how to write a business plan

Attracting investors - get your business plan noticed

The following is an article written for AccountingWEB by PKF partner Gary Partridge, on how to put together a business plan to attract venture capital funding

A business plan is inevitably the first impression potential investors glean about your company. However, even if you have a great product or service, a solid management team and a number of real customers, it could also well be the last impression the investor gets if you fall into the trap of any the avoidable mistakes outlined below.

Venture capitalists (VCs) see hundreds of business plans each year. Apart from a referral from a trusted contact, the business plan is usually the only basis they have for deciding whether or not to invite a company for an initial meeting. With so many investment opportunities out there, most professional investors simply focus on finding reasons to decline a plan. VCs employ the trusted logic that management teams who know what they are doing will not make fundamental mistakes in their business plans. Every mistake therefore counts against you during the VCs appraisal of your company’s business plan.

However there are several key criteria to a good business plan. The following checklist will help you to avoid some of the common mistakes in business plans and increase your chances of securing that initial meeting with a prospective investor.

Content

Avoid hyperbole

Statements like "unparalleled in the sector" or "a unique and limited opportunity" are just assertions and hyperbole. Investors assess these factors for themselves. Management should simply aim to lay out the facts; the problem, the company’s solution, the size of the market, how the company will sell it and how it will stay ahead of competitors.

Focus on a single product and market

Many companies are under the false illusion that more is better. Too many business plans articulate how the company’s product can be applied to multiple, very different markets or devise a complex suite of products to bring to a market. VCs prefer to see a focused strategy with a single, superior product that solves a troublesome problem in a single, large market that will be sold through a single, proven distribution strategy.

Don’t forget the market entry strategy

Business plans that fail to explain the sales, marketing, and distribution strategy are doomed. The key questions that must be answered are: who will buy it, why, and, most importantly, how will you get it to them?

"There’s no competition"

Every company has competition. To assert a company has no competition is one of the quickest ways to get your plan rejected. VCs will quickly conclude that the management doesn’t have a comprehensive understanding of the marketplace.

Keep the business plan concise

VCs are incredibly busy people and do not have sufficient time (or patience) to read long winded business plans. They will back management teams who can articulate a complex idea in a clear, concise and compelling manner. It doesn’t have to describe all the minutiae.

Give the business plan a logical structure

The business plan should flow in a logical manner and the sections should build on the previous section without the reader needing to know something presented at the end of the plan. For instance:

Executive summary

The executive summary is vital as it must persuade the VC to read the whole of the business plan. It needs to comprise a concise summary of key data extracted from other sections of the plan, enable the VC to understand the nature of the business, the objectives and experience of management, the track record and forecast results of the business, and itfunding requirement.

History and business background

Describe the history and nature of the business, including in broad terms its areas and mode of operation, recent changes in its trade and new products or services which are to be offered in the future.

Management and key personnel

Many VCs regard the quality of management as the primary factor when considering the viability of an investment opportunity presented to them. The business plan must detail the track records of each key member of the management team and the team’s balance considered and distinguishing characteristics and strengths emphasised.

Product, market and sales potential

The products and/or services provided by the company should be described, together with the location and size of markets, major competitors, current and potential market share and competitive advantages. Avoid too much technical detail which may confuse the layman.

Aims, objectives and strategy

Succinctly summarise the aims and objectives of management, indicating what they are seeking to achieve in the foreseeable future. Key strategies to be adopted in order to achieve the business aims should be set out.

Financial history and projections

The financial history of the business for the last 3 years should be set out in terms of simplified Profit and Loss accounts and Balance Sheets. A narrative to the figures should comment upon performance and year on year variances and any exceptional items which affected the results should be fully disclosed.

Projections should comprise Profit and Loss accounts, Balance Sheets and Cash Flow statements. Information should be confined to simplified summaries with detail presented as appendices.

Projections

Over optimistic assumptions

Only a small number of companies achieve between a £25 million and £50 million turnover only five years after incorporation. Projecting any more than that isn’t credible and will get a business plan rejected faster than almost anything else. Conversely, a company with only a few million of turnover after five years will be too small to interest many VCs.

Insufficient financial projections

Good financial projections will include a sensitivity analysis showing how the company’s projected results will change if the business plan’s assumptions vary. This analysis enables the management team and the VC to identify the assumptions that can have a material effect on future performance.

Style and appearance

Poor spelling and grammar

If you make silly mistakes in your business plan, what does that say about how you run the company? Use your spelling and grammar checkers, get other people to edit the plan and do whatever it takes to get rid of these errors.

Shoddy appearance

A VC will have numerous business plans to read. Ensure your company’s plan gets to the top of the pile by having a front cover that’s attractive, pages that are well laid out and fonts large enough to be easily read but don't go over the top as you don't want to leave the impression you are all style and no substance.

Execution

Plan ahead

The fundraising process takes a long time. In general terms, expect anything from six months to a year from the time you start writing the plan until the investment is completed. If you are too busy building your product, company or customers then consider using a professional business advisor.

Get a third party view

Finally, it’s a good idea to have a few people review the business plan before it’s sent to a VC. The plan may look perfect to you but that's probably because you've been staring at it for months.

Learn from the common mistakes highlighted above and your business plan should have a greater chance of reaching the top of the pile and securing that all important initial meeting with the VC.