Can we be honest? Writing a good business plan is hard. Whatever the intended use, in particular when looking to attract investment, it is difficult to accurately represent your idea on paper.

Let’s also be completely clear. A good business plan will not help a poorly conceived idea get funding, conversely a bad business plan should not stop a great idea getting off the ground.  The difference between the two often comes down to avoiding some very commonly made mistakes.

Blind optimism

The main problem with aggressive forecasting is that it can often irreparably damage your credibility, particularly, if you then describe those forecasts as conservative. More crucially forecasts appear throughout business plans, both explicitly and implicitly.

For example, forecasts about sales thereby make reference to the market size and each projection needs to be carefully considered in terms of the claims it is making. A business plan reviewed recently with a leading private equity firm claimed sales that equated to over 110% of the most optimistic market forecast.

Please note, investors have lots of experience, may have run businesses and will often have sat on your side of the table looking for funding. It is almost guaranteed that the first thing they will look at in your plan is the numbers and if they do not add up, it’s going to be an uphill struggle to convince them.

Tip: Be aggressive but realistic. Look at comparable companies in your space and compare their growth rates, current position and funding structure against your plan. Sense check the size of the market versus your projected market share.

Ask yourself: If you secure investment will you be able to deliver the plan? Would you bet everything you have on achieving them?

Focus on the basics

It is absolutely critical to ensure that the business plan you present is free from spelling mistakes, is consistently formatted throughout, has numbers that add up and that any formulae have copied over correctly and still work.

Whilst these things have nothing to do with the quality of the opportunity and can easily be corrected, first impressions count. Mistakes imply you are sloppy or do not care about your work and it gives a negative impression which can be difficult to reverse.

There is a common misconception that investors back ideas or businesses. In my experience, this is untrue as for the most part investors back people. The business plan, therefore, needs to represent you in the best way possible and mistakes will hurt, often terminally.

For example, at a recent angel investment network meeting a high profile investor refused to read a plan which appeared to be the sort of investment he usually loves because of four spelling or grammatical errors in the opening paragraph. He said it was sloppy and he doesn’t work with sloppy people.

Tip: Ask a friend or business associate to review your plan. If this is not possible ensure you leave at least 24 hours between finishing the writing and the review to clear your short-term memory to give you the best chance of spotting errors.

Ask yourself: Have I done all that I can to ensure my plan is as free from mistakes as possible?

What do you want the money for?

Too many plans fail to identify what they want the investment to assist them with. Often there are loose phrases centred around marketing or brand building which will, at best, simply result in a request for information and at worst will be a major turn off.

Perhaps the most destructive suggested use of funds are those that effectively pay founders salaries. Investors typically want their funds to help to grow the business and thereby increase its value, not to pay your mortgage, particularly if you are a sizeable shareholder to boot.

In these austere times, it is also surprising how few entrepreneurs demonstrate any sensitivity to the economic situation and pass up the opportunity to showcase their skills by, for example, utilising cost effective office solutions and negotiating discounts for key purchases. Indeed, many seem to want to live the lifestyle of a corporate giant rather than start up or developing SME.

Tip: The current fashion is for lean start ups that prove their concept and provide positive support for the investment case. Strong cash and cost management demonstrates seriousness and indications you will deliver maximum impact from any investment.

Ask yourself: Do I really need it now? Can it wait until later? Can I get it free? Have I tried to get a discount?

Seriously, how much?

Fans of Dragon’s Den will recount innumerable cases where entrepreneurs with little more than ideas ask for £100k for a 10% share. Failing to note that this values their “business” at £1m they are usually dispatched following some stinging criticism courtesy in particular of Messers Bannatyne and Jones.

The same rules apply outside of the Den. You need to be able to justify your shopping list (above) and the stake you offer in return. There are lots of freely available information sources to help you decide on a sensible valuation. However, if your calculation results in your opportunity being worth more than Facebook then perhaps you may want to reconsider.

Tip: Try not to be solely focussed on shares and think about other non-money areas that the investor can such as contacts, skills or access to markets. Do not be afraid to ask them what they can do.

Ask yourself: How much am I prepared to offer? What is the implied value of my business? What is the basis for this valuation? Can I get some expert guidance?

Conclusion

A business plan is a very personal document and must reflect the style of the business and the driving force behind it. Contrary to what most accountants or consultants would have you believe there is no one size fits all format.

It is also guaranteed that you will make mistakes and your document will not suit every potential investor. By eliminating the most common mistakes you are at a significant advantage over most competitors and thereby minimise the chance of hearing those devastating words, “I’m out!”

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