Over the years, I’ve had the pleasure of helping thousands of entrepreneurs develop their business plans.
In fact, when you look at the number of business plans that Growthink has written for our clients, the number of entrepreneurs who have purchased our business plan templates, and the number of entrepreneurs who have downloaded our business plan guides, the number exceeds half a million.
This vast number has placed a large responsibility on me; mainly it has forced me to spend countless hours figuring out how entrepreneurs can most easily create their plans, and more importantly, how to ensure that their plans lead to success. And in terms of success, one key factor that’s top of mind for me, is how successful these business plans are in raising money.
Importantly, in assessing business plans and their success in raising money, I have found a clear correlation between the maturity of your business and the importance of your business plan.
The correlation is this: the younger your business is, the more important the quality of your business plan when raising capital.
When you think about it, this is really intuitive. Here’s why. Business plans are read by investors and lenders for risk management reasons. These money sources realize they are taking a risk with every check they write, and want to mitigate this risk. The business plan explains to them how the business will use their funding, and paints a picture as to the likelihood that they will get an adequate return on investment.
For mature businesses, the business plan is just one of several variables the investor or lender can assess in their decision-making. For example, if you have a mature company, the investor or lender can speak to your customers, analyze your financial history, assess your team members’ backgrounds, compare your product to competitive offerings, and so on. As a result, if your business plan is weak but the other factors are really strong, your mature company may still receive funding.
On the other hand, for a new company, particularly one that doesn’t yet have revenues, the quality of your business plan is critical; because it is one of very few variables that the investor or lender can review. The investor or lender can consider your business plan, the bios or you and your team, and maybe a product or service prototype if you have one. That’s pretty much it.
Clearly, because raising capital is so competitive (i.e., the number of entrepreneurs seeking funding dwarfs the number of funding sources), entrepreneurs need all the ammunition they can get. And if you’re not yet a mature company with revenues and a track record, that ammunition needs to go in your business plan.
Below are some tips to make sure your business plan is fully loaded and ready to penetrate the checkbooks of any funding source to which it’s presented.
1. Always remember that your business plan is a marketing document
You need to view your business plan as a marketing document. You use it to convince a lender or investor to write you a check. It is not a stodgy 50 page document, but rather should be more like a brochure that gets the reader to turn page after page. They should be excited to get to the end, as each page should make them more and more certain that your company is a solid investment opportunity.
2. Write with confidence, but be careful of superlatives
Your business plan needs to give investors and lenders confidence that you will be successful. As a result, you need to write in an appropriate style.
For example, business plans should never say things like “we hope to achieve this and that.” Rather, they should say, “we will achieve this and that” and “we are poised to achieve this and that.”
However, at the same time avoid superlatives like “best,” “greatest,” “most powerful,” etc., unless you can back them up. For example, saying that you have the “best management team” will turn off many investors. Rather, you should say something like, “our management team has the experience, skills and track record to successfully execute on our plan. Among other things, our management team has [and then list the credentials of your team].”
3. Answer the key questions, but not all the questions
The purpose of your business plan is not to answer every conceivable question that an investor or lender might pose. Rather, you need to answer the key questions that will get them excited about your venture, and influence them to invest more time meeting with you to discuss investment possibilities.
The key questions to answer relate to key sections of your business plan, such as:
- Who are your target customers, what are their needs, and how does your product or service meet those needs?
- How big is your market? What trends are effecting your market size, and how will that influence the success of your venture?
- What marketing tactics will use you to attract new customers?
- How much money do you need for your venture and why?
All of these answers should help support the main premise of your business plan, which is to prove to investors and lenders that your venture will ultimately be successful.
In summary, remember that unless your business is mature and has a track record of success, your business plan will be a critical factor in your ability to raise funding. And remember that your business plan is a marketing document. You should be proud of your plan, and know that when investors and lenders look at it, they will be nodding in agreement; and not throwing it in the trash pile along with the majority of plans they review.
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