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10 Items That Will Insure Your Business Plan Is “Not” Considered or Seriously Read by Investors

I read business plans as a major part of my Consumer Product and Marketing Consulting business. I act as project consultant for several Venture capital firms. I am a Fellow and lecture at the Miami University, Farmer Business School Center for Entrepreneurial Studies. I teach students to write Business Plans. My consulting duties include preparing Business Plans for clients as they seek funding opportunities.

There is no definitive, 100% detailed methodology to construct these crucial documents. The internet, book stores and home study courses are full of turnkey templates that claim to lead to successful outcomes for projects. They do not.

In its simplest form a Business Plan is a document that quantifies (numbers, costs, financials), qualifies (due diligence, research) and narrates (tells an exciting opportunity story) a series of assumptions about the project on offer. The plans submitted for my consideration invariably do not meet the level of professionalism required to be considered for funding. Even if the product or project possesses real utility and commercial value, if the document is faulty it will not be fully read or considered.

There are many items that investors consider when reviewing a new Business Plan submission. Often the first read is handled by a junior partner whose only duty is to cull the herd, markup and forward only plans that meet firm standards. This means that about 98% of all newly presented Business Plans are never read or even touched by key decision makers. You do not want to be part of the culled herd.

Here are 10 items that are among the most crucial elements to avoid in preparing a Business Plan that will merit a thorough read, markup and full consideration by your investing targets.

1. Do not prepare a plan by following a standard download template. When I am approached by an Entrepreneur with a Business Plan I always asked if they prepared the plan and if they have ever written a Business Plan before. If the answer is yes I prepared the document and no I have never done one before I can rest assured that a form template has been followed.

A quick scan of such a document always indicates a fill-in-the-blanks approach. This screams lack of due diligence, thus lack of commitment. If you want the proper consideration your work deserves customize the plan and present it in professional form.

2. The Executive Summary MUST present a vivid, compelling, complete overview of the project. The first few pages of a John LaCarre or Vince Flynn novel grip the reader. The opening scenes in a Jerry Bruckheimer movie thriller absorb the viewer. Similarly, the Executive Summary is the window to the rest of the plan. If it excites the analyst it will prompt them to read on with relish.

3. Do not guess at financial elements. For a Consumer Product plan, which is my area of expertise, the most important number to nail is the dead net Cost of Goods to produce and land a product. Every other income and expense line item in the Financial Statement, Balance Sheet and Cash Flow (3 year NOT 5year) projections will be false if the true cost basis is not fully vetted.

4. If you cannot provide a management team, fully organized and committed, the project will go nowhere. We review too many plans that are presented by an entrepreneur who has no management experience in the space they are seeking to enter. No investor will commit funds to a project that is not staffed by experienced managers. People count as much as a product or concept.

5. What is the Unique Selling Proposition that your product or service will provide to retail stores, international distributors and consumers? In a cluttered, chaotic marketplace how will your offering cut through the maze and create demand? You must be able to detail and obvious point(s) of difference between your product and the raft of competitors you will face off against. You do not have to reinvent the wheel, but you must be able to improve or embellish the wheel.

6. Avoid bombastic pronouncements. This always results in a quick “deep 6″. Whenever we see outlandish claims we recoil. Whether in the financial projections, product performance claims or share of market detailed if the project is not supported with realistic due diligence it will go nowhere.

7. You are not fundable if your project does not provide a Return on Investment of a minimum of 30% per annum beginning between month 24 and 36 of full- operational activity.

8. You do not have a first mover advantage, but think you have a better mousetrap. Recently we reviewed a Skin Care and Cosmetic project. The owner claimed that his first mover advantage was a new ingredient story. He could not detail a product feature or benefit that was not already being addressed in the marketplace. The product will have to be the first to offer a niche application in its space.

9. Never confuse a large document with a thorough plan. A great Business Plan, unless there is a novel divergent technology or science involved, rarely exceeds 25 pages. Add as many supporting exhibits, competitive analysis, research documents, studies, etc. as possible. The main body of the document must be focused like a laser on providing answers to the many questions that investors always present. Keep it tight and moving.

