Maybe if you ask really nicely, a really rich person would give you tons of money so that you can start your own business. Yup. And while you're visiting Fantasyland, you might as well ask for a piece of moon cheese. No one, we repeat, no one will give you money if they think it's going to tank. So you have to convince 'em that your business is going to be a rousing success. That's where a business plan comes in.

Unlike Chihuahuas and those little paper umbrellas they put in Singapore Slings, business plans have two major purposes in life:

  1. To provide you, the entrepreneur, with a detailed roadmap to Successville as you make your new venture grow.

  2. To convince people who have lots of money that you're the sort of person on whom they may confidently unload it.

We've put together a pile of essential advice and links to take some of the legwork out of wowing your creditors-to-be. With luck, intelligence, charm, experience, connections, and a little help from SoYouWanna.com, soon you'll be raking in dough as though it were scum on the bottom of your Olympic-sized pool. Filled with beer.

One last note: we're assuming that you have at least a tiny bit of knowledge about the business world. You're not setting up a lemonade stand; you're trying to get people to invest serious money in your business.

1. KNOW YOUR AUDIENCE

First things first: before you put fingers to keyboard, you need to take a moment and learn about the folks who'll be thumbing through your 50 pages of brilliant strategies and mind-numbing statistics. Typically, a business plan is created with the following money-holders in mind:

Angels
Venture Capitalists

Angels

Otherwise known as the "Bank of Mom and Dad," angel investors are wealthy individuals who become personally involved in fledgling ventures, lending their expertise, experience, and money. Often, the angel is someone who has a personal connection with the entrepreneur (and is therefore more willing to accept your subscription to Fortune in lieu of actual business experience), but angels can also be outsiders on the lookout for a winning business model that just needs a little push in order to make it fly. If your angel is a wealthy relative or someone you've golfed with for twenty years (or both), you have some latitude when it comes to your business plan (heck, the angel may even help out with it). If you're shopping around for outside money, on the other hand, you have to approach the angel just as you would approach a venture capitalist - with a can of mace. Just kidding. The point is, if you know the angel, your business plan may not need to be as perfect as if you were proposing to a stranger.

Venture Capitalists

If you don't know any rich and/or gullible people, then you're probably going to try to get your business funded by venture capitalists. Venture capitalists, or VCs, eat eager entrepreneurs like you for breakfast unless you can earn their respect; they're basically individuals organized into large firms that will give you money to fund your business if they think that you'll be profitable. In exchange for their giving you money, you have to promise them a percentage (that is, share) of your company. VC firms often specialize in a certain industry so that the various companies in their portfolio become mutually supportive. Their funds range from a few paltry mil to billions of dollars invested in a variety of globe-spanning ventures.

Venture capital is all about high-risk, high-return -- sorta like playing Russian roulette. The catch is, these people will be strangers, so the only way you can convince them to give you money is if they are persuaded by your business plan. The managers of these firms look at hundreds of business plans every year, and they reject almost all of them. So even after you've managed to get a VC firm to return your phone call (or paid some lawyer a gazillion dollars to refer you), the chances of your plan ending up on the scrap heap are large indeed.

What can you do to improve the odds? Well, even the most exciting business model bogs down a little in the cash-flow projections and technical specifications; a VC won't slog through your entire business plan until you've impressed the hell out of him/her with a stunning, exciting executive summary. We'll give you some pointers on how to do this later.

2. KNOW THE COMPONENTS OF A BIZ PLAN

If you don't know the difference between a tablecloth and a spreadsheet, you'll definitely want to enlist some professional help. However, even if you're planning to eventually hire a business consultant to write your plan for you, you should still try to write a rough draft on you own. The first step in doing so is to familiarize yourself with the basics by reading through these typical components of a hypothetical business plan.

After you've read through these components, you should look at as many example business plans as possible, just to get a sense of what's out there. To get a company's business plan, all you have to do is call and ask for one. Many will not give it to you, but some may. If you pretend like you're going to invest in the company, then many will. Just be sure to give them a false telephone number or they'll hassle you for money until you die.

  1. Executive Summary. The executive summary is so important that we've devoted an entire step to it. For now just know that you should stick it in FIRST, even before the table of contents. Narcolepsy strikes very quickly, so read Step 3 and don't take chances.

  2. Table of Contents. A table of contents is exactly what you'd expect. No doubt you'll be editing your first draft like crazy, so double and triple check that your table of contents is well-organized and still correctly numbered after all the changes you've made. Also, strive to squeeze it all into a single page.

