Some entrepreneurs view the business plan as a to-do list item that must be checked off before meeting with banks, angel investors, or venture capitalists can be scheduled. While investors will want to see your plan, the business plan is first and foremost your business's operational document. It should lay a solid foundation upon which your business can be built, and should be treated as a living document -- one that grows and changes with your business.

Many books and articles have been written on writing business plans. Ernst & Young's "Guide to Producing a Business Plan" is a good, concise document to help you get started. Key questions (some of which you answered when you determined the feasibility of your idea) that you'll need to address as you prepare your plan are:

  • Is your primary market research conclusive and substantial?
  • Do you understand the nature of the competition now and in response to your success?
  • Have you built a dynamic financial model that conveys the impact of critical assumptions in your plan?
  • Have you identified operational milestones?
  • Are key managers and board members identified, "lined up" or in place?

Elements of the business plan

Once you have sufficiently answered the above questions, you can move on to putting your idea to paper in a business plan. Sections of the plan should include:

  • Executive Summary -- This summary provides a condensed overview of your company and where you'd like to take it. It often is the last section written, since it is based on the details you've provided in the rest of the business plan.
  • Company Description -- Describe your company, product, competencies, and market needs being satisfied.
  • Market -- Identify and quantify your initial target markets.
  • Industry and Competition -- Include the current status and anticipated competitive response.
  • Products and Services -- Address intellectual property protections and the status of product development.
  • Marketing and Sales -- Encompass issues of product, price, promotion, distribution, and sales cycle times.
  • Operations -- If nowhere else, illustrate here WHAT your company does and list vital value chain relationships.
  • Ownership and Management -- Detail key additions to the team; legal structure of the business and board memberships.
  • Risk Assessment and Mitigation
  • Action Plan with milestones
  • Funds required, and their uses
  • Financial Discussion -- Place the data in the appendices. This section is the narrative of your planned financial performance.

The executive summary will be the most read of all of the sections of the business plan. Expend the effort to ensure that it is articulate and succinct while still describing the unique essence of your business.

Spend the time to understand assumptions regarding marketing and sales. Revenue growth and timing are difficult to predict, yet extremely important to your venture's success. Whatever proxy you base your sales forecast upon, it must be rational, specific, and measurable. You most definitely will have to defend it to your financiers. You will absolutely need to closely track and validate these assumptions when you actually launch your business.

The launch phase

The business launch phase is about marshaling the resources you need to launch your business and validating some of your assumptions through your early operational experience. Assembling your initial team is critical to a successful start. Clearly, you want team members that have complimentary skill sets and will drive the success of the business, but think of skills necessary now AND in the future. Will your team be able to grow with your business? Hire people as you need them -- you don't want your payroll to be any larger than it needs to be. When you are recruiting employees, think about the alignment of your team's objectives with your own. Does your partner wish for a three-person business, while you want to grow the venture quickly? Ask questions, discuss visions. Don't assume everyone's career and personal ambitions are the same as your own.

Beyond your personnel, your company also needs specific formal and informal business relationships -- from business advisors to suppliers to beta-customers to Web designers to bankers to accountants and corporate lawyers. Think of these relationships as extensions of your company. Keep them consistent with the goals, values, and needs of your venture.

The launching of your business will be a hectic and emotional experience. Signing contracts and other agreements will make real what was once only an idea in your mind. Having moments of sheer exhilaration and great trepidation during this period of controlled chaos is normal. Follow your plan, stay focused, execute those tasks that lie along your critical path and you soon will find yourself transitioning to the next phase of your company's growth.

I'd like to thank my U-M colleague and business plan expert Paul Kirsch for helping me write this article.

This article is part of a four-part series on business creation. Read Tim Faley's previous articles:

Next month: Growing your business and exit strategies.