10. If your Business Plan is built on false assumptions it will not withstand scrutiny. Remember you must be able to fully support every assumption you make about Cost of Goods, Marketing Strategy, Sales Models, Competition, Expenses, Financial projections, etc. This requires research and due diligence that will be apparent, or not, to the potential investor.

A great Executive Summary will contain referrals to almost all of the elements detailed in this article. It will be pithy, interesting, grounded and written with professional zeal, not bombast. If this two-page introduction is crafted properly your Business Plan will have a real opportunity to receive a serious read from your real target audience: Venture Capital, Investment Bankers, Strategic Alliance partners and Licensees.

New to Business Planning? Start With a Basic Business Plan

Why would you want to write a basic business plan as opposed to a more elaborate one? Most business owners I know struggle with the idea of writing a full-blown plan for their business. To be completely honest, writing a plan for anything, let alone a business you own or intend to start, is challenging because…

1. we don’t know where or how to start
2. we want our plan to be perfect the first time we write it – as in, we don’t want to make any mistakes
3. we don’t like to write – and let’s face it, writing a plan involves writing.

I’m going to share with you ways to overcome each of these hurdles. But before you do anything, allow yourself to break the process of business planning into small steps.

The first step is to have a basic plan which will serve as the foundation for a more detailed and comprehensive plan down the road.

How to Start Writing Your Plan

What goes into a basic plan? Well, let’s first define a basic plan as a plan for the bigger plan you will arrive at later on.

Here are the essential questions you need to answer:

1. What do you want to gain by writing this plan?

Is this plan an internal plan which you will use to guide yourself or your team towards achieving specific and measurable targets? Or are you aiming to attract potential investors? Is this something you would like to take to the bank to propose a loan for your business?

Begin by examining what your specific goal is for writing your plan.

2. Who is going to review my plan, and what do you want them to do with it?

You need to identify who is going to actually study your plan, and what they are going to do with it. If it’s yourself, then it’s a little easier to answer this question because the answer lies within you.

If, however, you are writing your plan for others to review, and assuming you’ve answered #1 above, you’re going to have to do some background analysis.

Start listing names or titles/positions of people who you expect to review your plan. Then, for each person, brainstorm how you want that person to react to your business plan – what they should do with it.

You could do the same thing for investors – do you know any business owners? Ask them what they would look for in any business venture they would invest, and specifically what they would look for if you wanted them to invest in your business.

3. What is the core product or service your business offers to buyers?

To answer this, write down the product or service you intend to offer as simply as possible. We’ll answer more detailed info about it in the following questions.

4. Who is the ideal customer for this product or service?

Really, ideas for business are a dime a dozen. You often hear people talk about a great business idea they have, but they rarely back it up with any kind of proof that a customer exists for such a product or service, and that that customer would be willing to pay.

Try to be specific in profiling your buyer. For example, does your product or service cater to men or women, or both? What age groups or income levels does it service/attract? Are there any geographical areas that your product or service would supply?

5. Is there enough demand for your product or service?

This is something you’ll want to investigate in more detail as you develop your business plan. At this point though, what’s important is to do some preliminary research. Searches on Google, Hoovers or Bizminer will help you study a particular industry, and you can often drill down your research to a particular state or city. Your search at Google is of course, free, but you’ll often find for a small investment at sites such as Hoovers or Bizminer, you’ll get meaningful data for your market vertical, which you can start analyzing right away.

It’s also not a bad idea to survey buyers on their purchase behaviors and perceptions towards your product or service. Arranging a questionnaire or focus group can give you some useful insight into how potential buyers react to your product or service.

If it’s reasonable, consider giving away product or service trials and then follow-up to evaluate user expectations and experiences.

If you don’t have demand for your product or service, it really doesn’t matter how great it is anyways, right?

6. What existing problems or needs does your product or service solve for your customers?

This is one of the most important questions to answer, because ultimately, your product or service is just another one available unless it clearly and uniquely solves a problem or need which buyers face.

To give an example, let’s say your product is a software application that helps you manage your finances and taxes. There are a few applications in the market which do that already. So, what does your application do that others don’t? Is it better on features, is it faster? Is it more secure? Is it more user-friendly? Is it more portable? Does it really help someone save money or increase their net worth?

Can you see why getting clear on the solution you offer to your target market is so crucial?