  3. Company Description. Here's your chance to dazzle strangers with the history of your company. Most business plans deal with the expansion and improvement of existing businesses rather than with the funding of start-ups. Now's the time to brag (factually) about how you transformed American Watermelon Ltd. from a booth in your garage to a strong local employer that's ripe to burst onto the national scene. Here are some things to include:

    • Tell 'em how you got started and how the company has grown.
    • Provide a history of sales, profits, and other important numbers.
    • Lead up to a description of where you are now, and what plans you have for the future.
    Make this an honest account; investors will doubt the credibility of someone who appears never to have run into any problems. Talking about how you had initial challenges and then overcame them with flying colors will make you look all the better.

  4. Product/Service. Describe the thing in jargon free-language. How does it smell? What does it do? What differentiates it from all the other whatchamacallits out there? How does it improve people's lives? What prevents someone else from doing the same thing more cheaply? What kind of equipment do you need? Do you have, or can you get, patent protection? Put yourself in the shoes of the investor and ask yourself what you yourself would want to know before agreeing to part with a large amount of money ("large" being most likely at least tens of thousands of dollars).

  5. Market Analysis. In the next few sections, you're demonstrating that you're a clever old salt who's been hanging around the coffee machine long enough to know all about things like distribution problems, government regs, technological opportunities, and employee relations in your chosen line of work. Market analysis includes your sagacious discussion of industry characteristics and trends, projected growth, customer behavior, complementary products/services, barriers of entry, and so on. To do this effectively, you'll have to do a ton of research. Angels and VCs are suckers for good solid research (as they should be!), so pull out all the stops. Talk about how similar products/services have done well in the market, how you're fulfilling an obvious need, and exactly who you expect to purchase your whatchamacallit. Show them that in the foggy morass of corporate America, you're one of the meanest, wiliest swamp creatures around.

  6. Marketing Plan. Following your exposition of what the market is like comes your grand strategy of how you and your fellow managers intend to sit masterfully atop this market like a frog prince on a pond stone of solid gold. In other words, you have to detail exactly what steps you will take to ensure that customers know about your product/service and prefer it over the competition. Be as detailed as you can, and give several different tactics (start off with the cheapest marketing tactic, and proceed to the most expensive).

  7. Operations Plan. The nuts and bolts. You gave them vague assurances in your executive summary that you'd be able to run your business; now they want to understand precisely what's involved in running the show. Location, bricks and mortar, equipment needs, and labor requirements are laid out here in black and white.

  8. Financial Plan. The numbers. Ugh! Unless you were the kind of kid who thought trigonometry was fun, there's a good chance you're not too fond of financial tables. Yet, even if you have a very fine accountant whom you trust as your best friend, it's a wise idea to acquire a rudimentary knowledge of sales forecasts, profit-and-loss statements, cash flow projections, balance sheets, and standard biz ratios. Investors will expect you to be completely independent in this important area of knowledge; if they call you saying they'd like to set up a meeting with you, they will as you questions about your financial plan and you will be expected to act intelligently.

  9. Management. Never underestimate the importance of the collective genius of your management team. VCs will take a great management team with a mediocre business model over a great business model with mediocre management any day of the week. If you have somebody in the team (or at least on your board or among your advisors), who's had serious entrepreneurial success, you'll earn double bonus points from investors. Wouldn't you trust a business plan that said that Bill Gates was on the Board of Advisors?

  10. Exit Strategy. Not all biz plans have one of these. The exit strategy is for the investor, not the entrepreneur. It's basically a plan for him/her to get out of his/her investment in three to seven years. The exit usually comes in the form of a merger, acquisition, or more spectacularly, an initial purchase offering (IPO, a.k.a. "going public!"). Including one of these strategies in your plan shows the potential investor that you understand his/her need to get stinking rich as much as your own.

  11. Appendices. Chuck into the appendices all those necessary extra bits, such as managers' resumes, promotional materials, product photos, and independent assessments. Emphasis on the word "necessary;" clutter in a bulging set of appendices is as bad as verbosity elsewhere in the plan.

Obviously there's a lot involved. But don't panic. You're just getting started. Pretty soon this stuff'll be like mother's milk to you (and you'll never look at mom the same way again).

3. PUT TOGETHER A GREAT EXECUTIVE SUMMARY

Of the many parts of a business plan, by far and away the most important is the executive summary. Just as you augmented your non-reading of King Lear in high school with the relevant edition of CliffsNotes, so too the harried VC augments his/her non-reading of your entire business plan with a quick glance through the executive summary. The summary must have verve, punch, panache, passion; it has to be able to do a standing backwards somersault, then stick the landing and demonstrate a thorough knowledge of accounting.

The executive summary, or business plan summary, is just what it sounds like: a compact version of the big plan. In straightforward prose you should answer the following questions:

  • What sort of company is it?
  • What's the product/service, and what's special about it?
  • Who are the managers?
  • How much money do you need? In what stages? What will you use it for?

