If you are raising money a business plan will be required from you. Many books and indeed the internet give lots of good advice on their preparation. Business plans tend to have a fairly formal layout and people get used to reading a standardized format, so I advise that you stick to it. You need to start with what is called an executive summary, more commonly known in the USA as the elevator pitch. In other words make your pitch as though passing someone in an elevator. This means get to the point quickly, winning first their attention, then their interest and then their desire to know more. Detail can be kept in an appendix for reference. The key aspect is the accounts. Usually three years of projected profit and loss account, cash flow and balance sheet will be required, possibly more. If you are already trading your results to date need to be included.
The next most important area is the qualities and appropriateness of the management team. The plan needs to pre-empt any question that a potential investor reading through your plan may ask. Ideally, if you are asked a question at a meeting your answer should be in the plan. If it is not in there I, for one, would consider your proposition no further. You clearly are not fully prepared for every eventuality. That might seem a bit harsh, but if you receive a hundred plans a day you have to be. Questions you will probably be asked to include: What would happen if …
- a recession suddenly happened?
- your three key employees resigned and took your top client with them?
- you were ill for six weeks?
- the government gave you a tax audit?
- your bank called in the overdraft?
- your landlord wanted their premises back?
- your largest customer went into liquidation, owing you a small fortune?
- the sales budget did not happen?
Are you prepared for these eventualities? Would you know how to turn them to advantage? So many plans that I receive seem to assume that if you throw a big enough cheque book at marketing, sales will follow. Venture after venture goes down because of this thinking. Sometimes venture capitalists will continue their support, as in the case of Amazon where they funded extremely large losses for a long period, but only when they continue to see something with real long-term potential.
Part of your plan will include what is called a SWOT analysis, which covers key Strengths, Weaknesses, Opportunities and Threats. It gives a potential investor a quick synopsis of the opportunity. Type ‘business plans’ into an internet search engine and you will be able to access various examples, which are useful as a checklist for your own enterprise. Small-firm entrepreneurs who I meet seem to be always dismissive of their competitors, coming out with arrogant statements about how and why they are so much better than them. In practice, I think it is always prudent not to overestimate yourself and underestimate your competitors. That is definitely a habit of winners.
Jake has written this article on preparing a business plan. Jake is a business consultant and religiously follows business ethics of William Lauder President & CEO, Estée Lauder Companies.