At the most basic level, a business plan is simply what the people responsible for the business expect to happen over a defined future period: what will happen when, and why, and with what results; and what resources might be needed in order to achieve it. For a simple and stable business, this will not be difficult to determine. Just keep doing what has previously succeeded, and you will probably get the same results; fairly easy to work out what is going to happen. Unfortunately, there are not very many simple and stable businesses. Working out what is likely to happen in a changing world is more taxing, and much more interesting. Business is all about making money, converting your starting money into more money: adding value, making a profit. Perhaps the simplest business is just to sell a skill or service with no complications, doing something that other people want or need and are prepared to pay for. Your cost is nothing, other than your time, so all receipts are profit. But that rarely ever happens, there are nearly always some overheads or expenses that reduce the profits. Maybe you need to buy materials in order to sell them at a higher price; perhaps you need premises from which to operate, or vehicles in which to travel; you probably need to pay for other goods and services in order to continue doing what you do; sometimes you have to buy expensive equipment before you start because that’s what you use in your work; you may well have to publicise what you are doing in order to alert and attract potential customers; then you may well have to employ others in order to make the most of the opportunities, with all the inherent difficulties and costs involved. Before you know it, you have a complex business that needs to be planned for and thought about in quite a lot of detail if you are going to get the best out of it.
The whole point of any business is to make a profit, so it is important to show how much will be made and when. For any successful business, these potential Rewards must be bigger than the Risks, and this is certainly a judgment that is going to be made by anyone choosing to back the business. We will look at how to assess, quantify and make judgments about Rewards, what any backer will want to know, and how you make sure you tell them just that.
Your business sells, for example, widgets. Your Business Plan does not sell widgets. Your Business Plan sells the concept of success in your business to the others whom you need. You must get their agreement and investment of time, enthusiasm and maybe money in your business; you have to get them to say ‘Yes’ to your proposal, not to buy your widgets. That is worth repeating: your Business Plan is not to sell widgets. In the most extreme case, finding a Business Angel or Venture Capital, your plan is specifically to help you sell a share of your business to an investor at a meeting: widgets are just the way your business makes profits. And the first step in the process is to persuade the investor that he simply must meet you. It’s not what you sell; it’s how you make money, why you make money, when you make money, how much money you make, and how you control all those external factors that get in the way of your making money by selling them. While it is true that your Business Plan is a sales document, it is you that it should be selling it advertises you.
There are four main reasons for writing a superb Business Plan:
1. Perhaps not so obviously, if a Plan is superb then it must be describing a superb business opportunity. This is clearly incredibly good news for everybody involved, because it is going to make a lot of money for everyone.
2. Secondly, a superb Business Plan is a reflection on the author. It shouts out loud in technicolour (to mix metaphors) that the author is someone highly capable, who knows his business inside out and back to front. Any backer reading a superb Business Plan is going to want to back the person who can produce such a compelling business, such a superb opportunity.
3. Thirdly, a superb Business Plan adds a great deal of value to the entrepreneur’s proposition. No longer is he an applicant seeking someone – anyone – to back him, he is dictating the terms, inviting backers to make offers. Superb plans can even prompt competition between investors to be allowed to invest. The entrepreneur can demand a ‘beauty parade’ of potential investors, taking his pick of those who offer the most and demand the least in return.
4. And last, especially if you are serious about raising funds, your plan simply must be superb for if it is not you will almost certainly fail. No ifs or buts, no excuses.
Writing Style of a business plan: Great entrepreneurs do not have to be great writers but keeping it simple and clear is a must. Make sure you do not blind anyone with jargon. Jargon is not clever, it is confusing. It can also be counterproductive as it could well hide your brilliance. Do not let bad writing obscure your brilliant ideas, and do not give the backer any reason to put it down. Understand your target, understand how much detail he will need, and what detail. Consider your target’s personality and concentration span, so write to appeal, not bore, or overpower. Treat your target as highly intelligent but ignorant. This means that you must explain everything clearly, but also that he is very quick on the uptake so do not labour any points and explain things just once, concisely. Remember that every backer will be looking at dozens, perhaps hundreds, of plans so it is essential to keep it as short as possible without leaving out anything important. If your emphasis is to go after the money, then the man will run a mile; so go after the man and he will bring his money with him. The plan is written and expressed specifically to address the issues that the target might have. And, because the backer does not exist who does not want to reduce his exposure to risk, he will almost always try to share the risk with others. Finally, and especially, backers do not like surprises. If you have anything which could come out unfavourably in due diligence get your explanation in first by explaining it your way in the plan. It might be hard, but it is so much better than if he finds out afterwards.