Generate excitement with substance with the uniqueness of your business opportunity and the awesome qualifications of your management team; not with exaggerated optimism and hackneyed sales vocabulary. Stick to the hard facts, and limit yourself, however difficult this may be, to the length of a concise resume: no more than a couple of pages.

Write the summary first, and, if you do a good job, you'll generate enough enthusiasm to carry yourself through the rest of the plan. Just keep telling yourself this sad-but-true fact: They're only gonna read the summary and then either throw it away or ask me to come in and sell the idea in person.

4. AVOID COMMON ERRORS

There are lots of different ways to lay out a business plan. The sample layout in Step 2 is just one of many, and you'll want to investigate several before going ahead with your own. It probably seems like an awful lot to have to know, even if you happen to be a biz whiz, but never fear-once you get working you'll find ways of breaking up the major sections into manageable little subsection morsels.

No matter which business plan format you choose, a few cardinal rules apply. Avoid these common errors and you'll get a leg up on the competition:

  • Don't wait until the last minute to start writing. You may be able to toss off a college essay by popping caffeine pills and staying up all night, but the business plan is a major undertaking. Schedule in plenty of real work hours over the course of several weeks. The main reason is because of this: if you tell an angel or VC in person about your idea, he/she will say "Sounds interesting! Send me a business plan tomorrow." In other words, they'll already expect it to be done. You try whipping out a 40-page document overnight, complete with research and financial analysis.

  • Don't worry about originality. Many people think they need an idea that'll blow the socks off investors, but investors actually pay more attention to the strength of the management team. A unoriginal idea put into action by the best set of managers ever assembled is going to do better than a great idea in the hands of poor managers. So concentrate on finding good people (whether they're your CEO or on the Board of Advisors).

  • Try not to be a windbag. That means keeping the plan well under 50 pages. Fifty pages might seem like plenty, but not when you think about all the stuff that has to go into them. So just stick to the essential facts, no fake enthusiasm, and keep it focused. Demonstrate a unique opportunity, and clearly set out your capital requirements.

  • Don't put them to sleep with dull formatting. Some of the VCs looking at your biz plan might well be college kids fresh out of Harvard - kids whose primary baby sitters were Bob Barker and video games. You know how notoriously short their attention spans are, so make an effort to jazz things up a little with tables, charts, bullets, and other graphics.

  • Avoid inappropriate packaging. The last thing you want to do, after turning out a brilliant business plan that took hundreds of man hours to put together, is have it specially bound in a calfskin leather booklet that springs back like a bear trap when someone tries to open it. Fanciness is not very important. The investor wants something that's easy to read and lies flat on the desk, so three-ring and spiral bindings are best.

  • Before you send your business plan to anyone, proofread the executive summary carefully. These are business people, not English teachers; however, we assure you that Bill Gates will not give you money if you have typos in the executive summary. To beat, kick, shoot, and quarter a dead horse: the fewer mistakes you have, the more professional you'll look.

5. GET MORE HELP

Unless you happen to make your living churning out business plans, you're gonna need some help. Fortunately, resources are plentiful. There are lots of books, software programs, and Websites that'll walk you gently through each of the dozens of steps involved.

Books
Software
Websites
Consultancies

Books

Go to your local megabookstore and look under "Entrepreneurship" in the business section. There you're likely to find a dozen or so old-fashioned, paper-and-glue volumes detailing the mighty business plan, providing answers to your more intimate questions about the arcania of financial statements and operations plans. If you can't get no satisfaction from bricks and mortar, you can find books such as The Complete Business Plan online.

Software

Business planning software takes a lot of the grunt work out of organizing your plan. The one title that pops up everywhere and gets consistently good reviews is Business Plan Pro. The fill-in-the-blanks boilerplate makes composition a snap for even the most verbally challenged, and there's built-in spreadsheet capability for easy integration of financial statements. Other apps worth looking at include:

Websites

  • The Business Plan Center at Quicken.com provides advice, sample business plans, and a business plan template (free with registration).

  • Bplans.com has a great selection of sample business plans. Nothing is more helpful in writing your own plan than studying the plans of other real businesses.

  • BizPlanIt offers a free Virtual Business Plan, free newsletter, and an advice column called Ask Mr. BizPlanIt.

  • The U.S. Small Business Administration, paid for with your tax dollars, gives back a little in the form of sample business plans, tutorials, and information about government loans.

Consultancies

The ultimate form of help with your business plan is to get someone else to write it for you. Kinda nice if you can afford it. A usable plan will set you back in the neighborhood of $2000-$20,000. If you have more money than time, this may be the solution you're looking for.

That's that! We got you started; now it's up to you to make those entrepreneurial dreams come true. Think kindly of us when the years of struggle are a distant memory and Jeeves is bringing your third Harvey Wallbanger to the rooftop Jacuzzi in the Malibu beach house.