Guide on how to write a modern business plan when the audience are business angels and crowdsourcers

1. The Modern Business Plan
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The Modern Business Plan
A guide to writing a business plan to gain investment in
the modern funding environment.
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2. The Modern Business Plan
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Introduction
What is A Business Plan And Why Do You Need One
Section One - Executive Summary
Executive Summary
Questions Your Executive Summary should answer
Section Two - What is Your Business?
Vision Statement
Mission Statement
Current & Proposed Operations
What To Do If You Don't Have A Trading History
Detailed Product Analysis
Section Three - Is there a Market for your business & can it be successful?
Market Research & Analysis
Finding Your Target Market Example
Sales & Marketing Plan
Strategic Marketing
Competitive Analysis
1. Cost Leadership
2. Differentiation
3. Focus
Promotional Marketing
Management Team
Intellectual Property (IP)
Section Four - How Much Money are you going to make
Section Five - Why should I give you my money
Section Six - Final Thoughts and Troubleshooting
Don't Understand The Purpose Of The Plan
Don't Sell Their Business In The Executive Summary
Don't Explain How This Will Achieve Targets
No Full Financial Model
No Acceptable Exit Strategy
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3. The Modern Business Plan
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Introduction
The economic crisis has had a profound impact on how entrepreneurs and business owners
try to finance their business.
Banks have been reluctant to lend money to startups without them offering significant
collateral against the loan. Despite all of the publicity stating they are lending more money
than ever before, banks are still assessing loans based on the CAMPARI model that has
been used for the past 200 years. This rules out 95% of entrepreneurs.
The government has made £117.5m available for startup loans and there are thousands of
grant opportunities. The criteria for the loans and grants are usually restrictive, require
match funding and applications for some of these schemes can also take up to a year.
Due to the difficulty in obtaining capital from institutions angel investment has emerged as
the main source of external funding for entrepreneurs. Crowdfunding has also emerged over
the past couple of years as a viable way of raising capital for your business.
Venture Capitalism and Corporate Venturing still exist, but are limited to a small
percentage of high growth companies and out of the reach of most businesses.
Overall, the financing of new businesses has shifted from institutional capital to personal
capital. Angel Investors and crowdfunders invest their own money into businesses. They
invest because they are either interested in the business or the entrepreneur.
The mindset of personal investors is different to institutions, who just want to know if they
will get their money back. Personal investors invest for personal enjoyment and the
potential return they may get back. This means you require a different type of business plan.
A plan that is engaging, presents an attractive proposition for the investor and highlights
your ability to make the business a success.
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4. The Modern Business Plan
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What is A Business Plan And Why Do You Need One
A business is plan is a document that outlines a vision for a business for a particular
timeframe with the reasons why the goals in the vision are attainable.
There are many purposes for a business plan, it can be used for
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Gaining investment
Finding new partners
Securing contracts
Internal management
The most popular purpose of a business plan is to obtain capital or investment, in this white
paper we will concentrate on exploring the best way to write a business plan for this reason.
Many businesses are set up without a business plan. If you do not require external funding
and have a simple business model that requires little planning, it is possible to run a
successful business without a business plan.
If you do require external funding or if your business model is complicated then you should
seriously consider writing a business plan.
Some businesses with great products do not get the success they expected on starting up
because they did not have a business plan to work from. A lack of planning or poor planning
is one of the reasons why 20% of startups go out of business in the first year.
Below are the main reasons why you should have a business plan
Provides a vision
Without a core aim or vision, you business will struggle to grow as you do not understand
what is required to make the business a success. You are just muddling along. Having a clear
vision allows you to think broadly how your are going to achieve your goals
Helps to redefine your business model
A business plan is a great way of testing the feasibility of your business model. You may be
doing fine at a certain point in time, but the market changes constantly. The market
analysis done in the business plan will allow you to foresee potential changes. Being able to
predict what is going to happen in the future gives you the option to change the strategy of
your business to keep ahead of the market and your competition.
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5. The Modern Business Plan
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Helps you to calculate what you need for your business
A business plan forces you to think what resources you will need to meet your targets. You
may need additional capital, staff or stock to achieve the goals laid out in your plan.
Focusses the management team and staff
A business plan gets the team focussed on exactly what they need to do to in order to meet
the objectives of the business.
