Business Plan Considerations

By: Jay Hollander
Date: 1998

Jay Hollander, Esq. is the principal of Hollander and Company LLC, www.hollanderco.com, a New York City law firm concentrating its efforts in the protection and development of property interests relating to real property, intellectual property and commercial interests, as well as related litigation.

The content of this article is intended to provide general information relating to its subject matter. Providing it does not establish any attorney-client relationship and does not constitute legal advice. Personal advice in the context of a mutually agreed attorney-client relationship should be sought about your specific circumstances.

Article

INTRODUCTION 

In the course of advising our clients on business formations, the second most frequently discussed issue, after deciding what legal form the business should adopt, is how to write a business plan. This article focuses on why business plans are necessary and desirable, as well as how to put them together.  Even though the process can be done completely independently, it should be pointed out that it is not uncommon to seek the assistance of an advisor in this process, whether it be an attorney or other experienced consultant.

PRELIMINARY CONSIDERATIONS 

By way of introduction, let's understand what the purposes of a Business Plan are. First, the most important reason is to develop a guide to be used as a blueprint for your business. It is intended to be revised periodically and maintained as the guiding document for the running, growth and ultimate disposition of your business.

Secondly, the Business Plan is intended to provide potential lenders/investors with detailed information on all aspects of the past, present and future of the company and the company's principals.

Investors look for certain basic things in deciding whether or not to invest. Among these are:

• What is the credit history of the participants? 
• What collateral do the participants have? 
• What type of repayment plan or investor equity participation is envisioned? 
• Is there a demand for your product or service? 
• Have you established a proprietary position ( e.g. patents, copyrights, etc.) 
• Are your projections realistic?

BASIC STRUCTURE 

The basic component structure of a traditional business plan, discussed in more detail below, is as follows:

• Cover Sheet 
• Statement of Purpose 
• The Organizational Plan 
• The Marketing Plan 
• Financial Documents 
• Supporting Documents

CONTENTS OF EACH COMPONENT: 

1. Cover Sheet 
   1. Company Name 
   2. Company Address 
   3. Company Phone Number 
   4. Logo, if one exists 
   5. Names, titles, address and phone numbers of the Owners or Corporate Officers 
   6. Month and Year in which the Plan is issued 
   7. Number of the Copy of the Plan ( For confidentiality, all copies should be numbered) 
   8. Name of the Preparer ( If by all, Plan should indicate "by the Owners or Corporate Officers")
       
2. Statement of Purpose 
   1. What is the anticipated legal structure of the company? 
   2. What product or service is involved? 
   3. What is/are the specific purpose(s) of raising capital? 
      1. Formation 
      2. Equipment 
      3. Employees 
      4. Promotion 
      5. Legal and advisory expenses 
      6. To increase growth capital 
   4. How much money is needed in what time frames? 
      1. How will the proceeds be used ( See II C 1-6 above) 
      2. What will be the effects of the cash infusion, e.g., accelerated development and time to market. 
   5. When was the business established? 
   6. When are the funds needed G. When can repayment begin?
       
3. The Organizational Plan 
   1. Detailed description of the business (what demand does the product meet, how does it do it, and what are its prospects? Analyze industry trends, target markets, growth projections and methodology behind it. 
   2. Legal Structure ( Discuss reason for structure chosen, any plans for change in structure, etc. -- Written after legal consultation) 
   3. Products or Services - Discuss how the product works, how it is/will be developed from idea to finished product. Indicate the key points in the development process when it is projected that funds will be needed. Describe equipment, manpower and facilities available and their cost, if any. 
   4. Provide back-up for any claims of patent or copyright, etc. 
   5. Management ( Describe who is behind the business, what they bring to the table, what advisory services will be needed and how will they be provided?) 
   6. Personnel (Who will be doing the work - Attach a breakdown of responsibilities, hiring criteria, cost, division of labor. 
   7. Methods of Record keeping ( Select method of accounting, e.g. cash, accrual, etc and whether outside accountants or bookkeepers will be providing the service. 
   8. Security (Address the issue as it pertains to the business -- what steps will be taken to safeguard the product?)
       
4. The Marketing Plan 
   1. Target Market (More detail on nature and size of target market. Indicate how your market research was done and describe in detail the demographics of potential users of the product in its various incarnations) 
   2. Competition (Specify both direct and indirect competition) Methods of Product Distribution ( Detail proposed costs of various methods, e.g. download, retail channel distribution, etc.) Promotion ( Think through how and where you wish to promote the technology in terms of the target market. Describe in terms of where and how any competition promotes itself) 
   3. Pricing (Think through how the product will be sold and what it can command in the marketplace vs. what you project to be the costs of production. This is not a wish but, instead, information based upon research into sales of similar products or technologies.) 
   4. Product Design - Discuss the nature and projected costs of product design and packaging. Timing of Market Entry (Tell when you plan to enter the market and how you arrived at the decision) Location (Indicate whether business location is an issue and how you have resolved it). 
   5. Industry Trends (Evaluate both technological and economic trends with respect to the product. What's the best/worst case scenarios for the business? What costs will be incurred in continuing to grow the business?)
       
5. Financial Documents 
   1. Application of Loan/Investment Funds Statement (Two Parts) 
   2. Statement of Financial Needs (What $$ will be needed for) 
   3. Loan/Investment Fund Dispersal Statement (Timetable for disbursements) 
   4. Budget/Cash Flow Statement (Projected expenses and Cash Flow) 
   5. Income Projections Personal Financial History Supporting Documents (Exhibits supporting the substantive information set forth above)

SUMMARY 

Clearly, the above outline seems like a lot of information to present. While all business plans contain this information in one fashion or another, the specific answers in each case flow from the actual business.

Many of the answers or areas to be covered can be addressed in a paragraph or two simply because the facts aren't available. When they are not available, however, some verifiable methodology must be used to back up your conclusions. Otherwise, of course, they are just guesses and cannot be used for any business planning.

This process should take some time to complete but, remember, planning is a central part to the success of any business and to its ability to attract capital, not to mention its eventual efforts at a public offering. The time you spend now will be more than worth it down the road.

Good luck!

Copyright © Jay Hollander, 1998. All Rights Reserved.