How to write a business plan an investor can understand

There are lots of books and software on how to create a business plan, many are mentioned in this blog, however there is no substitute for blood, sweat and tears on this job.

Business plans are hard to get right but they are the currency of investors and you need to create the very best one you can – I personally labour over mine and make changes based on constant feedback. I don’t think my plans are perfect, indeed I see them as a constant work in progress!

I have found the best way to create an ‘understandable’ plan is to show a draft to as many of your potential audience as you can and make changes until it’s clear they can understand and find it compelling — obvious but very rarely done in my experience!

Indeed, you will probably end up with several plans depending on who you intend to give it too – certainly angel investors need a different plan to a VC or friends/family for example.

Most business plans I have read (and have written myself in the past) are riddled with economy lingo, business jargon and clichés, that they do not communicate any real business value. This is very easy to do as an entrepreneur as you wax lyrical about your idea…often forgetting that the average angel investor will have no idea what you are going on about!

Beware terminology, such as disintermediation, sweet spot, ASP, best of breed, and win-win – for building a real business, these terms are meaningless and seen as B.S.

Another challenge when reviewing business plans is that the introductory sentences sometimes stretch for an entire paragraph as the entrepreneur looks for that all-encompassing way to describe their business. Forget it! There isn’t one. Try to simply tell me what you do in five words or less.

Here is an fun example of a poor choice of words:

This business makes mechanical petrol fueled devices used for transportation more efficient by periodically sending them through an applied for patent machine to loosen the terra firma from these vehicles to make them more conducive at performing their task.

Solid choice of words:

We run a car wash!

Another frequently used practice is to create a business plan using template software or by working from an existing plan. I do not recommend this practice as these plans can be very ‘cookie cutter’ by nature and often create a highly bloated plan with not enough ‘thinking’ from the team writing it.

A great reference is William Sahlman in his Harvard Business case study “Some Thoughts on Business Plans.” This case study illustrates clichés and catch-phrases. It highlights misleading statements within business plans and will show you how your audience may be ready between your lines!

If the plan says: “Our numbers are conservative.”

I read: “I know I better show a growing profitable company. This is my best case scenario. Is it good enough?”

  • Since all numbers are based on assumptions, projections in business plans are by their very nature a guess and are not conservative.

If the plan says: “We’ll give you a 100 percent internal rate of return on your money.”

I read: “If everything goes perfectly right, the planets align, and we get lucky, you might get your money back. Actually, we have no idea if this idea will even work”

  • No one can predict what an investor’s return will be. Let them decide.

If the plan says: “We project a 10 percent margin.”

I read: “We kept the same assumptions that the business plan software template came with and did not change a thing. Should we make any changes?”

  • Ensure you have developed your financial projections from the ground up.

If the plan says: “We only need a 5 percent market share to make our conservative projections.”

I read: “We were too lazy to figure out exactly how our business will ramp up.”

  • Know what it will cost to acquire customers. Gaining 5 percent market share is not an easy task in a large market.

If the plan says: “Customers really need our product.”

I read: ” We haven’t yet asked anyone to pay for it.” or “All our current customers are our relatives” or “We paid for an expensive survey and the people we interviewed said they needed our product”.

  • The definition of a business is when people pay you money to solve their problems. This is the only way to prove people “need it”.

If the plan says: “We have no competition”.

I read: Actually… I stop reading the plan. Always beware of entrepreneurs that claim they have no competitors. If they are right, it’s a problem and if they are wrong, it is also a problem. Every business has competitors or else there is a current solution to this customer need. If there are no competitors for what the entrepreneur wants to do, there is a good chance there also is no business.

So what should an entrepreneur do?

  • Write the plan in plain and proper English.
  • Please understand that the reader comes to the plan with no knowledge of your business.
  • No fancy words, clichés or graphs will make them want to invest.
  • Understand every part of your plan and be able to defend it.
  • Use your own passion to describe your plan.
  • Make your plan your own.

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