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6. The Modern Business Plan
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Section One - Executive Summary
Executive Summary
The Executive Summary should be the first couple of pages of your plan but it should be the
last couple pages you write. Many experts suggest you summarize your business plan in
Executive Summary. In fact, the main purpose of the Executive Summary should be to get
the reader interested enough to read the full plan.
The Executive Summary should summarize the main points of your business plan, but what
people do not take into consideration is that it very likely the Executive Summary will be the
only part of their business plan that will be read. The Executive Summary is a selling tool,
not just for your business, but the rest of your business plan.
Professional investors do not have time to read full business plans and tend to work through
agents or associations who hire professionals who screen business plans. Due to the volume
of business plans that are submitted the professionals tend to only read the Executive
Summary, and in some instances only the first page. They will only read the full plan if the
Executive Summary presents a compelling case for setting up or investing in the business.
The Executive Summary is your opportunity to sell your business or business idea. You need
to prove that your business is unique, viable, profitable and you have the expertise and
people to make it happen.
Questions Your Executive Summary should answer
1.
2.
3.
4.
5.
Is there a market for your business?
Does the business have the products or services to capture this market?
Does the business have the expertise and/or the people to make it happen?
How much money will the business make?
What is the future of the business?
The Executive Summary should be no more than two pages long, and should focus solely on
answering the questions above. Remember the Executive Summary is a selling tool, use
positive language and incorporate market research and numbers from reputable sources to
substantiate your points.
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7. The Modern Business Plan
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Section Two - What is Your Business?
The second section of your business plan should provide the reader with an picture of what
your business does, your aspirations and how the business conducts itself.
Vision Statement
Getting your company's vision statement right is crucial to its success. It must not be
confused with your company's mission statement. Your mission statement states why your
business exists. Your vision statement should state where you want to take your business.
Your vision statement should represent your aspirations, it is the framework for all of your
strategic planning. Your vision statement needs to be both attainable and ambitious. As a
business owner, your vision statement must embody the passion that you have for your
business. A great vision statement can help you find the right employee's and help attract
investment in your business.
When thinking of your vision statement think where you want to take your business in the
next 3,5 or even 10 years.
Try and limit your vision statement to one or two sentences and remember vision
statements should inspire and attract employees, investors and customers.
Mission Statement
Whether you are starting up a new business or running an existing business you must
identify the fundamental reason for your business to exist. Making money is an obvious
choice but this is not a good enough reason alone for the business to exist.
The reason for your business to exist is your "mission" and this should be summarised in a
maximum of 30 words.
What problem(s) does your business solve? The answer to this question is usually your
mission.
Things to try and include in your mission statement.
● The purpose of your business (what your company does)
● Why it needs to exist (problems your company solves)
● The values your company believes in.
If you are just starting your business plan do not spend too much time on the mission
statement as you will amend it as you progress through your plan.
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8. The Modern Business Plan
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Current & Proposed Operations
In your plan you will need to present a concise overview of your day to day activities for
your business.
Here are things you need to mention in your overview:
1. Customer Service - how you provide good customer service and look after your
existing customers.
2. Sales & Marketing - how you attract new customers
3. Operations - explain how your back office functions will support your business.
4. Business Development - demonstrate procedures and activities your business will
undertake to continually develop your product/service.
Existing business should give a an overview of how their business currently operates. If you
are writing a business plan to get a loan or investment you need to explain how your
business will operate after you have received the obtained the additional funding.
A proven track record in your particular business is more attractive to potential investors
as they feel reassured when there is evidence that the market exist and you have been
successful in penetrating it.
If your business has been trading ensure that you present a positive but accurate picture of
your business. If you have audited accounts add them to the appendix of your business plan.
Even if an investor decides to invest in your business it will be subject to due diligence so it's
best to open and honest about your trading history.
What To Do If You Don't Have A Trading History
Many entrepreneurs spend many hours working on their business plan over several months
spending a lot of money in the process. The main problem with this is they are missing a
vital component that every business needs, feedback from their customers. There is no
value in holding onto a product for until it's 100% complete and when its released onto the
market people do not understand or like the product. It is much more valuable and time
saving to release a product that is functional but does not have all of the features you have
planned and let your customers try out the product.
If you do not have a trading history and you require investment to start the business, the
best option would be you put your business plan aside for four to twelve weeks and develop
a prototype of your product/service and try and test the market. The prototype allows you
to understand if you have a product that will actually sell as anticipated and the feedback
from their first customers will allow you to improve the product.
