Let's suppose things aren't looking so great at the old workplace these days and you're looking at starting that business you've had your eye on for the past few years. Just where and how are you going to get the money in a tight economy? More to the point, how are you going to convince anyone out there to invest in you?
Here are tips that can make this task a lot easier:
First, you need a start-up plan. Whether your potential investor is Uncle John or the Bank of Tomorrow, you need a plan that provides investor assurance that you will someday be able to not just pay back the money, but provide a very positive return on their investment.
The plan will help you put your thoughts in order in order to accomplish this task. The start-up plan is not a business plan, but will provide the basis for one when requested by an interested investor. You can probably do all the work yourself in a week or so. There are steps to a start-up plan, each one to become a section in your finished document:
- Purpose and structure: This is where you explain the "why" and "how" of your venture. Elaborate on this section to help a potential investor understand how and why your business will be unique. For example, the basic purpose could be to develop a toy manufacturing firm, a retail women's clothing store or a service organization cleaning homes. Your write-up needs to go into detail to answer questions such as: Why you are starting this business? What do you expect to accomplish and when? Why are you personally the one to do this? Why would people buy from you instead of others? What's unique about your proposed firm?
Finish your concept by identifying the structure as a sole proprietorship, partnership, limited liability, corporation or other entity.
- Service or product offer: Generalizations here will cause your proposal to hit the waste can. Be clear. Define exactly what is to be sold in terms of availability, quality, price and distinctive features. An example, "An educational toy that not only develops motor skills in infants, but teaches the child how to use logic in solving a problem, and here's how that's accomplished." Continue with other decision-making information such as: "The design and engineering phase is complete, but no prototype has been built." You expect your toy to be an upscale catalog product selling for around $25. Do the same for a potential service: "Our new home cleaning service includes a chef who makes dinner for the family that evening." Be specific!
- Market analysis: You must convince your investor that you have a market. Use your business librarian to help you gather information to answer questions like: How many sales do you expect each (day, week, month)? How have the sales of similar products varied over the past year or so? What has changed that would make your entry into the market a positive thing? How many people are there out there that would buy your product or service? Where do they live? Can you find and then address them through some data base such as street address, affiliation with some group, common likes or dislikes, or some other means?"
- Your team: Your team could be just you. If so, talk about your strengths and how they will help the organization succeed. You have weaknesses, so tell your potential investor how you are going to overcome them. Don't exaggerate, but don't sell yourself short either. Do the same for any other members of your team.
- Money needed: Spend the money to hire a CPA to help you with this phase. You won't need a complete work-up at this time, just the basics. Include three years of projections on: start-up cash, revenue projections, working capital needed, anticipated profits or losses, break-even point in sales, and other financial figures. The purpose of this section is to clearly show your investor that you have a plan for success, and that they can monitor your success in using their money.
- Executive summary: Yes, you need this. Generate it by summarizing each section with a paragraph or so for each. This is an important document, and without it you don't stand a chance, so work on it until it fully conveys the main points of everything. Title it "Executive Summary" and place it at the beginning of your start-up plan.
- Special items: This is another place for expert advice, this time from an attorney. Have him or her draw up a confidentiality document to be signed by anyone reading your plan. This will help protect you from early disclosure of your plans. Consider taking your document to the Service Core of Retired Executives (SCORE) at the Small Business Administration for evaluation. They've done this many times, and their expertise could make the difference between your success and failure.
(Paul Tulenko is a small business consultant based in New Mexico. Additional tips and suggestions are available at www.tulenko.com or call (toll-free) 1-866-TULENKO.)