Entrepreneurialism
Business Plans - The Rules of Business Plans (Funding Plans)
In our efforts to find out why 99% of business plans are typically rejected, numerous venture capitalists, investors, bankers, and investment bankers have let us in on the things they look for. When the following rules are broken, it becomes a simple thing for the professionals to spot, thus helping them save time by quickly weeding out the business plans they will dump.
Follow these rules and give your business plans a better chance of being seriously looked at.
Rule 1: The business plan is the most important document in a business.
The business plan, whether on paper or in your head, guides the company. It provides the basic framework of communicating the goals of the organization. Few documents are as important to the future of theenterprise. Unfortunately, few documents are also as ignored and ill prepared.Rule 2: The value of a business plan is directly proportional to its use.
The more a business plan is used throughout the organization, the more chance the business has of meeting its goals and succeeding. Everyone in the organization should have access to it to help them make decisions that are consistent with the direction the company wants to go.
Corollary 2A: The only ones who will use the business plan are those who believe it.
Corollary 2B: The first one to believe the business plan is the one who writes it.Rule 3: A business plan is first and foremost a guidance document.
The purpose of the business plan is generally misunderstood. Entrepreneurs think it is a document that is written once in order to attract an investor. Once the business is funded, they think the business plan is no longer needed.
The reality is that the business plan should be used as the guiding document of the business. It should be reviewed regularly to help refresh people as to the goals of the company. The projections in it should be used to regularly compare expectations against what actually happens in the company and its marketplace to evaluate progress and determine "course corrections."Rule 4: The business plan does not run the business.
While the business plan is an important guidance document, people, not the document, run the business. As time goes on, more accurate information becomes available, new avenues become apparent, and new goals get set.Rule 5: The business plan is a dynamic document, not a static document.
Because things change during the progress of a business, the business plan should regularly be adjusted to reflect those changes. New goals get set, new markets open up, some markets close, etc. A maintained business plan allows the company to keep important information in the forefront as well as simplifies the process of attracting additional capital if needed.Rule 6: The business plan must be as complete as possible.
This rule is important in maintaining a useful document, whether using it to help guide the company or using it to help attract capital.Rule 7: The business (funding) plan must be preceded by an executive summary.
In the cases where the business plan is used to attract capital, it must be preceded with a well-written Executive Summary. Investors will not read the entire business plan at first. Without a well-written and concise Executive Summary, the plan doesn't have a chance.
Corollary 7A: The executive summary must not exceed three pages.Rule 8: Appearances in the business (funding) plan are critical.Investors typically spend no more than five minutes to decide whether or not to dig deeper into a business plan. They have learned over many years that if the Executive Summary is more than three pages long, they would be wasting their time. They assume the entrepreneur is not capable of sufficiently summarizing the company in order to save them time.
Investors look for clues to help them cull business plans. They know that entrepreneurs who do not pay attention to detail will likely lose money and be unsuccessful. They also know that if a business plan is flashy, the entrepreneur is inclined to waste money. They have learned how to spot the "good" plans and skip the "bad" plans by quickly perusing the document.(c) Copyright 2006, Leonard M. Stillman Jr., All Rights Reserved.
Len Stillman is the owner of Business Plan Tools, LLC and the Thrifty Shoppers Club. He has served entrepreneurs, banks, and investors for over 35 years. You are invited to learn more about the information in this article by visiting his Business Plan Tools blog.
Len Stillman
Tags: business plan, funding plan, venture capital, investment, financial analysis, growth rate, planningSimilar articles
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