In the course of my business, I receive a lot of business plans, mostly unsolicited and nearly all flawed in some way.
I'm not an investor, I arrange loans or asset finance, yet the majority of plans I receive are seeking investment or, worse still 'either investment or a loan'. If I was an investor, or actively encouraged the sending of business plans, the number I receive would almost certainly increase 10-fold - which makes it especially important that you plan is identified as one that needs to be read
The most common flaws in the plans I receive (or the ones I bother to read) are:
There is only one business plan. Forget the old myth about preparing one plan for investors and another for yourself - it's nonsense.
What an investor wants to know is how you are going to run your business - they want to see that you understand, or have suitable resources in place and that they will get a return on their investment.
Consider and clarify your proposition. Debt and equity are fundamentally different, whilst both types of funder want similar information on how the business will operate, they seek different outcomes. A lender really needs to know how you will meet monthly repayments (and what recourse they have if you don't), an investor is looking for a large-multiple return after a period of time (say three years).
To a certain extent the plan itself will lead this choice - if you need to fund product development with minimal return for, say 18 months, then debt isn't a viable option, but if your business is likely to earn swift but small returns it could well be.
1. The Executive Summary: If your plan is truly concise, this might be irrelevant. The purpose of the summary is to give the reader an incentive to move further. Just one or two well-formed paragraphs highlighting key points will achieve this.
2. The body of the plan: Again, keep it concise, use breaks and bullets to highlight key points and avoid waffle, silly claims and unnecessary jargon.
Much of the body of the plan will revolve around marketing - in the widest sense of the term, showing that you have researched who your customers are likely to be, what they will pay, what you offer that competitors don't and other related questions.
It also needs to show how you will structure the business to grow and meet demand. Whilst research is essential, you shouldn't contain it within the body of the plan, that is the value of appendices.
3. SWOT analysis: (strengths, weaknesses, opportunities, threats). Often contained in the body of the plan, a well-researched SWOT analysis will help you to understand and address potential pitfalls and will show an investor that you have seriously considered the plan.
All too often I am presented what I call 'CV SWOT', with big lists of strengths and opportunities and a couple of small weaknesses and threats thrown in to show willing. An investor knows that there are threats and weaknesses in your business - there are in every business. Good planning is about recognising and being prepared to address them.
4. Projections: For the most part, a business plan should contain three years projected balance sheet and profit and loss. It also must contain cashflow projections for at least 18 months. Cashflow projections are so much more than numbers in boxes - so much so, that the research you do to project cashflow can actually form most of the body of the plan. If you set aside 100 hours to prepare your plan, spending 80 of those hours on cashflow projections will be time well spent.
5. Appendices: here is where you can add bulk and supporting information. You can also adapt your appendices to target a specific audience and to support your claims and assumptions.
In the digital age, appendices may not be in physical form, but could be a series of links to relevant information.
Conclusion
The first aim of you plan is simply to get someone to read it. A short, well-researched plan - with links to supporting information is far more likely to grab the attention of your audience than 100 pages of waffle or technical specification.
KISS: Keep it short & sweet!
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I'm not an investor, I arrange loans or asset finance, yet the majority of plans I receive are seeking investment or, worse still 'either investment or a loan'. If I was an investor, or actively encouraged the sending of business plans, the number I receive would almost certainly increase 10-fold - which makes it especially important that you plan is identified as one that needs to be read
The most common flaws in the plans I receive (or the ones I bother to read) are:
- Lack of focus/targeting: The comments above are the first indicators of this. 'I'm looking for either loan or investment' or simply randomly sending out a plan clearly tell the recipient that the proposition hasn't been thought through
- Waffle: Investors or lenders are busy people, who put value on their time; they really aren't motivated to wade through pages of waffle and surmise to find your point. Less is more!
- Product idea specifications: Linked to waffle, as the name suggests, a business plan should detail how you plan to run your business. By all means append or link to detailed specification, but don't drown the important information with it!
- Jargon & superlatives: OK, so you have been told that you need to sell your proposition and you understand that selling is about bigging it up and talking about benefits. In reality, professional selling is about understanding and enaging your audience, not throwing lists and superlatives at them
- Unsubstantiated claims: You only get one throw here - if you make a claim that can't, within reason, be substantiated then all of your other claims will be undermined.
Understanding the audience
Every lender or investor is different, yet they have big similarities, here are some safe assumptions about the recipient of your plan.- They are busy
- They see a lot of business plans
- They aren't stupid or naive
- They will be happy to ask questions - if they are sufficiently engaged to do so
- They will challenge your claims and assumptions
- If they want to read a novel, they will go to Waterstones
Before you start
Research is everything. It goes without saying that you should have researched the product or the idea; what in investor or lender wants to see is that you have researched the market, the competition, the pitfalls and, above all, your funding requirement and expectations.There is only one business plan. Forget the old myth about preparing one plan for investors and another for yourself - it's nonsense.
What an investor wants to know is how you are going to run your business - they want to see that you understand, or have suitable resources in place and that they will get a return on their investment.
Consider and clarify your proposition. Debt and equity are fundamentally different, whilst both types of funder want similar information on how the business will operate, they seek different outcomes. A lender really needs to know how you will meet monthly repayments (and what recourse they have if you don't), an investor is looking for a large-multiple return after a period of time (say three years).
To a certain extent the plan itself will lead this choice - if you need to fund product development with minimal return for, say 18 months, then debt isn't a viable option, but if your business is likely to earn swift but small returns it could well be.
The plan
There are up to five basic components of a sound business plan:1. The Executive Summary: If your plan is truly concise, this might be irrelevant. The purpose of the summary is to give the reader an incentive to move further. Just one or two well-formed paragraphs highlighting key points will achieve this.
2. The body of the plan: Again, keep it concise, use breaks and bullets to highlight key points and avoid waffle, silly claims and unnecessary jargon.
Much of the body of the plan will revolve around marketing - in the widest sense of the term, showing that you have researched who your customers are likely to be, what they will pay, what you offer that competitors don't and other related questions.
It also needs to show how you will structure the business to grow and meet demand. Whilst research is essential, you shouldn't contain it within the body of the plan, that is the value of appendices.
3. SWOT analysis: (strengths, weaknesses, opportunities, threats). Often contained in the body of the plan, a well-researched SWOT analysis will help you to understand and address potential pitfalls and will show an investor that you have seriously considered the plan.
All too often I am presented what I call 'CV SWOT', with big lists of strengths and opportunities and a couple of small weaknesses and threats thrown in to show willing. An investor knows that there are threats and weaknesses in your business - there are in every business. Good planning is about recognising and being prepared to address them.
4. Projections: For the most part, a business plan should contain three years projected balance sheet and profit and loss. It also must contain cashflow projections for at least 18 months. Cashflow projections are so much more than numbers in boxes - so much so, that the research you do to project cashflow can actually form most of the body of the plan. If you set aside 100 hours to prepare your plan, spending 80 of those hours on cashflow projections will be time well spent.
5. Appendices: here is where you can add bulk and supporting information. You can also adapt your appendices to target a specific audience and to support your claims and assumptions.
In the digital age, appendices may not be in physical form, but could be a series of links to relevant information.
Conclusion
The first aim of you plan is simply to get someone to read it. A short, well-researched plan - with links to supporting information is far more likely to grab the attention of your audience than 100 pages of waffle or technical specification.
KISS: Keep it short & sweet!
To comment on this article, please login or sign up to UKBF!
