Any chances of investment can be ruined if your business plan isn’t up to scratch, says Clive Lewis, the ICAEW’s head of enterprise
When seeking external investors, your business plan is your calling card. Needless to say, potential investors will receive many plans in a week, so if you want to get to the next stage you have to make yours stand out from the crowd. First of all, you will need to ask yourself what you want to get out of sending your business plan to the potential investor. If the pitch is for equity investment, it’s worth considering whether or not the time – and investor – is right for your business at this stage of its development.
Putting together a business plan can be quite a daunting task so a business owner shouldn’t be afraid to take advice on the areas of their plan that they are least comfortable with. For example, among other things, pitching for finance requires financial information and forecasts. Most early stage entrepreneurs will therefore benefit from a discussion with an accountant about the forecasts within the plan.
There are also a host of other key bits of information that an investor will be looking for from the business plan. Essentially, it has to summarise your business model in a short and easily understood way. It’s surprising how many plans do not give a clear idea of the business model and how it will make money. Summarising your target market is just as important. One should fully expect to be asked questions like ‘who are your competitors?’ and ‘how do you expect to break into the market – is it by offering a lower price, better quality or is your offer just breaking new ground?’
The investors will be interested in the personnel that you have at your disposal too, so you will be expected to identify the key people in your team along with their qualifications, experience and past successes. This not only includes employees but also people who have already invested in the business, as well as mentors and advisers.
Furthermore, your plan must detail the opportunities and threats to the business. Potential investors may well have knowledge of the sector so you are probably going to be asked what the dangers are anyway, and detailing the threats can avoid arguments later. Finally, your plan should paint a picture of the future. A good device is to imagine what the business could look like in two to three years’ time. This will help investors focus on the growth potential in the business, or ‘the upside’.
Once your business plan is prepared, it’s wise to practice your pitch in front of a friendly audience such as a business acquaintance or your accountant. Pitches to angels or meetings with equity investors will have time limits and you must ensure you get all the facts you want out in a persuasive way and within the allotted time. Then, when it comes to the pitch, it’s important to have the key financials at your fingertips and be as well prepared as possible to answer questions. If you don’t know the answers, it’s better to say that you will provide the information after the meeting.
Following your pitch or meeting with an equity investor, it may be a good idea to sit down and review how it went. Some of the questions you could ask yourself are:
- What did you learn from it?
- What questions did the pitch or meeting raise?
- What was the feedback?
- What would you do differently next time?
- Does your business plan need modification?
You may wish to talk through the experience with the person with whom you practiced beforehand. After all, they would have already seen your pitch before the event and an independent person can give insightful feedback.
If your potential investor is still interested, then you should expect to have some form of due diligence done on the business. Should the investor be a business angel, they will probably visit the business themselves while private equity investors will employ external accountants to conduct such checks. In this case, you need to be prepared for an intensive period of due diligence, final negotiation and legal agreements.