As Wall Street and the banking markets continue to stumble, entrepreneurs in need of start-up capital are challenged even more to draft successful business plans.
For those looking to launch a new venture, it’s important to understand the real purpose of a business plan and fully consider the critical components that will make the plan credible to the banks and venture capitalists.
“The primary purpose of most business plans is to help you gain an audience with prospective investors for your venture,” says Dr. Charles Hofer, Regents Professor of Entrepreneurship, Coles College of Business, Kennesaw State University. “Your goal is not to write your plan so well that everyone can understand it, it is to write it so well that no one can misunderstand any aspect of it, and that is very difficult to do.”
Smart Business learned more from Hofer about developing a business plan that will entice lenders and venture capitalists to take a closer look.
When does a company need to draft a business plan?
The optimal format for your plan will depend on precisely whom your proposed investors are. For instance, if you expect to fund your business with loans, most bankers will not require or expect a ‘full’ business plan. What they will want is an executive summary plus a set of fully developed financial projections for your venture. They need to verify that your proposed venture has the capacity of paying back this loan with interest and with very little risk of default. By contrast, most VCs will expect and/or require a full business plan at some point during the fund-raising process.
What are the key elements of winning business plans?
The style, organization and content of all effective business plans are determined or at least influenced by the goal of using the plan to assist in the fund-raising process. The stylistic considerations are the basic look and feel, use of pictures and colors, and professional pizzazz. The old saying that, ‘a picture is worth a thousand words’ is absolutely true for business plans. A picture on the front cover and small pictures inserted in the body of the plan can help explain and/or confirm some important points related to the venture’s success. Color is also an important tool for increasing the overall impact of the plan, if not used in excess.
The first thing that needs to be said about a plan’s organization is that it is simultaneously the most important and least important aspect of writing a plan. Poor organization will destroy much if not most of the value of the plan, however, once the plan is well organized, additional efforts will add little to its value.
What is professional pizzazz, and how can it differentiate your plan?
Most of your attention needs to go into the plan’s content since this is the most critical part of all plans. But then you can put some ‘icing on the cake’ by strengthening its style and adding a dash of pizzazz. This refers to a number of small touches professionally done that add to the plan’s overall impact and credibility. The possibilities are limited only by one’s imagination and creativity, but they do not compensate in any way for weaknesses in the plan’s fundamentals.
What content is crucial in securing an interview?
The five major content considerations are the plan’s accuracy, its documentation, its use of precise, specific information, its internal consistency and its believability. First, accuracy is crucial because almost all professional investors want you to communicate your knowledge of and capabilities relative to the industry you are proposing to enter. Next, since the key to writing effective plans is to tell compelling stories, you should document all really important information through the use of extremely credible sources and avoid using generalities. Internal consistency is crucial since investors use it as a measure of the degree to which you think about and check your work before you act.
Before completing your plan, you should also assess its believability. To be compelling, your plan must be believable to your potential investors. Businesses come in all shapes and sizes, and what works in one business will not always work in another.
How could investor limitations hinder your pitch?
Remember, the general investment guidelines investors have developed over a lifetime of experience may not apply to the specific industry in which you plan to launch your venture. And they may not recognize the changes that have taken place in an industry since their last experience with it. Potential investors will not tell you of these potential limitations on their part because they can’t. The important point here is that it is your job as an entrepreneur, not theirs as potential investors, to recognize when this may be the case, and to take the necessary steps to provide whatever information may be needed for them to assess your plan appropriately.
DR. CHARLES HOFER is Regents Professor of Entrepreneurship, Coles College of Business, Kennesaw State University. He can be reached at (678) 797-2502 or email@example.com. Hofer is considered the Bobby Bowden of Business Plan Competitions. Over the past 17 years, his teams have had the best record in the world in such competitions.
Regents Professor of Entrepreneurship
Coles College of Business, Kennesaw State University