The following are 10 dos and don’ts for writing a business plan from Vaughan Evans, co-author of The Stand Out Business Plan: Make It Irresistible–and Get the Funds You Need for Your Startup or Growing Business.
1. Do remember your audience.
Each page, nay, each paragraph of your plan should be geared towards addressing the concerns of your backer – be they your board, a banker or an investor. That is the purpose of the plan. Think not what you want to write but what your backer needs to read.
2. Do analyse market demand.
All strategy and business planning must be grounded in an understanding of your micro-economic environment – that is, market demand and industry supply. Show from the outset that you have a firm understanding on those major influences which drive demand up or down in your market. And remember, as the saying goes, it is better to have the wind behind you than in your face.
3. Do explain why your business is special.
Even if you have demonstrated well what an attractive market you are operating in, your backer still needs to know why your business is special. In strategy-speak, what is its sustainable competitive advantage? Why is it different from the rest? How does that generate superior returns? How can you defend that differentiation over time?
4. Do keep a clear, tight storyline.
Write out in one sentence–an extended one, if you wish–why someone should back your business. Stick to that storyline throughout your plan. Let your reader be reminded again and again of why your business is backable.
I recently came across a 200 page business plan in portrait, well written, well analysed. But what was the storyline? I was lost. I helped the writer convert it to a 30 slide PowerPoint document, with half a dozen appendices. The storyline became crystal clear, positive, upbeat, and backable. The plan contained only the lean of the argument, with all fat relocated to the supporting appendices.
5. Do keep the numbers simple.
Forecasts which show revenues of $43,672,591 in three years’ time drive me nuts. Is the writer confident that they won’t be $43,672,589? Such forecasts are a giveaway. The writer does not think strategically. A strategist would forecast revenues of $43.7 million, knowing that it would be ludicrous to suggest any greater degree of accuracy.
And let’s not have dozens of Excel worksheets. Your backer wants to know broadly whether your business is going to make money. Keep the forecasts as basic as possible.
6. Don’t write to make yourself feel good.
This is essentially the same as #1, but it is worth repeating since it is the most important of all the dos and don’ts. You are writing the document for a backer, not for yourself or your management team. You may be proud of what you have achieved, or confident of what you will achieve, but if it is not relevant to the backing decision going forward leave it out!
7. Don’t forget the competition.
Nine out 10 business plans that I have come across do insufficient justice to the competition. Most relegate such analysis to a few paragraphs. Why? Do they assume that the backer is so naive that he or she will believe that customers will just walk to your door without being tempted by others? What do competitors do well? Where are they weak? What are they doing or could be doing to improve their capabilities?
8. Don’t forget competitive response.
Related to #7 , but distinct and important. What might be your competitors’ response to the strategy and allocation of resources set out in your business plan? Could they respond in a way which would threaten achievement of your targets? What are you afraid they could do?
9. Don’t try to fool the reader.
Don’t brush under the carpet the bad news–the unhappy customer, the faulty equipment, your competitor’s new hi-tech regional depot. Your backer will do due diligence. They will talk to customers, staff, and maybe competitors. If they find out anything that you really should have told them, they will walk out of the door. Trust will have evaporated.
This applies to forecasting as well. Don’t exaggerate. Be upbeat, but realistic. Anything else and your backer will see through you.
10. Don’t forget about risk.
This is your backer’s top concern. So address it head on. All the way through your plan, point out the risks–to market demand, competition, your strategic initiatives, etc. Show how you plan to mitigate them when possible, or insure against them when it’s not possible.
Be sure to show the other side of the coin too, the opportunities, all the way through. Point out that, yes, this risk could happen, but that counter-balancing opportunity is more likely to happen.
Vaughan Evans is a highly experienced consultant specializing in strategy and business planning for corporate clients and strategic due diligence for private equity.