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9. The Modern Business Plan
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The prototype should be a functioning product without all of the planned added features,
remember the main purpose of the stage is to prove that there is a market and gain valuable
feedback from your customers.
For example, if you are planning to launch a new social networking website, start blog
and/or facebook page about your idea to attract and engage people with your business. If
you are planning to develop software as service (saas) either develop a prototype online or
deliver the service manually in person, over the telephone or using a teleconference service.
This concept is also applicable to services, you just need to scale down the service
appropriately to prove that people buy it.
For instance if you are a beautician and you want to open your own store, a great example of
a prototype would be to start servicing your customers from your home or your customers
homes.
Whichever option you take you should document the whole process and present this in the
appendix of your business plan. An investor will be interested in how many sales you have
made and the feedback that you have received from your customers.
Detailed Product Analysis
You should give a detailed analysis of the product in this section. You should explain the key
functionality and features if the product and an overview of the technical specifications.
Make sure this section is not too long. Do not confuse the audience by being too technical.
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10. The Modern Business Plan
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Section Three - Is there a Market for your business & can it be
successful?
The third section of the plan should convince the reader that there is a need for your
business and you have the correct plan, approach and people to make it successful
Market Research & Analysis
It doesnt matter how good your product or service is you have to prove to the investor that
there is a market for it. If you cannot afford a market research company it is possible to
research your market for your self.
Below are some suggestions.
Google - search engines contain lots of use information but be prepared to spend a long time
looking for what you need.
Wikipedia - contains a wealth of information on most topics.
Libraries - most local libraries contain trade journals and local information you may find
useful.
Leverage your social networks - Use a company like Survey Monkey to send mail out
surveys to via email and your social networks to find out what people think of your idea. A
couple well written tweets in peak hours may generate a response also.
You need to demonstrate exactly how large the potential market is. It is not enough to say
that you product will appeal all adults, you should be as specific as possible. The more
specific your target market is, the easier it will be to build an effective marketing campaign
to reach them.
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11. The Modern Business Plan
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Finding Your Target Market Example
For example, if your product was an andriod app for London nightclub goers.
Its not enough to research how many people there are in that age group in the region as
there could be 5 million.
Your first market calculation should be based on finding your target customer, this could be:
- Adults aged between 18-30
- The go to nightclubs in London
- Own an android tablet or smartphone
This could reduce the market down to 1.5 million
You have now established how many people have an android and go to clubs within London,
however this is still not evidence that they would be interested in your product. You require
deeper analysis of the market.
Lets say the app will appeal more affluent males, you should apply additional filters to the
market. Such as:
- Have disposable income of at least £1000 per month
- Has bought an clubbing, dating or lifestyle app in the past 2 years.
This could dramatically reduce the market down to just 300,000 potential users
Many see this as a bad thing, however it should be a positive as its much easier to market
your product to 300,000 people who would be interested in your product than 5 million
people who have no interest at all.
You should then provide the audience with an overview of where the market is going, will it
grow in future.
Will the product appeal to similar makes in other UK cities?
Can you build an app for the iphone?
The target market could increase to 2 million over the two years, you have to prove to the
audience that you have done your research and know the market.
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12. The Modern Business Plan
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Sales & Marketing Plan
Now that you have identified the market and identified a market and done some research on
people will potentially buy your product. Next you need to show the audience you have done
the ability to engage with the market and get your product noticed and finally how you will get
them to buy from you and not your competition.
Key to this is understanding the difference between strategic marketing and promotional
marketing. Strategic marketing is the foundations of your plan. Here you assess your
market and plan how you will reach that market.
Strategic Marketing
Why will people buy your product or service and, what makes it unique. You need to show
the user that your business has something special that will make people come. This is called
your unique selling point (USP)
The most popular way of finding out what your USP is the by going through the 7ps of
marketing and finding out where your business's strengths and weaknesses.
Competitive Analysis
Proving that there is a market for your business is the first step in building a successful
business plan. Demonstrating that your business can beat the competition is the next stage.
Michael Porter defined the three methods to gain competitive advantage.
