If you are counting on outside investors to capitalize your startup idea, the details matter. Whether you are seeking an SBA loan, talking to venture capitalists, borrowing from friends or family, or entering yourself into Shark Tank, you absolutely have to know what you are talking about before you go for the capital.

Plan the Business

Simply filling in the spaces of a business plan template doesn’t cut it. It is critical to actually plan the business. That means applying the fundamentals of business to every aspect of your business idea. You must do the homework to ensure the idea is viable, the market has room for another competitor, and that your business model will actually turn a profit. No guessing is allowed, and any assumptions must be fully explained and justifiable. The details matter — they are what separates a good idea that is tossed around for years and a growing, profitable venture.

Know the Numbers

If you are going to talk to a potential investor, you had better know the numbers inside and out. Back-of-the-napkin estimates of sales and expenses are not enough. You need to know the standard ratios for your industry and how your projections compare. You need to know the break-even point under a variety of conditions and how the variable expenses will be affected under those conditions. You must have a reasonable target for how much it costs to gain a new customer…and your explanation must make sense. Throwing around ballpark figures is usually unacceptable. You must be able to discuss and explain the details of your financial projections.

Know the Competition

You also need to do your homework on the competition and market. Know the details of who they are, what they do, and how you are going to compete. If you can’t come up with a single direct or indirect competitor, you either have not done your homework or there is no market for your product. If you are entering a crowded industry, look for unexploited niches to fill and work through the details of how and why that will work. Study the target market to find out what they do, where they go, and what else they spend their money on.

Plan the Marketing

You will need a well-developed marketing plan for how you are going to get your customers to buy. Simply placing ads in the most convenient places doesn’t usually work. Rather, consumers are so inundated with advertising that you will need to find marketing opportunities that are targeted to exactly the right people. You will need details on the reach, expected response, and cost per sale of your planned marketing activities. You should have a plan for the initial wave of marketing and how it will be evaluated as well as some back up ideas in case the results are less than stellar.

The Details are Essential

If you are planning to approach outsiders for help in funding your startup, know the details before you ask. In fact, even those using their own resources to fund a startup would benefit from digging into the details before they launch…the failure rate would drop precipitously. But going in front of potential investors raises the stakes. Smart investors will expect you to know your idea top to bottom, inside and out. Get into the details — you will have a better chance of securing financing and a better chance to succeed.

Writing a small business plan should be guided by some standard general principles. The plan will especially be useful when it comes to seeking funds for the enterprise. The tone of the plan should be appealing enough to attract prospective lenders. All the same, so much in the content of the plan will be determined by the type of funding that one is looking for. All this is about the target audience.

The outline of the plan needs to be standard depending on the target audience. Think through the audience carefully so that you can determine which plan to adopt. Once you are done with the outline, gather the necessary information on what should be covered in the plan. You need to describe the nature of the business, the scope, the number of years in operation, number of employees and names of partners or proprietor. If possible, also include the market growth and customer profiles.

The next bit is one that reflects on the financial position of the business. It also indicates how much the enterprise is asking for. The financial projections should be realistic and should be backed with solid data from your accountant if they are to be deemed as the correct position of the enterprise. A budget on how the enterprise plans to spend the amount acquired through the funding should also be included in this bit.

All the above details should then be captured in an executive summary. The essence is to capture the key points in each major section of the plan. Here, the payback requirements on the loan should also be highlighted. Review and edit the whole document, keeping in mind that this is the only shot you have got to make a good impression.

How to write a business plan is among the very first decisions you, as a future business owner must make. Do you write it yourself, or give in to the temptation to take an easier path? By taking ownership of this first, most important step in building your business, you will gain far more than a crisp document to be read by others. You will develop a deep understanding of what it will take for your business to succeed. For this reason, it is essential that the business owner be the primary thought leader or sole author of the business plan. Outside help should be reserved for fine tuning, validation and in some cases to prepare financial projections.

Let it be YOUR Business Plan

As the founder and business owner you will be charting the course for the business. It will be important that the business plan be an extension of your personal vision for the company. For most entrepreneurs, the opportunity to call the shots and lead the way was an important part of why they wanted to get into business. Now is the time to start being a leader. Leaders develop their own plans and call the plays along the way. When it’s not your plan, you relegate yourself to performing as an operator. You will find yourself going back to the business plan someone else wrote to occasionally re-read the directions, or ignoring it altogether. Either way, the value of having a plan has been greatly diminished.

The Value is in the Process

The act of writing a business plan is one of forced discipline, problem solving and reconciling the results. When approached and completed in this manner the end product and the process itself will increase your self-confidence and assuredness about where your business is headed.

Starting with a simple business plan template, and there are lots of them available, force yourself to think through all the critical aspects of the business. This will be an iterative process that you repeat, fine tune and re-write. As you develop each section of your business plan, your thoughts about the other sections will evolve-even those that you’ve already written. You go back, edit and in the end, you make it all work together. That’s the idea. You are developing an understanding of the relationships between every aspect of your business.

To underscore the importance of writing your own business plan, take this little exercise. Read the paragraph below as quickly as you can. Then stop, take a breath and move on to the next one.

Who will my customers be? What problem will I solve for them? How much are they willing to pay to have this problem solved? What are my costs associated with each sale? Why will customers choose to buy from my business? How will I find customers? Who will sell, produce, and deliver? Which markets will I go after first? Why? How much will it cost to operate the business each month? What will my break even point be? How fast can I get there? How much startup capital will I need? How will I succeed?

Okay, slow down now and consider this: The most important question isn’t listed. The most important question is, “How are these factors interrelated?”

