Many businesses fail because their business plan has not been thought out, written down and developed. A good business plan is essential to get funding, as this is where management convinces investors that there is a real commercial opportunity for the business and its products or services.
The business plan should be prepared to a high standard, be verifiable and should avoid jargon or general position statements. It should offer the reader a combination of clear description and analysis, including a realistic SWOT (strengths, weaknesses, opportunities and threats) analysis of each area. This will demonstrate to investors that management is realistic about the company's prospects.
Make sure you have a full appreciation of the risks, and you know how to grab your market share.
The length of a business plan depends on individual circumstances. It should be long enough to cover the subject adequately and short enough to maintain interest. Unless your business requires several million pounds of venture capital and is highly complex, the business plan should be no longer than 15 pages.
The BVCA recommends erring on the side of brevity. If investors are interested they can always call to ask for additional information.
Aesthetically, it should be professional. Ensure there are no typing, grammar or spelling mistakes. Use graphs and charts where appropriate and titles and subtitles to divide different subject matters. While the aim is to make it look good, you should avoid expensive documentation, as this might suggest unnecessary waste and extravagance.
The business plan should detail all the important aspects of the company. It should include information about the company's market and customers, products or services, the strength of the management team – and if there are any gaps in talent, identify how you will fill them. Often a venture capital firm can assist in doing this. The plan should also explain how products are made or services provided.
Meanwhile, realistic financial projections should be outlined and management should provide different scenarios for sales, costs and cash flows for both the long and short term.
'What if' questions
“What if” questions should be presented and answered. These will demonstrate how the company will react to or counter the effects of an unexpected drop in sales or an increase in costs. The business plan should also detail potential exit strategies.
The executive summary
The last thing written is the first thing that appears in the business plan: the executive summary. This is the most important section and summarizes in two pages what is written in detail in 10 or 15.
This is where, among other things, you state the company's mission statement – a few sentences encapsulating what the business does for what type of clients, your aims for the company and what gives it its competitive edge. The mission statement should combine the business' current situation with your aspirations.
As with the business plan, the executive summary should be clearly written and powerfully persuasive, yet it should balance sales talk with realism in order to be convincing. It should be no more than 1,000 words and should also state the company's legal status.
Pitching the Plan
When the business plan has been prepared and it has received input from a financial adviser, the next step is to put it in front of venture capital firms. At this point, it is worth considering only sending a copy of the executive summary. This has the advantage of saving costs and increasing the chances of receiving attention.
You may want to also include a confidentiality letter for the venture capital firm to sign but generally a confidentiality letter is only sent after an investor requests to see the full business plan.
You can obtain a standard confidentiality letter from the BVCA. It bears noting, however, that BVCA members are bound by a code of conduct, which states that they will respect confidential information supplied to them by companies looking for funding.
While receiving the actual funds can take three to six months, receiving a response from a venture capital firm on a business plan can be within a week or so. If the answer is no, you should find out the reasons why and then consider incorporating those ideas into a revised business plan, changing/strengthening the management team or carrying out further market research before approaching other potential investors.
If the venture capital firm commissions external advisers to look over a plan, don't be alarmed. It usually means that the investors are seriously considering investing in the business. This due diligence process is used to sift out any skeletons or fundamental problems that may exist.