You are right. Just writing or having a business plan does not guarantee that someone will give (or loan) you money for or invest in your venture. But every investor and funding source I have worked with over my 26 year business career wants to see the entrepreneurs or business owners business plan as part of their evaluation of the business and the principal(s) involved in the deal. I hear the following statement (or similar) quite often from these investors, the professional advisors that work with them and from funding sources.
"Most business plans we see, especially those for start-up businesses or ventures, usually all have one thing in common: they are a good piece of fiction that often has some great ideas but no one really believes in what they read in them."
The reason for this?
Most business plans are bloated with a not very credible presentation of the business, its revenue model is not fully described or detailed and has information in it that is inappropriate and unnecessary (and in some cases hurts the plan), they often lack the most important things that investors want to know and use unrealistic assumptions and have overly optimistic financial projections. The good business idea(s) or opportunity that may be somewhere in the plan is obscured and buried underneath what people think they need to have in their business plan. That is why even good businesses and opportunities, who have created that type of business plan, fail to attract the interest of investors and funding sources.
I'm going to put some feedback here for those reading this post, that were drawn to it by the title, with questions about should they write a business plan or not before they look for money to launch or expand their business and if they do create their business plan, what are some things to be watchful for. Often you may hear about what a business plan consists of.
While including the necessary items is very important, you also want to make sure you don't commit any of the following common business plan mistakes:
1) Putting it off
Don't wait to write a plan until you absolutely have to. Too many entrepreneurs and business owners create business plans only when they have no choice in the matter. They think, "unless the bank or the investors want a plan, there is no need to have a plan". The worst thing you can do is tell a prospective investor "my plans not done but I'll get it to you as soon as I can". That says to them you are not serious about your business and that it must not be a very compelling business or venture if its not worth doing something as essential as having a plan for it.
Don't wait to write your plan until you think you'll have enough time. "There's not enough time to create a business plan," people say. "I can't plan. I'm too busy getting things done." The busier you are, the more you need to plan.
If you have too many things going on, if the business or venture and getting funding for it is important to you, then you need to re-prioritize to get your business plan done. If you tell a prospective investor "I don't have my business plan ready now to present to you" ... they know they are dealing with a person that lacks focus and perspective on important things that they should have done before they start opening a dialog with investors.
2) Treating cash flow lightly
Cash flow is more important than sales, profits, or anything else in the business plan, but most people think in terms of profits instead of cash.
When you and your friends imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. Entrepreneurs are taught to think of business as sales minus costs and expenses, which equal profits.
Unfortunately, we don't spend the profits in a business. We spend cash. So understanding cash flow is critical. Make sure that your financial projections show a clear picture of cash flow and how it supports operations.
3) Overemphasizing your "big idea"
Business plans don't sell new business ideas to investors. People do.
Your business plan, though necessary, is only a way to present information. Investors invest in people, not ideas. Do not lose sight of that fact. Focus on how you and your management team will execute your business plan. Do not fixate on the idea itself.
Don't overestimate the importance of the idea, particularly the importance of the uniqueness of the idea. You don't need a great idea to start a business; you need time, money, perseverance, common sense, and so forth. Very few successful businesses are based entirely on new ideas. A new idea is much harder to sell than an existing one, because people don't always understand a new idea and they are often unsure if it will work.
4) Fear that you can't put your plan to paper
Doing a business plan isn't as hard as you think. You don't have to write a doctoral thesis or a novel. There are good books to help, many advisors you can find online and among SCORE, the SBA and Small Business Development Centers (SBDCs), business schools etc., and there is software available to help you (such as Business Plan Pro, and others).
5) Unclear goals & objectives
Leave out the vague and the meaningless babble of business phrases (such as "being the best") because they are simply hype. Remember that the objective of a plan is its results, and for results, you need tracking and follow up. You need specific dates, management responsibilities, budgets, and milestones. Then you can follow up. No matter how well thought out or brilliantly presented, it means nothing unless it produces results. Tailor your business plan to its real business purpose.
Business plans can be different things: they are often just sales documents to sell an idea for a new business. They can be detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to start a business, or just run a business better. Whatever its purpose, your plan must be clear and concise.
6) Being too complex
Investors have real concerns about business models (and plans) that have a lot of moving parts. The more complexity, the more potential for a failure to execute, cost overages and many other things that can derail a plan and turn what seemed profitable on paper, into a money-sucking operation that no one is pleased with. Remember, strategy is focus. A priority list with 3-4 items is focus. A priority list with 20 items is something else, certainly not strategic, and rarely if ever effective. The more items on the list, the less the importance of each. So refine your business model, make sure that you can explain it clearly and that your business plan is a concise explanation of how you plan to make money.
7) Unrealistic financial projections
Quite simply; have projections that are conservative so you can defend them. When in doubt, be less optimistic. Show how there is real money to be made and not "hypothetical" revenue and profits.
Again, even the best-written business plans do not always get funding or investor interest. After all bottom line it is about the business, the people involved and their capability that will primarily affect how well the venture is received by investors and funding sources. But if you are going after capital, then doesn't it make sense to make this (the most important document you use with funding sources & investors) the best that it can be? I think so.
Dennis Lowery
Adducent, Inc.
