I just answered this question on Quora. I think it’s an interesting question, one that comes up often enough, and one whose answer is worth considering.
How can I write a very accurate business plan. I’m hoping to win a grant in a business plan competition?
The rest of this post is my answer on Quora, reposted here with Quora’s (implied) permission:
This is an important question, but also a big one, hard to answer in a few hundred words. And I’m going to stick with the subset of business plans that apply to business plan competitions. These are more traditional and formal business plans, written to communicate with outsiders, and therefore significantly bigger than the lean plan (see below) you need to just run a business.
It starts with this: in your summary and descriptions of the business model, company formation, market, business offering, and management team, your readers take accuracy for granted and so should you. Tell the truth about your business and what you plan to do. Period. Accuracy isn’t a variable.
I have to guess that you bring up accuracy in the context of projections, specifically your market forecast, sales forecast, projected profit and loss, projected balance sheet, and projected cash flow.
With market information, make sure you distinguish between the statistics, demographics, and descriptions you present as facts – external available information, with sources cites – and estimates and projections.
Approach this with the understanding that there are no facts about the future, just guesses; and there is no guarantee that the information you’d like to have will be publicly available. So therefore you have to develop reasonable estimates, based on assumptions, for which accuracy is mainly a matter of making your assumptions logical, and transparent.
Here’s a real example from a plan I was involved in recently for a social media consulting firm (Have Presence):
So this is just one example. Accurate in market description is a matter of combining what can be known with what can’t be an has to be estimated.
Financial projections are always wrong, by definition, but they’d better be laid out correctly, reasonable, transparent, in line with industry standards, and, above all, credible.
For the rest of the plan, industry information, competitive information, and so on, what’s really important is that you clearly distinguish between factual information from valid sources and guesses and estimates.
One of the worst things you can do in a business plan competition or pitching investors is to get caught presenting as fact something that one of the judges or investors knows is inaccurate. If you aren’t sure, clarify, disclose, call your guesses guesses. And it’s particularly bad to fudge the facts regarding your personal history, your business history, or those of your team members. Don’t cross the lines of accuracy related to degrees, job positions, and past jobs. You need to protect your integrity. And if you blur the truth on purpose, such as saying you studied business at Harvard or Stanford when you were just there for a few weeks in a special course, or when you failed to graduate, that can kill a deal.
Tim: Should I begin my financial work with a breakeven analysis, and leave it at that?
Guy, breakeven isn’t a bad way to start, because it includes an idea of fixed and variable costs; and the break-even point itself usually leads to some good thinking about viability. It can be a reality check.
But I wouldn’t recommend leaving it at that. Just to run a business right, you get huge value from budgeting (forecasting) sales and spending, then reviewing actual against budget regularly. You need that to manage cash flow. And the budgets/forecasting aren’t there for show, but so you can lay out assumptions, highlight change, and adapt to reality as it shows up. Be proactive, not reactive.