By Matt Walstatter
Last time, we talked about the business model canvas, a quick survey that you can use to verify and validate your business model [link]. Once that is complete, the next step is to write a business plan.
This article describes your business and everything you will need to turn it from an idea into an actual going concern.
Whether you are launching a new business or expanding an existing entity, you must have a written plan. The business plan serves two important functions:
- First, it acts as the blueprint that guides the construction (or expansion) of your business. Once your plan is complete, you should have a map that begins today and leads you to a point where your business is operating successfully.
- The business plan will also be your primary tool as you pitch investors in an effort to secure the funding that you need. Most entrepreneurs need more money than they have to get their business off the ground. If you will be seeking any outside funding, you will find a business plan to be an indispensable element in that process.
Before you begin writing a business plan, you should familiarize yourself with this type of document. The U.S. Small Business Administration was created in the 1950s to help support, assist, and protect small businesses. Their website, www.SBA.gov, is an outstanding resource for an entrepreneur writing a business plan. The site details the elements of a business plan, explaining in detail what each section should contain. It also offers sample plans and a wealth of other information on writing a plan and starting a business.
Before I wrote the initial Pure Green business plan and the Pure Green expansion plan, I spent some time at SBA.gov looking at the different examples and learning what goes into a business plan. One thing I noticed is that while some sections turned up in every plan that I saw, not all plans include every possible section.
Depending on the specifics of your industry, you may choose to include certain elements and leave others out. Go through the possible sections and ask yourself two questions:
- Would this section help me to plan and execute the launch or expansion of my business?
- Would this section help convince an investor to fund my business?
If you answer “yes” to either question, you should probably include the section in your plan.
Not everyone is a phenomenal writer, which is fine because it’s a business plan, not literature. But it is worth thinking a bit about your writing style.
Remember — less is more. Try to keep sentences and paragraphs short and succinct. Never (or almost never) use five words where one will do. And, pay attention to your verbs. The best way to keep someone engaged in a document like a business plan is to move it along with active, exciting verbs.
Elements of a business plan
Now let’s look at the elements that I included in the Pure Green expansion plan.
- Executive Summary
Every business plan should begin with an executive summary. It should say who you are, what you do, and a little bit about what makes you and your business special. If you are seeking funding, the executive summary should have a clear “ask,” including how much money you need, what you will use it for, and what you are offering in return.
While every section of a business plan matters, the executive summary remains particularly important, especially for the goal of securing funding. Professional investors are busy people who see many, many business plans. Often, they read the executive summary in order to decide whether to read the rest of a plan. If they are not wowed by the executive summary, they are likely to move on.
Many people see or hear the title executive summary and assume that they must summarize the entire plan. Do not fall into this trap. Focus on what is most important and keep your executive summary to one (1) page if possible.
- Market Analysis
The market analysis section gives an overview of the market in which your business will participate. Are you competing locally or nationally? Why? You should give some sense of the size of your market, as well as the competitors currently in the field and others that you expect to enter.
You can also talk about market factors specific to your business or industry. For example, in the market analysis section of the Pure Green expansion plan, I touch on the regulatory and legal implications of operating in the cannabis industry. I also mention the seasonal fluctuations in supply and demand caused by Oregon’s outdoor harvest.
- Organization and Management
This section should describe the organizational structure of your business, but the main focus is you and your team. Start with the owners and talk about what makes them qualified to run this type of business.
Mention other key employees as well. If you have any members of your management team already, or if you are a going concern, highlight these folks. For example, if you have a master grower or lab director with a Ph.D, mention them and their qualifications.
In the Pure Green expansion plan, we also mentioned our marketing firm, our security consultants, and the lawyers and accountants who comprise our professional team. We wanted to show that we were understood the importance of these areas and that we would be working with industry leaders.
- Products and/or Services
This is a fairly straightforward opportunity to talk about what you will be selling. Important points here include whether you will be buying or manufacturing your products, where you will obtain products that you do not manufacture and estimated gross margins for these products.
Here is your chance to describe your marketing strategy. Begin by discussing your general approach. Lay out your plan for creating and promoting your brand. If you have done any branding already, especially if you are an existing business, share that in the plan.
Once you have discussed your general strategy and information about your brand, give some specifics about how you intend to market. Talk about specific communication channels, which can include advertising, PR, creating content through speaking and writing, and a host of other possibilities. I suggest having an offline strategy, an online strategy, and a plan to use social media.
The growth plan is more important for a new business. It gives you and your potential investors an opportunity to see the upside potential of your business. It also shows the investor that you are looking ahead and that you have a plan to return her capital.
With an expansion, the business plan is essentially a detailed version of the growth plan, so this section is less prominent. Nevertheless, for the same reasons listed above, you should include this section and layout the next steps once the present expansion has been executed.
- Financial projections
This is the “bones” of your business plan. If the numbers don’t work out, none of the rest matters. Here you are focusing on two broad categories: income and expenses.
Expenses can be broken down further into start-up expenses and operating expenses. Start-up expenses are exactly what they sound like — they’re all the costs that you incur in order to get your doors open, items like purchasing or building out property, installing a security system or buying your opening inventory.
Operating expenses are the ongoing monthly expenses of operating your business. Payroll typically represents the largest operating expense. Others include rent, utilities and insurance.
Income can be challenging to project, especially in a new industry like cannabis. Investors understand this and they will not be expecting you to be precise. The goal here is to take some time and come up with your best estimation.
Pure Green was among the first licensed dispensaries in Oregon. That meant that for our business plan, I had to project sales in a non-existent market. Because our expansion plan included recreational, I was left once again to project sales in a market that does not yet exist.
Make sure your numbers have some basis and aren’t just fanciful. Be prepared to explain how you reached your conclusion. But bear in mind that you will update these numbers often, maybe dozens of times, so don’t get too hung up.
I recommend using Excel to create spreadsheets for start-up expenses, operating expenses and income. I would also suggest a final sheet that integrates operating expenses and income to track monthly cash flow.
Once you put all of this together you should be able to come up with a budget. The start-up expenses tell you what you need to get the doors open and the cash flow sheet tells you when you will reach positive cash flow and how much money you need to make it to that glorious day. Add these together and you have a budget.
I would also make sure to add a substantial sum for contingencies. No matter how smart you are and how hard you work, you’re numbers will be wrong — probably very wrong, and probably in many places. That is the nature of the beast. So, build into your budget an additional 20-30 percent, depending on your experience and risk tolerance. You will not regret it.
Coming Next: The Pitch
Once you have your budget, you must answer one simple questions: Do you have enough money? If so, congratulations! Go start your business. If not, you need to find the money to fund your business You and your plan must get to work identifying investors and selling them on your idea.
In my next column in two weeks you can learn about how to prepare, how to pitch and how to close the deal.
Matt Walstatter and his wife, Meghan, are the owners of Pure Green, a patient owned and operated dispensary in Portland, Oregon. They have jointly owned and operated cultivation centers since 2001. Their dispensary opened in 2013. Matt can be reached at (971) 242-8561 or firstname.lastname@example.org.