Imagine that today someone handed you the answers to all of the questions from our fast-read drill above. It would certainly save you a lot of time. Better still, these wouldn’t be just any answers, but they would be the right answers from a solid business plan for a business that had already been proven to be successful, a business just like the one you’re planning to start. You could read and re-read the answers many times over, practically memorizing them. You would know that they were the right answers. Yet, doing so will not help you develop an understanding of how the answers are interconnected.

If you change the way you plan to find customers, how will that impact your monthly operating costs? If customers are only willing to pay 80% of your planned price, what will that do to your break even point? How will the answers to these two questions impact how much capital you need to start the business? This example looks at just two questions. Realistically, the answer to each question is highly dependent on the answers to several of the other questions. In the end they must all work together and you must understand how they all work together.

If you develop your own business plan, section by section, thinking through all of the answers to the critical questions, you will also develop an intuitive sense of how they work together. It will require a lot of thinking and rethinking of your ideas and it will take time. This is not meant to be a fast drill. In the end, it will be the difference between memorizing the lines and actually being the character. Small business ownership is not the place to be reciting someone else’s lines. You are the character. Write your own lines. Be the leader.

When to Bend the Guidelines

There are some times to reach outside for help. For example, perhaps you would say, “I’m not a numbers person; I don’t think I can do the financial projections.”

First, plan to become more of a numbers person because business ownership is about numbers. Sales, expenses and profits are the three that are most important. Even so, many business operators who have a good feel for the numbers need assistance with spreadsheets and financial statements. It is okay to get outside help preparing your financials, just be sure that you understand them when they are complete. If you are going to pay someone to prepare them, be sure that they also save time to go over them with you from top to bottom. Ultimately they are your numbers.

Others might say, “I have great ideas, but I’m not a great writer.” It’s understood that there can be a lot riding on someone else reading the final product of your business plan-such as a loan or an investment decision. For that reason, if you are not a strong writer you should start by going through the process of organizing, writing and rewriting your own business plan as best you can. Force yourself to go through all of the steps of writing, rethinking and rewriting as your ideas evolve. Then, have someone else take your finished draft and craft the final polished document. What is important is that the final document must accurately reflect your concepts, ideas and thought process, not the editors.

What if I Just Can’t Do It?

Finally, some would say, “I want to start my own business. I am a strong operator, but honestly, I don’t think I could write a business plan myself. What do you suggest?” Simple: Buy a franchise! They are perfect for people who are strong operators where someone else provides the strategic plan, the systems and some guidance. This might be the best ownership model for you. That’s a topic for another day.

Getting funding for your business is provided by investors, and is typically based on a company’s business plans’ ability to show how much money is needed, how much money is going to be made, and how the investor will benefit.

A well-crafted business plan offers a glimpse into the past, present, and future of the company. Generally the funding is awarded based on financial projections that usually include a 2-3 year cash flow forecast, 3-5 year financial information forecast, and a detailed and specific plan on the how the loan will be repaid.

There are two basic types of business plan funding: debt and equity.

Debt funding is where a company borrows money (as with loans) and must pay it back with interest in a timely manner. There are many sources for debt financing: traditional bank loans, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. Usually, these sources are best for companies that have a high ratio of equity-to-debt.

Equity funding means taking on private or commercial investors, and making your business accountable to your investor. Many small business owners raise funding from relatives, friends, colleagues, or customers who hope to see the businesses succeed for a return on their investment. However, the most common source of professional equity funding comes from angel investors or venture capitalists.

Venture Capitalists are institutional risk-takers and may be groups of wealthy individuals that are willing to offer promising new businesses the capital needed. These investors include individuals with substantial net worth, corporations, and corporate financial institutions. If a company has a high proportion of debt to equity, most experts advise increasing the ownership capital (equity investment) for acquiring money to finance your business plan or obtain a commercial line of credit.

As always, it is best to consult with experts and trusted advisors before making a decision that will affect your business.

Many times, people enter into business with the greatest of intentions. They have a passion or a specialize skill that they believe they can put into a business model and begin to offer their services. Unfortunately, many entrepreneurs make a fatal mistake and do not go through the necessary activities to ensure long term success.

The number one mistake entrepreneurs make is not having a plan. Most think that they do not need to put together a business plan or believe that they need a long, comprehensive business plan resulting in them opting out of the exercise completely.

Most jump into their business venture with an idea and a passion and move quickly into the day to day of running a business rather than taking the time to properly plan and strategize every element of their business that would support growth and sustainability.

The simple act of developing a business plan forces entrepreneurs to think about key elements that will impact their business from defining the product or service being offered, the demographics or customer base your product or service will be targeted towards, the competition in your area, opportunities for growth and not to mention the financial projections and cost estimates.

As businesses go through the five stages of growth, a business plan will assist the business owner in making early decisions that will yield long term success.

A business plan should be an evolving process and used over and over again as a tool to support growth, creativity and resource alignment and does not need to be a long document. Many successful businesses use a one page business plan template that has proven to be quite successful. The goal is to get involved in creating a process that you revisit often.

In today’s market, there are many professional who are well equipped to assist you with putting together a plan, not to mention numerous do-it-yourself software applications such as www.businesspro.com. These plans are only as good as the information and forecast you put into it so it is extremely important that you remain objective and to use this as an opportunity to uncover potential obstacles that you may need to overcome. It is also a good idea to solicit the help of trusted advisors to review and comment. They often will uncover aspects that you may have missed or need to elaborate, or point out unsupported assumptions that need to be addressed.

A solid business plan can be the blueprint for operating your business for the first few years of business and support any requirements of creditors and lenders who may require that you have one. Your financial projections can act as your first year’s budget and a guideline for spending and investing your cash. More importantly, a well thought out plan with independent review will become the roadmap to success.

Kellie D’Andrea & Associates