of products your company will offer.
4. Name at least five advertising methods the company will use to attract customers and describe each one.
5. Who are the company’s major competitors? Why are they good? Why are they bad? What are their prices? Why will customers buy your company’s products rather than the competitions? How will your company beat the competition?

 
»» Go To The Next Section:  Write A Simple Business Plan:  Management and Operations section

This section also gives you the opportunity to lay down the foundation of how the company will actually function. As you write this section, you’ll be creating a simplistic version of how the company will function day-to-day, which is an important first step in truly organizing the inner workings of the company.

Your Business Plan Writing Assignment:

Write a few sentences that answers each of the following questions:

1. Explain in general terms how the company will function. For example, if the company is manufacturing its own products and then selling the products through a distribution chain, describe this cycle step-by-step.
2. List all of the company’s suppliers for sourcing products, or suppliers that will provide the raw material if you’re manufacturing your products.
3. List all of the necessary employees and describe their function. Discuss the monthly salary allocation for each employee and include an additional 30% for benefits and overhead, including yourself. You’ll need these numbers for the Financial section.
4. List the owners and provide a short (one paragraph) bio for each one that describes their background and what skills they bring to the company. This is a good place to ask yourself whether the owners have adequate experience to successfully run the business.
5. List the company’s advisors (an Advisory Group is always a good thing to have) along with the company’s accountant, attorney and bank.
6. List the company’s suppliers and discuss briefly their general payment terms and delivery timeframes.

 
»» Go To The Next Section:  Write A Simple Business Plan:  Financial Forecasting section

When you get to the end of this section, you should be able to tell whether the company will earn enough money to make the whole process of starting a business worthwhile or not.

Note, though, that this is a basic and simplistic method of estimating net profit. This does not take into account other important considerations such as taxes, dividend distributions and a host of other financial considerations. This is strictly a quick and easy way to gain a basic understanding of the company’s potential.

After you’ve completed this section and think you may want to proceed with the business, bring your calculations to an accountant. Unless you have formal training as an accountant, the best way to provide an in-depth analysis of your company’s financial projections is to have the forecasts professionally prepared. Then you can expand the business plan to include more detail and the accountant’s financial forecasts.

Your Business Plan Writing Assignment:

Follow this sequence to determine the company’s basic net profit forecast:

Estimate Your Net Revenue

First, we’ll figure out how much net revenue the company might make over three years. You do this by multiplying the gross margin estimates you came up with in the Products and Services section by the number of units you hope to sell. Think about how and why sales might increase (or decrease) over the first twelve months. Be conservative, because it’s far better to under-project rather than over-project.

Net Revenue Based on Units Sold for Product #1:

Jan: $4.50 x 20 = $90.00
Feb: $4.50 x 25 = $112.50
Mar: $4.50 x 30 = $135.00
Apr: $4.50 x 35 = $157.50
May: $4.50 x 40 = $180.00
Jun: $4.50 x 45 = $202.50
Jul: $4.50 x 50 = $225.00
Aug: $4.50 x 55 = $247.50
Sep: $4.50 x 60 = $270.00
Oct: $4.50 x 65 = $292.50
Nov: $4.50 x 70 = $315.00
Dec: $4.50 x 75 = $337.50

12-month Total = $2,565.00

Do this for each product or service and then total each product’s net revenue together to come up with a 12-month net revenue forecast for all of your products or services. Let’s say, for our example, we come up with a total net revenue of $150,000 for all of our products for the first year.

Repeat this step for the second and third years.

Estimate Your Expenses

Next, make a list of all your expenses, excluding the cost of the product. We’ve already included the cost of the product in our gross margin projection (it’s the Cost of Goods we came up with in the Products and Services section). To add it as an expense would be redundant.

Think of everything that you’ll be writing a check for each month: rent, payroll, utilities, advertising, insurance, accounting, legal, supplies, loan repayments, etc. Add an additional amount for miscellaneous expenses that you’re not aware of now. Come up with a monthly amount for each expense. Your list will look something like this:

Expenses

Payroll:
Jan: $4,000
Feb: $4,200
Mar: $4,400 etc……..
12-month total payroll =$60,000

Advertising:
Jan: $300
Feb: $400
Mar: $500 etc…….
12-month total advertising = $6,000

Rent:
Jan: $800
Feb: $800
Mar: $800 etc…….

12-month total rent = $9,600

And so on, until you’ve named everything and have come up with a 12-month total for each expense. Then add up each line’s 12-month total to come up with a total 12-month expense for all of your expenses. Let’s say, for our example, we come up with $130,000 in expenses for our first twelve months. Then do the same for the second and third year.

Estimate Your Net Profit

Now, subtract your 12-month expenses from your 12-month net revenue. That amount is your 12-month net profit. The net profit is what you’re left with after you’ve paid your bills:

Net Profit

12-month Net Revenue:  $150,000
Less 12-mo. Expenses:  -$130,000

12-month Net Profit:         $20,000

Do this for the second and third year.

That’s it for the financial section. This is the most basic information you need in order to understand the profit potential of your idea. Remember, this net profit projection is before taxes and other complex accounting issues. Be sure to talk with your accountant about your overall situation, including taxes.

 
»» Go To The Next Section:  Write A Simple Business Plan:  Write An Executive Summary For Your Business Plan section

A very good way to write an Executive Summary is to write it last. After you’ve written each of the sections described above, go back and copy the most relevant sentences from each topic. String these together along with a simple summary of the net profit projection and you’ll have a good Executive Summary that should be no more than a page long. After you write the summary, read it aloud to someone who has no knowledge of the business idea. Notice how reading it out loud makes you think and feel about the concept. Is the person listening clear or confused? Pay close attention to their comments.

Continue rewriting the Executive Summary until the person listening really understands the concept based only on the summary.

This is the sixth of six sections discussing how to write a simple business plan. To return to the first section, go to: How To Write A Simple Business Plan.