7. Who are your direct and indirect competitors?

You really should gain at least an initial understanding of who else is offering similar products or services to your target market. It’s good to know how their products or services are currently used and perceived – why people buy them, and why they don’t. In doing so, you begin to understand the strengths and weaknesses of your competitors from the consumer’s perspective.

Depending on what your product or service is, you can find all kinds of information about user experiences with your competitors’ offerings. Sites like Amazon let you see product reviews by customers who bought products.

8. What do you need to get your business rolling/growing, and what will it cost?

This is arguably the most painful part of business planning. Yet, what is the point of having a plan if you don’t know how it all adds up financially? You may not know how to put all the numbers together on your own. If that’s the case, invite or even hire someone to help you sort out the numbers.

Aside from any potential revenues earned from sales of your product or service, you’ll need to know your fixed expenses – what it costs you to run your business whether or not you sell a single item, and your variable expenses – what it costs you for each item sold.

Naturally, in the early stages of planning a business, you will be doing a lot of forecasting, and your numbers may not be as accurate as you’d like them to be. So, you’ll want to be as conservative as possible about how much revenue you’ll generate and how much your business will cost to run.

9. Putting your plan to action – what are the key steps you need to take?

At some point, the plan needs to hit the road! The plan is no good if it doesn’t help you take action. So a simple action plan should be included – what needs to be started and completed, when and who will do it, all need to be mapped out at least at a basic level.

Having an action plan will also help you get excited about your business venture, as you can see how it comes to life.

10. How can you improve your plan?

Once you’ve answered these questions, you have a basic blueprint of how your business is going to look at the early stage.

Remember, your first step is to prepare a basic business plan that serves as a foundation. From this foundation, you will want to further explore areas which need more analysis and testing, while some aspects of your business venture merely require you to get started and measure how things are going.

Ten Important Things to Think About When Writing a Business Plan

1. Whether you are raising money, borrowing it, or financing a new business yourself, you should force yourself to put into writing a detailed business plan for what you have in mind. Without one, you most likely will be unsuccessful at obtaining money. With one you can guide yourself and your management team through the entire start-up process in an organized and successful manner. That being said, having a written business plan is a must.

2. If you are raising money for your business, you should first carefully think about who potentially will be providing the funds to start the business. For example, if you are hoping to borrow from a bank, your plan should clearly address the risks involved in the business with emphasis on the new business’s ability to pay back any loans obtained. If you are soliciting funds from investors or venture capitalists, your plan should emphasize the business’s growth potential and it’s subsequent return on invested capital. At every step of the way, you should be conscious of writing FOR and TO the targeted reader of your business plan.

3. Making a detailed outline of what you have in mind is probably the most important thing you can do before you actually start writing your plan. Take your time and give your outline a lot of thought. Organize your thoughts in simple phrases or sentences and number and letter each phrase or sentence. Break down big topics into smaller, detailed lists of specific things that must be researched or said. Composing a detailed outline can be tedious, but don’t slack off on this crucial part of the process. Writing from a carefully written outline will give your business plan a definite beginning, middle, and end.

4. A business plan will achieve its objectives only if it is credible. Credibility is established by the people who will be involved in the venture and how various verifiable facts and statistics are used to support the proposed business idea. The industry or market niche in which the business will compete must be extensively researched. So too must the targeted customers of the business be analyzed and discussed. Much effort should be expended to thoroughly research these subjects by using information found in libraries, on the Internet, and from companies with pertinent databases for sale.

Another source of credible information can be obtained by interviewing industry experts, suppliers, competitors, and even potential customers themselves. The depth of knowledge and insight that can be conveyed in the business plan as a result of thorough research will go far to solidify the needed aura of credibility. Remember to keep track of where you sourced your information so that it can be properly footnoted in your business plan. Footnotes add to credibility.

5. Be organized from the start. You will be surprised at how much information you can collect in a very short period of time. It is imperative that you collect and organize your information in a manner that conforms with your outline. Set up labeled files at the onset. Have a separate, secure place to store them. Plan up front how you will collect and organize information gathered from the Internet on your computer. And don’t just copy information from the Internet.