Presentation of a Business Plan:
FRONT PAGE: is for a sound bite summary addressed to the backer with “What’s in it for You”: it is designed to make him want to read on. Don’t use the front page for just a title, because the target can forget a title, but he won’t forget ‘What’s in It for Me’. Maybe use a different colour ink, or paper, or a stand-out typeface. If appropriate, indicate potential returns both gross and net of tax.
PAGE 1: heads off with the executive summary of 2–300 words explaining the investment opportunity (not the business!): who, why, what, where, when, how, IPR, how much is needed with what returns.
PAGE 1 TO 9: Start with the Background to your plan: where are you now, and why. What is the business currently doing and why? A very brief history to give context, with information about location, turnover, profits, products, sales, customer profiles, employees, Intellectual Property – anything and everything that makes the business special, what differentiates it from other businesses. What is suddenly special about your circumstances – why are you doing this business plan now? Then describe where you plan to be and when. The commentary needs to excite the target in the way you intend hit his hot buttons, whatever they might be. Your analysis of strengths weaknesses opportunities and threats should ideally be simply part of the text, where you explain how you arrive at both the assumptions and the variations therein shown in your spreadsheet printouts, and how you manage the variations if – when! – things are not on plan.
PAGE 10: CVs of Principals
PAGE 11: Single excel page detailing all the assumptions with variations in the forecasts. The figure for each of your assumptions will be stored in the spreadsheet in a cell, and each cell has its own unique cell reference in the spreadsheet. Link the cell for each assumption to the relevant calculation cells in the Profit and Loss, Balance Sheet and Cash flow forecasts so that a knowledgeable reader using the spreadsheet software can follow the audit trail of the calculations and test the figures through the construction of ‘what if’ scenarios. Next to the assumption figures enter the variation in the assumption. If you are competent with the spreadsheet software, use these variable figures to make variable projections ranges. Alternatively, you might wish to find a friend who is and who understands the principles.
PAGE 12 TO 14: Profit and Loss, Balance Sheet and Cash Flow are each a single landscape spreadsheet page. You will already have decided the timeframe for your business forecasts for Risk and Reward purposes, and should have prepared several different spreadsheet monthly forecasts of your accounts, each based upon different variable assumptions, to give you maximum and minimum case scenarios. Over the projected timeframe, here thirty-six months, there will likely be some months at the beginning where you are just spending money. At the end, before you sell the business, you will just be making money. In the middle is the interesting bit when things start to change for you: you want to highlight what changes, when and why. The projections should show these ‘interesting’ bits month by month, while including the months at both ends only in summary by quarter or even half yearly. The Balance Sheet and Cash Flows should be in the same format, as the Profit and Loss but may well not cover exactly the same months.
APPENDICES: Appendices should normally be omitted in the first introduction of your plan to the target backer, it is better to summarise what is available on request; they should anyway be as short as possible. However, if you know you are targeting a ‘thorough’ and analytical type of backer you should include Historical Accounts (if relevant), any Technical information and what Market Research details add substance to your proposals. Other backers will ask for the appendices if they want to see them.
SUMMARIES: You will need several, especially short summaries if you are going for Business Angels. Business Angels will ask to see various lengths of your plan: some will want the full works, while others will not want to read all that but ‘please just send me a 2-pager to start with’. So, you will need a 50-words ‘sound bite’, a 200 worder, a 500 worder, a 1-pager, and a 3-pager as well as a full plan. Make them all exciting to read, full of interest and potential, without being over the top.
This is the skeleton of a business plan, do make sure that it feels interesting to read for your investors. Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath