Far too often, there is a disconnect between what a business plan says and what lenders want to see and hear. While it is important for you to be confident and believe in your idea or business, it’s also important to satisfy a potential investor’s concerns. It’s equally important to write and speak about your venture in a commanding and confident manner because you don’t want to come across in a “beggarly” or “desperate” fashion. You want to ensure that your business plan provides a compelling “story” for your venture that addresses key questions that any legitimate investor will have.
TIP 1: KNOW YOUR AUDIENCE AND YOUR PURPOSE
Who are you trying to attract? A venture capitalist firm? An angel investor? A personal friend or family member that is willing to invest in the venture? A bank?
Establish your requirements and preferences. If you know the exact group that you’re approaching, then half of the job is done. You will tailor your business plan and financials to the preferences of your intended audience. They may like to see specific items in the business plan like burn rate, the Adjusted Present Value (APV) using specific costs of capital, exit strategy options, potential valuations, or they may be more interested in collateral you can provide. Understanding their priorities is very important.
Of course, the purpose of your business plan is of prime importance as well. Is this for an existing business and will it just serve as an internal guide? Or are you planning to seek money from an outside investor? Is the business plan for internal use to drive business growth, or are you seeking internal funds or approval of funds from your board of directors or CEO so you can develop or grow your department?
Answering these questions gives you a clear idea of the format and key elements your business plan should include, and can help you determine next steps. At the end of the process, you’ll have a useful plan than can even be tailored for other uses. It won’t be like most cookie-cutter plans that are worked on and then shelved because they’re useless.
Once you understand the format of your business plan (based on purpose and intended audience), finalize the key elements needed for your plan. Do you need to provide an executive summary with financials? Do you need to include backgrounds on key team members, full descriptions of products and services, detailed use of funds, a roll-out plan with milestones, analysis of financials, valuations, scenarios, market analysis, competitor and industry analysis, or strategy?
Maybe you need a full and comprehensive business plan including the above, plus much more such as: Qualitative risk analysis, quantitative risk analysis, market strategy, segmentation and analysis that is fully referenced and shows justification for your revenue line, SWOT (strengths, weaknesses, opportunities, threats) analyses, internal operations analysis, supply-chain analysis, strategy scenarios supported by financial scenarios, historiographical analysis, environmental analysis (qualitative and quantitative), PESTEL (political, economic, social, technological, legal, environmental) review, or website prototyping and analysis.
Tip 2: Perform Adequate Research
If the purpose of your business plan is to seek funds for start-up or expansion, one of the most important things is to justify the top line revenue.
How are you going to secure funding? Some people use the spreadsheet madness method, estimating a really large target market and choosing 1% of the market to claim the potential revenue line.
Other methods range from using basic market research of competitors to estimate growth to just taking a stab in the dark at a starting number. The key here is that you cannot estimate revenue perfectly, but revenue justification needs to make sense to a reader who is perhaps going to invest $500K upward in the business.
An ideal approach is to seek the overall market and narrow or segment that market. Then, identify a few niche markets and focus the business plan on one niche area. One safe and structured method to estimate the market and get a feel of customer perception is to conduct a proper survey with a segment of the customers in that niche. You may not need more than 300 responses to be statistically significant. If designed properly and analyzed adequately, your revenue estimation would be difficult to question or refute.
Primary market research is absolutely the best way to ascertain your potential at the outset. There are other approaches that may be used depending on the level of confidence you need to transmit to your reader. Strong secondary market research supported by proper references will suffice in many cases as well.
Do not get into the “paralysis through analysis” syndrome. Set a specific timeframe to have your research done. I would estimate two to four weeks for a full market, competitor, and industry research. You should have a good estimate of revenue at this time.
Note: If your technology, service, product, or solution is new, then it is unlikely that anyone will find supporting research for the potential of the product in the market by doing online research or secondary market research. In this case, primary market research techniques are best.
Tip 3: Ensure Your Research Is Cohesive
Make sure your market analysis, industry analysis, and competitor analysis are all cohesive in light of the business’s products and services. Have another pair of eyes read over your analyses to see if they make sense and are convincing!
You also want to show why your product or service will sell in the chosen market and why certain aspects are better than the competition. This can be tackled from several perspectives:
- What differentiates the product or service from the competition?
- Does the product cater to a particular niche with a particular need that no one else is fulfilling at the moment?
- Are you solving a particular problem for the consumer?
You’ll also benefit from identifying sustainable competitive advantages.
TIP 4: AVOID COOKIE-CUTTER BUSINESS PLAN SOFTWARE SYSTEMS AND TEMPLATES
Off-the-shelf business plan programs and templates are a great guide for a novice business owner or founder to create a plan that captures basic ideas and structure. But the business place is dynamic and the investment climate is ever-changing. Investors have different needs and different perceptions of what is “needed” in a business plan–tailor yours to meet the needs of different audiences and achieve different purposes quickly while minimizing error.
It’s important to note that many business plan tools and templates are available, and they have their purpose, but I have never found them adequate when developing business models and plans for most ventures.
Once you have a general format (which may change during the process) with the key heading and subheadings, you’re ready to start writing and formatting your plan.
Timesaving Tip: Find out how to “link” a spreadsheet to your document, something you can do in Microsoft Word and Google Docs. If you link all key numbers, graphs, and tables in the spreadsheet to the document, any changes in the spreadsheet–which happens more often than anyone would like–will be reflected automatically.
Tip 5: Get a Proofreader
When the plan is done, it’s time to proofread for errors, flow, and more.
This doesn’t cost much and many proofreaders can do an outstanding job with quick turnaround time. Make sure the proofreader does not change any of the key ideas while improving the writing and flow.
Tip 6: Get a Designer
Partner with a professional designer to create a finished business plan that is well formatted, projects a consistent image/brand, and has a nice look. A polished business plan helps convey professionalism and indicate to potential investors that they should take your pitch seriously.
A good designer for your plan (or perhaps a pitch deck) will use white space adequately and help enhance the reading experience for the potential investor. Look for a clean, impressive cover page with a table of contents and minimal imagery to get the message across, with some relevant infographics, tables, and charts to illustrate your point.
Tip 7: Maintain a Folder with All Related Documents
Your business plan is a summary of deep research and development that you don’t want to lose. Make sure you maintain a folder or folder structure with adequate backup facilities (e.g., Google Drive, DropBox, Microsoft OneDrive, MEGA Drive, etc.) so that you can provide additional information if requested by readers, answer specific questions from investors, or further develop ideas without having to redo any prior research.
Having the information in a structured and secured location can save you lots of time in the future.
Keep these tips in mind when working on your business plan and you’re sure to end up with a more thorough, detailed, and effective business plan to help you accomplish your business goals.
This article first appear on UpWork
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