Know-how: Attracting Investors With A Good Business Plan

The advantage of having your approach to business – something you have surely meticulously hammered out in mind – additionally laid out in paper might seem debatable to you, especially when it means a trade-off between time spent on business planning and on business development. However, once entrepreneurs choose to raise external finance of whatever sort i.e. capital or loan for their business, it is time when they meet investors and from that moment on it is better that they understand their expectations towards business planning. In a world where both too much and too little information is wrong, it is worth understanding what this expectation is about. This is also exactly what this paper aims at, although we will refer to advantages of formal planning as such, too.

Attracting investors to finance development of a venture that has hit a ceiling of further internally-financed growth is of clear value. However, on the cost side it involves, apart from paying dividends or interest and sharing power, also the obligation to provide investors with information. Investors need information about the venture provided in their language and format to understand what the venture’s risk-and-reward profile is in order to make or continue with the investment. If they do not understand the risks and rewards, they might walk away from the table. Thus, sharing proper information with investors should be viewed in the absence of any belief in the other advantages of having a good business plan as a non-monetary price for external finance. What are the other advantages we are referring to? Well, as controversially as it may sound, it might be beneficiary even for most experienced and talented entrepreneurs to set out their implicit assumptions, priorities, action plans etc. in the form of a business plan because it gives them a unique chance for a comprehensive, critical look at what you are going to do and how to possibly improve the intended course of action. Think about it as a parallel to your next big holiday – you might just embark a plane and handle your vacation as it goes, or do some planning beforehand to revisit the back-of-your-head assumptions of what, where and when to do, allowing to make some useful reservations.

In most general words, in order to satisfy your investors’ informational needs as well as perform an effective self-check regarding your business undertaking, you should put up a “story” of how the venture will further develop and reveal, also to yourself, the structure of your thinking. Without this “story”, the business plan will be a mere bunch of facts but not a coherent recipe for success. Without the structure, the business plan will fail to assure that its key elements were derived based on sound logic and thus will be aptly adapted when conditions change or prove different then expected. In trying to dot down the business plan, you might like to think of it as a sum of the following sections, which answer specific questions that put together tell a coherent story of your venture’s inevitable success:

Please note that nowhere in the recommended structure for a business plan does product description as such appear. Even though it may sound shockingly disappointing for techy entrepreneurs, the product itself and its features are not the centrepiece of a business plan – it is the entrepreneurs’
ability to make money with this product that draws readers’ attention. Going into some details, you might like to further observe the following dos and don’ts when drafting your business plan:

Last but not least, while composing a business plan it is by all means worth putting a lot of attention to clarity – clear language free of typos, easy-to-read graphs and figures. Well-formatted tables go down very well with investors contemplating whether or not guys having put forward a particular investment invitation will be attentive enough to take good care of their money. In closing remarks, we would like to powerfully note that investing should be treated by all means as art, not science, and therefore any prescriptions for a good business plan should be treated as subjective and, therefore, with a reasonable dose of own judgement. There is no universal recipe for doing it right or good enough to convince the otherwise unconvinced. As a good example for this reservation might serve a case of Skype, the IP telephony company. Although the quality of its original business plan with which it had approached first investors is not known, it is widely known that numerous professional investors turned it down before the first eventually decided to give it a go, a decision which led him later to some of the highest returns on investment in venture capital history.

By Radosław Rejman