An idea without a strong business plan has little chance of getting an investment. As a result, getting the business plan right is an essential task for any entrepreneur looking for funding. The last business plan I wrote was 11 years ago when I started my first business, and since then, my new ventures have evolved from existing businesses I’ve been involved with.
I thought it would be good to revisit how to create this critical business element and I immediately thought of David Bateman, author of “Business Plans that Get Investment” and a previous partner of a startup asset management business backed by Deutsche Bank. I’ve had the pleasure of working with him, so I asked for his advice on perfecting the all-important business plan. Here’s a segment of our conversation:
TC: Why is the business plan so important?
DB: Ask any entrepreneur why they need to write a business plan, and they will tell you that it is to attract investments to their business so that it can grow. But writing a professional business plan can often be the source of frustration and concern — justifiably so. Get it right and you will raise funding and grow your business, but get it wrong and you can easily kill any chance of success.
The problem stems from the fact that there is no recognized blueprint as to how to write a plan properly. Consequently, would-be entrepreneurs do not have a reference as to what potential investors need to see in a plan in order to make an informed investment decision.
Writing a good business plan is not some “dark art” that requires years of experience or an expensive business education. All you need to do is to put yourself in the investor’s shoes and address the questions that they will inevitably ask.
TC: So what are these “inevitable” questions? Go and watch a few episodes of “Dragon’s Den” and you will soon notice that the “Dragons” ask the same questions time and time again:
–What’s your background?
–How does this product work?
–How much does it cost to produce?
–How many have you sold?
–How much money have you put into it?
–Do you own the intellectual property?
–How much investment do you need?
–How will you spend my investment?
DB: Such questions give you a guide as the essential topics that a business plan must cover. By including these topics in your own plan, you are showing an investor that you are well-prepared and have an understanding of the investment process. I have listed the essential areas that any business plan should include. You should preferably keep to the same order so that your plan has a structure that flows logically.
–Opportunity: what problem or market gap your business addresses
–Background: what it is that your business makes or does
–USP (Unique Selling Point): what it is that makes your business different
–Progress: where your business currently stands, including any sales or success to date
–The market: the identity and characteristics of your customers
–Route to market: how you plan to access and sell to your potential customers
–Competition: who else does what you do, or something similar
–Management: who runs the business and what is their experience in the sector
–Business model: how the business makes money
–Financials: sales, costs and profits
–Investment: how much you are asking for and what you plan to do with it
–Exit: how an investor will eventually get their money back from their investment
TC: A common mistake I see in a business plan is being too verbose. To me, far too many business plans are full of unnecessary and irrelevant facts and detail. How detailed do you believe they should be?
DB: Business plans should be short and snappy. Investors are not impressed by reams of pages with never-ending rows of data. They want you to be able to express what you are doing and why it will make them money as quickly as possible. You need to think of your business plan as an “elevator pitch” in which you have a short period of time to explain the business and its benefits. Investors are usually very busy and often see hundreds, if not thousands, of plans every year. Keeping it concise will get their attention.
Investors expect your plan to be properly formatted. It looks very amateur if you do not have consistent styles, colors and fonts from one page to the next. Likewise, spelling and grammar mistakes are cardinal sins and errors here are often fatal to your proposition. If you do not pay attention to detail, why would an investor trust you with their money?
Following my conservation with David, it was clear that writing a business plan need not be a difficult task. You should address the issues that an investor needs to know about, as well as keep the plan concise and format it professionally. This will serve as your first step on the road to securing an investment.