Are You Ready to Raise Capital? - The Importance of a Comprehensive and Professional Business Plan

The Importance of a Comprehensive and Professional Business Plan

A business plan serves as more than a tool simply to raise funds.  A comprehensive and professional business plan becomes the roadmap showing the plan for the company’s journey to its planned success.  It also serves as a basis against which the company’s progress toward its willed future can be measured.  The business plan should describe clearly and precisely what you expect to achieve, in what time frame, how you intend to get there, who will lead and execute the plan, what challenges need to be overcome, what risks can be expected, how those risks will be contained or mitigated, and why the business should succeed.  This business plan will become the foundation of all decisions made by the business, describe the performance targets against which the business will be measured, and for which the management team will be held accountable.

Everyone understands that businesses exist in dynamic and changing environments.  Changes will not only be made along the way, but should be expected.  The plan should not be immutable.  However, changes should result from measurement against the plan and its assumptions combined with thoughtful and purposeful shifts in strategy and tactics to adapt to change and seize opportunities as they are presented.

Here are some essential questions every entrepreneur should ask and answer in a business plan.

1.     Who are we and what do we want to do?
Define what the business intends to do, what customers it intends to serve, why they will need its products or services, what markets it will target to find those customers, and why they will want to do business with the company.  Be sure to define your product, your intended markets, revenue targets, and margin objectives.

2.     Why do we think we can be successful?
Conduct a thorough competitive analysis of your company versus all other competitive alternatives and make the case that you have a unique and compelling value proposition that will attract customers from your targeted markets in sufficient quantities to make the company successful.  Please remember that every company and every value proposition has competition.  If you have no competition, there is likely no real market for your product or service.  I also constantly remind entrepreneurs that whatever a customer is doing today to address the perceived need is competition.  Prospective customers can always decide to continue whatever they are doing today or endure whatever pain you may perceive they have.  Why will they choose your product or service over every other competitive alternative?  What makes you different, unique, and compelling?

3.     What actions are necessary to achieve your goals?
This is a description of the strategies and tactics necessary to achieve the company’s objectives.

4.     How much will it cost and over what time frame?
This includes the resource planning for all the required company assets and resources including capital, people, facilities, equipment, inventory, raw materials, development, etc.  We typically suggest the inclusion of three budget scenarios best case, most likely case, and worst case.  The worst case scenario should stress test the business plan and financial forecasts to make certain that the company’s capital plan is sufficient to deal with unexpected developments and their consequences.  All sophisticated investors will want to see the entrepreneur has addressed this consideration.  It is best to have it prepared for presentation when asked, even if the worst case scenario is not included in the business plan.  It will also be of help in building the risks section of the business plan.

5.     Can the business meet the objectives and financial plans that have been presented and what value will be achieved as a result?
It is important to be realistic in answering these questions.  The founders and management team will and should be held accountable for these results.  We find most business plans we review are overly optimistic on the planned targets and assign excessive valuations to their achievement as well.

Steps in Preparing a Business Plan

The following steps should be followed in development of the business plan:

• 1.     Identify the company’s objectives
• 2.     Outline the business plan
• 3.     Review the outline with your advisors or mentors
• 4.     Research the outline topics thoroughly
• 5.     Write an initial draft of the business plan
• 6.     Review and edit the plan with the help of your advisors or mentors
• 7.     Have the plan reviewed by several outsiders
• 8.     Update and finalize the plan
• 9.     Develop the Executive Summary

Structure and Key Components of a Business Plan

While there are many templates and suggested formats for business plans, most sophisticated investors will expect the following basic components at a minimum.

       1.   Cover Sheet

       2.   Table of Contents
       3.   Executive Summary
       4.   Description of the Company - intended activities, target markets, and distinctive competencies
       5.   Market and Competitor Analysis
       6.   Products and Services
       7.   Operations
       8.   Management and Ownership
       9.   Funds Required and Their Uses
       10. Financial Data
       11. Risk analysis
       12. Supporting Appendices

As there is much underlying detail behind each of these topics, we will not attempt to deal with that within the scope of this article.

The important point is to understand the need for a thorough and complete analysis of the opportunity and planned business.  We urge particular attention to the go-to-market plans and market and competitive analysis sections.  We find most business plans particularly weak in these areas that are so crucial to the success of any business.

Presentation of your Business Plan:

While a comprehensive and professional business plan may well go into even a triple digit number of pages, it is important to be able to present your opportunity succinctly and clearly to prospective investors in 15 to 20 minutes.  Your presentation should be compelling enough to cause the investor to spend enough time to wade through the entire business plan in order to more thoroughly understand the opportunity.

We always counsel entrepreneurs to focus on the analysis of the target market, the intended customers and their unmet needs, what makes the company’s offering unique and compelling, and how potential buyers will be attracted and acquired for the company’s products or services.  Perhaps one of the most common mistakes made by entrepreneurs in these presentations is focusing too much on the company and its offerings, describing their technology, innovation, or value proposition in great detail, or spending too much time on the history of its development.

We always suggest rehearsing these presentations extensively with objective reviewers who know nothing about the company or its intended business to be certain they can be delivered smoothly and professionally and most importantly be easily understood and compelling.

The Importance of a Sound Business Model:

Does your intended business have a sound business model?  Have you carefully addressed pricing and margins?  Does the business have strong sources of recurring revenue or does it depend on constantly earning new customers for one-time purchases?  Are you early to market with a new, unique, and compelling offering?  Have you significantly improved an already proven product or business proposition?  Or, are you simple the next to market with a slightly better version of an idea or product others have already successfully positioned in the market?  Are you approaching a rapidly growing market opportunity?  Is your value proposition market ready?  Do you already have your first customers or market validation of the product or service?  All of these are questions that prospective investors will be considering.

We always suggest that entrepreneurs try to think from the investors’ point of view.  Why would they be attracted to this particular investment opportunity?  Is your company a good risk?  Have you thoroughly analyzed its strengths and weaknesses?  Do you have not only a unique and compelling value proposition, but also a go-to-market plan likely to succeed in attracting customers in sufficient volumes to achieve the projected financial results?