When it comes to writing a business plan, there is one single golden rule that dwarfs all others – your business plan must address each of the key concerns of your potential backer.
If you fail on this first point, all the other things you should and shouldn’t do pale into insignificance, and even a great business idea might fail to get the backing it needs. A good business plan keeps the investor happy, so follow these 10 Dos and Don’ts to ratchet up your chances of success:
1. DO show that you understand market demand
A strong understanding of your micro-economic environment is essential for a good business plan, so be sure to show that you have carefully considered the influences which drive demand up or down in your market.
2. DO use sensible numbers
You may have calculated your revenue will be £4,672,591 in three years’ time, but for backers, stating such a precise forecast is a giveaway that the writer does not think strategically.
A more experienced strategist would forecast revenues of £4.7m, recognising that it would be ludicrous to suggest any greater degree of accuracy three years down the line.
Financial forecasts should be easy to digest so the backer can quickly see if the business will make money.
There really is no need for reams of spreadsheets showing complex numbers. A few charts and graphs can quickly convey the key information.
3. DO stick to a clear storyline
Sit down and write a single sentence that explains why someone should back your business plan. Don’t get distracted from this key message – your business plan should just support this sentence and remind the reader again and again why your business is worthy of backing.
You might write a 200-page business plan digging into every detail, but your backers will get lost if you stray from the key story so trim it down to a lean argument with a few supporting appendices if necessary.
4. DO make it clear why your business is special
So now you have painted a clear picture of the market, it is time to show how your business fits in. Make sure your business plan answers the following questions;
- What is the sustainable competitive advantage that makes it special?
- Why is your idea different from the rest?
- Why does that mean you can generate attractive returns for your backer?
5. DO tackle the risks head-on
Risk is inevitably the number one concern for a backer, so don’t be afraid to tackle it directly. Show your backer you understand the risks – to market demand, competition, your strategic positioning, your resource deployment – and show how you plan to mitigate them, where possible, or insure against them, when not.
The flip side to risks is opportunities so point out that, yes, this risk could happen, but that counter-balancing opportunity is just as likely, even more likely, to happen.
Set out the balance of risk and opportunity in easy to understand graphics so the backer can weigh up the investment decision, surely in your favour.
6. DON’T ignore the fact that your competitors will respond
Backers will be aware that markets are always changing, so try to consider what might be your competitors’ response if you were to follow the strategy set out in your business plan.
Could the response of your competitors threaten the achievement of your targets? Be honest, and show your backer you have thought through implications thoroughly.
7. DON’T forget who you are writing for
Each and every paragraph of your business plan should be geared towards your target audience, which may be your board, a banker or an investor.
Identify what concern your potential backer is likely to have and tackle them head-on.
Stop thinking about what you want to write and focus on what your backer needs to read. You may be very proud of what you have achieved in your business to date, and you may have big ideas about what you will achieve, but if that information is not relevant to your backer’s decision then it should be left out.
8. DON’T underestimate the resources you will need
You may be operating out of your loft or your garage at the moment, but if you have big plans then sooner or later you are going to need help and that means you will need resources.
Set out exactly what resources and partnerships you will realistically need to achieve the forecast growth rates, including;
- Premises and Equipment,
- Agents and Distributors.
9. DON’T dismiss the competition
When writing a business plan it is very easy to fall into the trap of doing insufficient justice to the competition. However good your idea is, your backer will be savvy to know that customers will always have the temptation of alternative offerings so don’t shy away from that fact.
Examine what your competitors do well; where they are weak and what they are likely to do that could affect levels of competition.
10. DON’T think your backer was born yesterday
If they are serious about backing your business, investors will do their own due diligence and talk to customers, staff and maybe even competitors. This will inevitably uncover any bad news so don’t be tempted to brush it under the carpet.
If they find out anything that you really should have told them any trust that has built up will be evaporated and they will walk away.
The same is true for forecasting. Please don’t be tempted to fib or exaggerate or you can lose your backer altogether. Sure you should be upbeat, but you should also be realistic or your backer will quickly see through you.
This guide has been written for ByteStart by Vaughan Evans, author of The FT Essential Guide to Writing a Business Plan, published by FT Publishing, priced £16.99.