MacDonald Ventures

Writing a Powerful Business Plan

Next to a great management team, a well-written business plan is your most important tool when raising capital.  If you want the capital, have a great plan.  Assuming yours is a great business idea, here are a few tips on preparing an effective document.

Your mother probably told you the importance of first impressions.  She was right.  With business plans, as in personal relationships, those first few glances create impressions that determine if it will even be read. 

If poorly prepared, it will never make the first cut.  There is never a second chance to make a good first impression.

Competition is tough.  Many are reviewed, few are chosen. Regardless of the excellence of both your business idea and plan, your written presentation must show the management team and the business as the most worthy investment of all.

Ideally, a well-written, informative and enticing document, it encourages funding sources to take a closer look.  Just as a resume is used to gain an interview, a business plan must open the door to further discussion.  Shorter is better.

Communicate your resourcefulness and efficiency through content. Demonstrate an understanding of human nature and business problems by your selection of management, the differentiation of your market with a strong positioning statement, financial knowledge with detailed and understandable pro formas, and basic understanding of the business by your choice and treatment of important topics.

Communicate the potential inherent in the opportunity with excitement .  What's so profitable about this project?  Is there a real need?  Why are you the expert?  Who's helping the business stay on track?  What assumptions have been made about the market?  What niche is being pursued?  What are the competitor's weaknesses?  Why will this business succeed where others have failed?  What are the risks and how have they been dealt with?  What ideas do you have for additional products or services?  What are your weaknesses?  What help will you need?

Because of the sheer number of requests for funding, most business plans are rarely read, though they tend to get perused.  So, write the plan so the headlines subtly market the concept as the reader flips the pages. 

The executive summary at the front should be so well edited that its few pages communicate all information necessary for investors to determine their level of interest.

The plan you create is valuable, proprietary and represents thousands of dollars in work.  Treat it accordingly.  Don't devalue it by indiscriminate distribution.  People reviewing it will give it only as much respect as you give do.

Think of finding an investor as being similar to a seduction. Give a glimps, then a few pages of summary, and only if they are serious, the whole document.

If certain elements are trade secrets, break the plan into sections and submit only the information necessary to stimulate the investor's interest.   Consider having a confidentiality agreement signed before submitting the entire write-up, especially if you are approaching private investors, rather than venture capital companies.

Investors have their own unique criteria for investments.  Before sending a full, expensive-to-print-and-mail plan, make sure your project is in their area of interest. Ask them!

You seek capital, but what form will it take?  I've seen businesses convinced they needed $700,000 when what they really need (and are more likely to get) is a partner with production or distribution capability. 

Capital can take many forms, only one of which is cash.  Be creative in the approach to what is needed. 

Investors want their money used efficiently and with as little risk as necessary.  Demonstrate your understanding of creative leverage. Review proposed uses of the funds and consider alternatives.  Can you rent?  Joint venture?  Trade for services? 

Most business plans neglect the most crucial issue: what's in it for the investor and how and when they will get their money out.  Carefully consider the needs of the investors.  What are their goals?   Do they seek passive or active income for tax reasons?   Do they want to take over management of the business?  No one wants to be valued in only one dimension. What intangibles do they bring to the table?

Does it make sense for the investor to have debt or equity or a combination?  The more complicated the deal structure, the more difficult will be the sale.  Learn the industry guidelines and research venture and seed capital tactics. If you haven't done your homework, you don't have a chance.

Be realistic when explaining what you are willing to give for the capital sought.  While it may have taken a year to prepare your business for funding, the investor may have spent many more years accumulating the capital. 

Understand the value of cash as compared to an abstract valuation many people place on their dreams.  Keep in mind the old saw, "Ten percent of something is better than 100% of nothing."  Have a realistic valuation in mind.

Remember that investors invest in management, not ideas. Demonstrate you are, or will accept, the right manager.

Include the investment proposal in the executive summary or the cover letter.  If left to the investor, you communicate weakness, lack of knowledge of both industry standards and financial strategy and put yourself in a poor negotiating position.  Investors know these issues are negotiable, but want to see your thinking.

If you don't know, consult those who do.  It's a sign of wisdom.  Talk to industry sources, bankers with experience in your business, CPA's, mentors and everyone available who can add to your knowledge base.  Libraries have excellent reference materials available.

There are plenty of avenues for funding.  Don't blindly send your plan to venture capitalists unless your opportunity meets their investment criteria. Only approach the most appropriate sources for your deal. Avoid spinning your wheels.  

Instead, target the presentation to those familiar with the industry.  They will be most capable of making an informed decision quickly and their experience will allow a fast analysis of the risks and important issues. 

Most startup funding comes from friends and family helping the next generation get started in business. Learn about angel financing.

For more through information, there are a dozen good books on writing business plans, and the larger CPA firms offer free booklets.  The software programs available are so generic as to be readily identified by sophisticated investors.  They are helpful to make sure all the standard points have been included, but won't be as convincing as your own plan.

Instill your plan with your personality.  Don't hire someone to do all the work on your business plan, because it won't be your plan, it will be theirs and you probably won't follow it.  Instead, collaborate with someone and have an excellent strategist critique it and an editor review it to make certain it communicates convincingly, clearly and concisely.

The good news is that every business and every product was funded by someone who stepped up to the plate and invested, for better or for worse.

 

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