To anybody seeking to establish a successful venture, the business plan is the essential document: mission statement, sales pitch and financial template all rolled into one. It is the test of whether your business idea is viable, and the key to unlocking finance from banks and investors.
Without it, you won't get through the door. If you have one but it isn't done properly, you'll quickly see the door again.
CHECK YOU HAVE ALL THE RIGHT HEADINGS. A business plan should include the following: a synopsis; a description of products or services; an overview of the market, including sales, marketing, distribution and the competition; how the services or products will be produced; financial projections, including cash-flow forecasts; how the business will be owned and financed; and management details, including full CVs of the founders. A common failing is to place too much emphasis on one aspect - particularly the product - to the detriment of the others.
DON'T FLINCH AT UNRESOLVED QUESTIONS. If you don't know who is going to fill a certain role in the business, you can describe the type of person you intend to recruit. Investors appreciate transparency and will be reassured by the fact that you are aware of important issues even if you don't yet have the answers.
MAKE YOUR ASSUMPTIONS CLEAR. Your financial projections won't make sense unless you spell out the basis on which they have been prepared. For example, in order to understand your cash-flow forecast, the reader needs to know what credit period you will extend to customers; and how quickly you expect to pay your own suppliers.
OFFER A TEMPTING RETURN. Lucius Cary, chairman of Venture Capital Report, says: 'A business plan that doesn't show the possibility of substantial gains to the investor doesn't stand a chance.' That doesn't mean massaging the figures; if your plan won't produce profits for the investor in an acceptable time-frame, then you need to rethink it.
GET HELP, BUT WRITE IT YOURSELF. You may need to consult various people - an accountant to show you how to produce cash-flow projections, or a lawyer to advise on structure, for example. Cary says: 'There's nothing worse than quizzing somebody about a detail in the plan, only to have them say: "I don't understand that bit. My accountant wrote it." '
DON'T BE OVER-OPTIMISTIC. Derek Smith, a business manager with the London Enterprise Agency, says: 'Too often, people think customers will come to them straightaway. They overestimate sales and underestimate the time it will take to achieve them - so they also underestimate the money they need.'
KEEP IT SIMPLE. The ideal length for a business plan is probably 20-30 pages. If it's any longer than that, people won't read it. Any shorter and it's unlikely to have the level of detail that is required. Only consider fancy packaging or gimmickry if this is appropriate to the business, for example fashion or advertising.
AVOID JARGON. It is easy to assume a level of knowledge about your business activity that bank managers and investors may not have - after all, most of them look at proposals from a wide range of industries. If technical terms really are unavoidable, then include a glossary.
PLAN DISTRIBUTION CAREFULLY. A scatter-gun approach to sending out your business plan is unlikely to prove successful. Cary suggests adopting the following strategy: 1) identify the individuals most likely to respond, particularly those who have a track record of investing in this type of project; 2) establish telephone contact; 3) outline the business briefly, and suggest that you send them a copy of the business plan; 4) make another call three or four days later to propose a meeting. Cary says that 'establishing personal contact is vital,' and adds: 'Most business plans are rejected by secretaries.'
DO SAY: 'Our backers will have the opportunity to exit their investment via an AIM listing within five years.'
DON'T SAY: 'Its superior design alone will quickly ensure that the Tornado lavatory flush becomes a world-beater.'.