Last week I talked about what a business financial plan (BFP) is and I hope that you have a general conception of what a BFP looks like. This week I will try to take one step forward and discuss with you the sequences and important notes when writing a BFP for a startup business.
Last week we talked about the six key parts of BFP, which are executive summary, company summary, product or service description, market analysis, strategy description, and finance analysis. And a closer look at these sections may help us find a distinction line that separates the parts into two categories: the description part that uses words to explain important information of the company and the analytical part that uses numbers and calculations to explore the monetary potential of the business. It is important to note that this categorization does not suggest that the description part involves no numbers at all or the analytical part consists of only equations; it is only a distinction between the primary purposes different sections serve.
Among the six sections, market analysis and finance analysis are the only two sections that are largely calculation based. But this week I’m going to focus primarily on the other four sections, the ones that describe instead of analyze. This and next week I will consistently use one story to demonstrate my story, which will also be my final product, and a brief introduction to the topic is in the picture below:
So let’s start. For a new business starter who doesn’t have a whole lot of experiences with BFP, it is probably not as easy to start with an executive summary: writing the summary of the entire BFP before knowing where it is going is not an optimal idea. So my suggestion of the first step is writing the product or service description, something you most likely know already prior to writing this plan. There are two features worth mentioning: thinking from the perspective of customers and competing with other goods or services of the same kind. For the fitness center I’m working on, I need to emphasize both how much incentive there is for students to spend money working out and how my fitness center can be a more attractive one than the one that already exist on a college campus. For example, I can explain how my equipment will be more advanced and I will have more professional coaches to make workouts more efficient. There is also a note that may be overlooked, intellectual property. It is very important to list any existing, pending, or any anticipated copyright or patent filings and include any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements. In short, please be aware of legal copyright and business secrets in this section.
After the product and service description, it seems nature to add the strategy description, how to give your product or service a skyrocketing sale. It is true that this section relies heavily on market analysis, which will be visited next week, but for now you will simply assume that you know the size and characteristics of your market, as well as strengths and weaknesses of your business within the market. So what do you do now? Base on the consumption ability of the market, you set an optimal price first. For example, I can’t charge $30 per hour in my fitness center as that price just doesn’t make sense and nobody will come workout if I charge that much. I need to explain what price is going to maximize my profit by attracting more customers while having an acceptable price for the business. And then you need to figure out how you are going to advertise for your business. This mission has to do with the blog I wrote in week two about commercials, but different businesses use different strategies: I won’t use TV commercial for my fitness center because it is too broad and too expensive; instead, a post on the college newspaper might be a better idea. In addition, it is always better if practical experience in a similar business field can be considered because such experience can bring the conceptual ideas down to reality.
The third section is company description. In order to attract investment, people tend to exaggerate past successes and marginal advantages of the company and person and hide defects and disadvantages. There is nothing wrong about boasting a little bit and not revealing weakness to your potential investors, but that doesn’t mean that you should ignore these aspects of your business. I believe the best way to write company description is to be realistic and consider both sides of the business. Think about what the company is good at and try to emphasize these merits executing the business; think about where the company might struggle and try to avoid these places in the execution process. My fitness center might be good at having advanced training plans for students, but it might have limited target customers, and both features are important to be included, even though some changes may be necessary in order to attract investment.
The last section I want to talk about in this blog is the executive summary. I advise writing this section after completing everything else because writing last means that you already know details and all you need to do is sum them up. A good executive summery is always succinct: it is never too verbose but it also contains key points of the business. My favorite way to achieve this purpose is by first writing a mission statement that, within a paragraph, includes sentences describing the company information, product information and the fundamental logic of this business. Then write a brief financial summary to highlight potential profit of this business. At the end of this executive summary you may include a future plan that explains where you would like to take your business.
And there you have the description part of your BFP. There might be confusing spots in this blog because as I said last week all parts of a BFP are related so without the analytical section some parts can be hard to explain but my ultimate hope is that after next week’s blog you will be able to compose a decent BFP and understand what makes a good BFP. See you next week.