Continuing his articles on Starting a Business in 2021, Neil this month talks about putting research into action for producing the dreaded business plan.
Back in the 1980s when I co-founded my first recruitment agency, which ultimately failed, we needed to raise a huge amount of money (to us anyway) to finance our growth.
With the help of a top London accountancy firm, we prepared a very in-depth and elaborate business plan which actually cost us around 30K to produce. With the help of our already seriously overdrawn bank account, we managed to scrape the fees together and the result was a beautifully bound “prospectus” that we put out to the banks to secure funding.
It was 30K well spent on the face of it, because we managed to raise the money, which was around 200K.
Ultimately, our business failed as I talked about briefly in last month’s article and that was really down to us all having very little expertise in running a business and ironically, we had met the sales targets in the business plan…but overspent on pretty much everything else and underestimated the risk factors to the business.
Fast forward to today and I have sat on both sides of the fence concerning business plans –as an investor, looking at exciting new business opportunities and for my own companies, to secure the right finance to operate and grow.
But the reality is that many business plans are doomed to failure before the business is launched land it stems from what I touched on in the previous article about lack of re-search.
business plan must be written from the basis of deep and thorough market research and that means spending plenty of time searching for and analysing a ton of information.
Rather than walk you through the steps of pro-ducing a plan, I am going to talk about some of the common problems I have seen with plans and also with regard to my own business planning experiences.
There are many resources out there to help you write and develop your own plan and here in Wales, there is some good information on the Business Wales website, so take a look and you will gain an idea of how to structure a plan
Poorly written and produced plans
You certainly don’t need to spend 30K on writing your plan, but you must make sure it is written well and without any grammatical errors. It’s amazing how many plans I have read where the layout, for-mat and writing has not been thought through, plus a few typos here and there which to me, displays a lack of attention to detail, which can follow through in the running of the business.
I believe that “less is more” and I like to see documents with a mixture of text and multi-media. If you feel a short video is what is required to get your point across then use it, just make sure you have a text version to support the video and also that you have taken care of the overall look and feel of the document.
A poor executive summary
The executive summary is in fact, the business plan – it is a short form summary of the plan outlining your vision, goals and financial requirements. This is your first chance to make a great impression and it must resonate with your investors.
Here are a few points to cover:
- What is your business idea, what problems do you solve and how does it fit into the market?
- Why you need finance and what is the funding requirement?
- Who is going to run the business and what are the key qualities of the management team?
- What is the structure of the business – shareholding, incentives etc.?
- Are there any obvious risks to the business – you will cover risks later in the plan, but if there is an obvious risk that stands out in the industry then cover it up front.
- What are the returns for the investor?
The executive summary is an optimistic (but realistic) part of the overall business plan that is designed to hook the investor and make them excited to read more.
I remember one occasion where I was reviewing a plan that looked detailed and comprehensive, but the more I read through it, the less it seemed to communicate.
Don’t overly fluff out your plan with detail that is either too technical or flooded with other jargon that investors will have to spend time trying to understand.
Keep the plan succinct and make sure you follow the lead of your executive summary.
Not talking about the competition
I only had one business in my life where there was no direct competition and it created a huge problem when it came down to sales and marketing, because there were no comparisons and it took customers in to what they regarded as uncharted territory…not a good thing for a start-up.
Competition is good, it means there is a market for services and also for disruption, so do not be afraid to talk about your competitors and also to highlight how you are going to be different.
We are living in a data-driven world, so there is no excuse for you not to be able to back up any of you claims and background information with hard data – don’t be afraid to use graphs and other illustrations, but make sure they are easy to read and the data is accurate.
If you are going to illustrate the sheer size of your market, then make sure you are clear as to what share of the market you are going after and illustrate this. I love plans where I can clearly see that there is a huge market and the business is going after a specific piece of that market that is small by overall comparison, just as an example.
Remember that you have probably made some bold claims in your executive summary and now it’s time to back them up.
Unrealistic financial assumptions
Please don’t make the mistake of producing figures that are too optimistic and I have seen many plans where the forecast for the first few months look exciting and too good to be true that have failed to materialize over the period.
I would much rather see a business that can survive the first year of trading from a cash flow perspective, rather than unrealistic profit figures and on the subject of profit, I have also seen businesses go bust who are making a profit…but they cannot turn that profit into cash because of poor credit management.
Make sure you also produce a set of figures that show investors what is needed to break even and cash flow the business.
It is absolutely essential that you address the subject of risk in your business plan and again, you must be realistic here.
In the 30K plan example with my own business, I read through the first draft with excitement as the advisors had clearly captured the essence of our business and the numbers were fairly optimistic, but I nearly fainted when they had highlighted the risks and decided that there was no way we could raise money with the risk involved.
Investors are looking for a return and a better one than leaving their money in the bank or the stock market, so they will be accustomed to taking risks – what you need to show is your awareness of the risks involved and how you can prepare for them and overcome them.
Get into the right mindset when writing your business plan…you want it to shine, to captivate your investors and to reflect your own personality.
Make sure your document is presented succinctly, professionally and the words are crafted out of pure gold!
There is only so much I can cover in this article and there is a lot more to the process, but I hope I have given you some food for thought.
Next month I will be talking about the two most critical aspects of business – sales and cash flow.