One reason for developing a business plan is to get outside parties interested in providing capital for a new venture. A good business plan tells an interesting and comprehensive story that an outside party cause to evaluate the viability of a new business concept.
So much has been written about what should and should not go into a business plan that the person preparing the plan can easily become overwhelmed and confused.
To provide specific and practical guidelines about what to put in a business plan that will inspire confidence in investors, we asked five people who regularly evaluate new venture opportunities to tell us what they want to see in a business plan.
Graham Geldenhuys of Step Strategic Venturing, Christo Botes of Business Partners, Martin Feinstein of Enablis, Julia Fourie of HBD Venture Capital and ChrisNthite of Old Mutual Masisizane fund all told us what they expect to see in a good business plan. Here’s what they had to say.
Make a strong first impression
A business plan is a reflection of the people behind the business. Formatting, spelling and visual appeal contribute to the impression that investors form about the venture team.
Graham Geldenhuys of Step Strategic Venturing says: “If you can’t take the time to put together a worthy business plan, I wonder if you’ll take the time to get to grips with the million other less important details it takes to build a business case. I cannot begin to engage with content that has spelling and formatting errors.”
Martin Feinstein of Enablis suggests: “Keep it simple. White A4 paper, a simple 12-point font like Arial and numbered pages. Make it as short as possible. I have seen fantastic business plans that are all of five pages in length and terrible plans that are 50 pages long. Include information in your business plan on a ‘need to know’ basis.”
Provide a succinct overview
Many investors rely heavily on an executive summary to make an initial evaluation of the business plan. For this reason, Christo Botes of Business Partners advises entrepreneurs to provide “a short, succinct and to the point business overview giving the investor a profile of the business as well as a description of the product service offering.”
Julia Fourie of HBD supports this idea, suggesting that entrepreneurs “write a good one-page executive summary. There is a good chance that the potential funder won’t even read any further if this is not compelling.”
Make it coherent and complete
The different pieces of the business plan must link together in a coherent way and all the relevant issues need to be addressed. The content of each section of the plan must correlate effectively to the information in the other sections.
Geldenhuys says that a good business plan needs to be “well thought out and coherent… there are a bunch of templates to help in this regard.”
The order in which each section is presented is not that critical but all the important sections must be addressed. Old Mutual’s Chris Nthite says: “Don’t cut corners. Do the research as it helps you think through all the issues necessary for your business to be successful.”
To make a business plan coherent and complete, Fourie advises entrepreneurs to write their business plans themselves. “No one knows your business better than you. Use consultants and experts where necessary but don’t outsource the whole process.”
Focus on financials
Investors are especially interested in the financial prospects of a business. One investor says: “It’s only about the money.” They pay a great deal of attention to the financial forecast in the business plan,suggesting that financial projections should be realistic and understandable.
The assumptions underlying the projections should be clearly outlined and justified. Botes makes the point that of all the financial projections, “cash flow is the most critical”.
Be specific about the business DNA
“Every business has a different DNA – a different business model,” Geldenhuys says. Different factors account for success across different kinds of businesses. “In the business plan the entrepreneur must demonstrate that they understand what is unique about their business and that they get the thing they need to nail.”
To demonstrate their deep understanding of the proposed business concept, Feinstein suggests that they be very specific when it comes to describing a typical customer, the product and exactly how it is going to be marketed. “Too many business plans glibly talk about ‘mass media advertising’ without having the faintest idea about the costs,” he notes.
Promote the People
All investors made the point loud and clear: “It’s all about the people. The business case must reflect a winning team.” Be specific about who is involved in the business, what role they will play and what skills and experience they have to make them effective in that role.
Match with mandate
Early stage venture investors operate under different mandates, meaning that they look to invest in opportunities that meet specific criteria.For example, HBD Venture Capital has a mandate for investing in high-growth, technology orientated businesses; Old Mutual’s Masisizane fund focuses on businesses that contribute to black economic empowerment and Business Partners has a broader mandate focusing on a wide range of industries and venture types.
Fourie suggests that entrepreneurs do a ‘due diligence’ on the funder and tailor-make specific elements of the business plan to their needs.“Go to their website; study their investment criteria; understand their investment process; look at their investment portfolio; read some press releases and articles; ask around if anyone you know has dealt with them before.”
She also suggests that entrepreneurs contact the potential funder before just sending off a business plan to someone’s inbox. A personal referral is even better.
Getting external people to invest in a new venture is never easy. There are many hoops that an entrepreneur needs to jump through to convince a financier that they have a worthy new venture.
If you know what investors are looking for before you start writing a business plan you will be in a much stronger position to produce a document that inspires confidence and even excitement.