Keep track of the addresses from where the information came, in the likely event that you may want to revisit some sites for clarification or additional information. It sounds old fashioned, but keep paper and pen on your person and on your nightstand at all times. Write down every fleeting thought that comes into your head. In the busy pursuit of information, it’s easy to forget an idea that popped into your head the day before or in the middle of the night.

6. The body of the business plan must contain the usual descriptive elements such as a clear statement of the business, the planned marketing strategies, a thorough analysis of the competition, a description of operational procedures, an honest list of perceived risks, and other written sections pertinent to the business idea. But what will set your business plan apart from others will be the insertion of a “compelling reason” why your business idea is unique. To just say “this business is different and therefore it will be successful” probably will be ignored or discounted by a sophisticated reader.

But if you build a story through the presentation of your researched facts and take the reader to a logical point where the uniqueness or cleverness of you business idea becomes apparent, he will be more than receptive to your idea when you state the “compelling reason” why your business idea is truly unique and will work. You will have drawn him in and captured his imagination. The “compelling reason” will make him receptive to all the other positive attributes your business idea represents.

7. The financial statements you include in your business plan should span three years with Year 1 broken down into 12 months and Years 2 & 3 broken down into quarters. They should contain both profit and loss and cash flow statements. Two important elements you should include in the financial section of your business plan is a clear statement of the assumptions that underlay your projected numbers and the obvious use of a conservative approach in projecting those numbers. Be thoughtful in your assumptions. Make them easy for your reader to understand. Base them on facts gleaned from your research that appear elsewhere in your business plan. Always take the lower side of any range of figures.

The important thing is for the numbers to work ie payoff the loans or give a reasonable return on investment. Bankers and investors are not impressed by big, optimistic numbers. They see them all the time. They are usually persuaded by that “compelling reason” why the business has a good chance of succeeding and reassured that the projected numbers are achievable because they are obviously conservative. Let their imaginations take your financial projections to higher, exciting levels on their own time.

8. Your business plan should contain detailed resumes of the principal people who will be involved in and/or running the new business. The resume section is often the second place venture capitalists go when they pick up a business plan. They first read the executive summary to get a general idea of what the business is all about, and then they go to the resume section to see who the players are. If they don’t see competent, proven people with direct, related industry experience, they often discard the business plan right then and there. So be thoughtful on who you bring into the business and carefully design their resumes to highlight past experience and accomplishments that directly relate to your proposed business idea.

9. The Executive Summary should appear as the first section of your business plan and should be the last section you write. It is a synopsis of the business idea you have already carefully organized and written. It should give a broad overview of what the idea is, and should, in a page or two, give the reader a clear understanding of what the proposed business specifically does, into what industry it falls, what broad economic climate and competitive conditions exist within that industry, and what general elements of the business idea give the proposed business a chance of being successful.

It should contain summary figures on the return on investment or the loan payback. The Executive Summary is the first section the reader will examine so take your time with it, be concise and comprehensive, and consider it to be almost like an advertisement for your business idea. It should have a ton of optimism as opposed to the factual and objective tone you want the rest of your business plan sections to have. The Executive Summary is often the only shot you have at capturing the reader’s attention, so be thoughtful when writing it.

Remember, most venture capitalists and bankers have stacks of business plans filling their offices waiting to be read. Often junior members of the firm are given the task of doing the initial sort before a plan will reach the eyes of a decision making partner or officer. The person who first reads your Executive Summary thus has the power to reject your proposal but usually not the power to approve it. He only passes it on, and if the Executive Summary can catch his eye and make him read further, it’s done its job.

10. Subconscious impressions are very important to the success of a business plan document. How the document is organized, what type style is selected, the sparing use of italics or bold type, how varying paragraph indentations are used all make for either a positive or negative impression. Misspelled words are death as are serious violations of the proper use of grammar. Short concise sentences will communicate better than long rambling ones. Your objective is produce a professional looking and reading document that clearly communicates that you and your team are professionals and thus know what you are talking about.

Pass your draft business plan by people you respect and have them proof read it and critique it. Determine if they clearly understand the points described in it. If they don’t, go back to the drawing board and rewrite the sections in question. Take a lot of time on this final review and edit process. It is the last and probably most important step you can take for creating a successful business plan.