By Amy Fontinelle
The executive summary might sound like one of the simplest components of the business plan - and in some ways, it is. As long as you have done your work gathering the information required for the other sections of the plan, you will already have all of the information you need to compose the executive summary. However, while it may sound simple, you shouldn't take this section of your plan lightly.
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Mike Coleman, president of The Startup Garage, a business plan writing and start-up consulting company, concurs. "Most professional investors see thousands of plans per year. They usually only look at the financial projections and the executive summary before ruling out a company," he says.
The executive summary will be the first document in your business plan, but it is best to compose it last, when you have a thorough understanding of all the important points that are covered in the body of the plan. One to two pages is a good length. (If you're going into business, you must have a plan. Find out how to put this important document together, see 4 Steps To Creating A Stellar Business Plan.)
Targeting Your Audience
The executive summary provides a brief overview of the most important components of your business plan. The key sections that are important are determined by who you will be giving the business plan to. The type of financing you are seeking and the source of that financing should dictate your approach. The executive summary, as well as your entire plan, should be tailored to the needs and interests of that particular reader. A request for a bank loan requires a different approach than a request for venture capital funding.
Furthermore, each venture capitalist and bank will have its own preferences regarding the types of businesses it likes to fund or is allowed to fund. Researching and pitching the correct investors is beyond the scope of this tutorial, but we will say that some sources of financing make it exceedingly easy to learn what they are looking for.
For example, major banks might have a guide called Understanding Commercial Lending, available in the small business loan section of its website. Do your research ahead of time to make sure you are targeting the right investors or lenders for your business idea and the type of financing you need. You wouldn't want to do something silly like request a line of credit from a venture capital firm. Think of the executive summary the way you think of a cover letter. Would you send an identical cover letter to every company that has a job opening that interests you? No. If you wanted to get noticed, you would make each cover letter specific to each job opening. Also, be sure your executive summary answers the reader's implied question - what's in it for them? What makes your business a good use of their lending funds or investment dollars? (In order to increase your odds for receiving funding check out some of the criteria considered by venture capitalists in How Venture Capitalists Make Investment Choices.)
What to Include
Although you will need to adjust your summary depending on the recipient, anyone you are pitching your business plan to will most certainly want to see the following information in your executive summary:
- Your business's name and location
- A summary of the problem that your business will solve
- A simple explanation of your business concept
- A description of your business's competitive advantages
- Proof that there is a market for your product or service
- A summary of the management team you've assembled whose experience meets your business's needs
- A brief description of what stage of development your business is currently in
- Summary financial data that is realistic, accurate and compelling
If the summary is not geared toward the recipient of your business plan and does not provide them with key information about your business and why you want their help, the reader is not going to look at the rest of your business plan. However, if you do include all the key facts and your summary is compelling, you will greatly increase your odds of enticing the lender or investor to read further. (In case you were wondering, the next-most-important parts of the plan are the financial statements and management descriptions - we'll cover those later.)
In addition to introducing and summarizing your business in the executive summary, you should also include a cover letter with your business plan. As the name suggests, the cover letter should be a separate document; it accompanies you plan, but is not part of it. The cover letter should tell the recipient who you are, what your business is, why you are contacting them and what you are sending them. If you have spoken with or met the recipient previously or been referred by a friend or colleague, mention it. As with any cover letter, keep it brief - no longer than a page. (Quit your job, be your own boss and earn a paycheck. Find out what to do to make it happen; read Start Your Own Small Business.)
Remember, it doesn't matter how compelling your business idea is - if you don't include an executive summary in your plan, or if the one you do include is poorly written or missing fundamental information, your plan is destined for the circular file.
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