1. Cost Leadership
Becoming the lowest price supplier or retailer in the market will give your business a
competitive advantage. You need to decide whether your business provides a "no frills"
product/service by stripping out additional extras or you deliver the same as your
competition but at a cheaper price. Remaining the cost leader is difficult as your
competition will try and lower prices to compete. Pursuing a cost leadership strategy can
also lead to reduction of quality.
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13. The Modern Business Plan
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2. Differentiation
Competing on the basis of offering products/services more valued by the customer than the
competition.
Differentiation can be convenience, higher quality customer service, better customization of
the product/service or a better warranty.
When a customer values a product/service they are willing to pay a premium to obtain it.
Before adopting this strategy market research is required to find out what the market
values.
Sometimes the best product is not always the leader, it is usually the business that
understands the market the best that becomes the leader.
3. Focus
Focus is competing on the basis of being a specialist in a particular market providing a
narrow range of products/services.
This strategy can be extremely profitable for a small business if they can effectively market
their business as larger companies tend to ignore niche markets.
To assess what is the best strategy for your business, you need to take into consideration:
1.
2.
3.
4.
What the market wants
Which looks most attractive for your business
Gaps in market
Which strategy fits in with your business's strategy
Promotional Marketing
Promotional marketing is the actual execution of your strategy, for instance advertising.
You should detail in your plan exactly which promotional marketing activities you will
undertake along with any assumptions regarding success rates of the campaigns. You should
be able to monitor the performance of your promotional marketing campaigns.
Below are some of the possible promotional marketing campaigns you could plan:
Print Advertising
Media Advertising (Television & Radio)
Cold Calling
Direct Mail
Internet Marketing ­ SEO, Pay Per Click (PPC)
Social Media
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14. The Modern Business Plan
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Management Team
You may have a great product or service but you need to demonstrate that you have the
people to make your business a success.
Investors will quickly realize that your business does not have the required management
team to grow the business and will not invest.
In your business plan you should list down the key skills, qualifications and experience of
your management team. You should highlight the teams most relevant skills to grow and
manage the business. If you are running a very small business or do not believe your
management team have the right skills to you should try and find a business mentor or
non-executive director that can add valuable experience and credibility.
In your plan you should also mention who will carry out the key tasks in your business. Be
fairly brief as you have mentioned your core operations earlier in your plan.
Key tasks to mention:
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Production or Delivery
Sales & Marketing
Product & Business Development
Distribution
Finance
Operations
Intellectual Property (IP)
If another business is able to copy or steal your ideas, inventions, contacts, designs or
knowledge your business is at risk. Protecting your intellectual property is crucial for the
sustainability of your business, potential investors will reluctant to invest in a company
whose intangible assets are not protected.
There are five main ways to protect your business's intellectual property.
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Trade Marks
Designs
Patents
Copyright
Contracts
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15. The Modern Business Plan
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Section Four - How Much Money are you going to make
Explaining when and how much money your business will make is the most important part of
your business plan. No investor or bank will inject funds into your business if your plan does
not foresee making a profit.
This does not mean you should be overly optimistic in your plan as serious investors will
challenge the assumptions in your plan or perform due diligence on your business before
they make a firm offer.
Explain exactly how your business will generate revenue, including all potential revenue
streams. Will your revenue come from sales, advertising or additional products/services?
There are many different business models to choose from, prove in your plan that you have
chosen the best model for your business and your chosen market.
Your plan should include a detailed explanation of your start up costs, cost of sales (costs to
produce your goods/services), administrative costs and asset purchases.
Rising costs hit many small businesses as they grow, if possible you should include a plan of
how you will keep costs down using by procuring the best value goods and services.
A simple break-even graph will help support your profit and loss statement, showing your
audience exactly how many units need to be sold to break even.
Managing your cash flow is crucial for small businesses, especially in the first couple of
years. Your plan should include and detailed cash flow. Take the information from your
sales & expenditure forecasts but you need to make assumptions how fast you will get the
money after you have made a sale and how quickly you intend to pay your creditors. As a
rule, you should try convert sales into cash as quickly as possible and hold off paying your
supplier as long as possible.
The financial section should also include a balance sheet. A balance sheet is a statement of
assets, liabilities and capital of a business. Balance sheets are difficult to forecast, use your
forecasted P&L, capital purchases and capital inflow to assist you. Make sure that your p&l,
balance sheet and cash flow are consistent with each other.
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16. The Modern Business Plan
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You will need to include
- Forecast P&L
- Forecast Cash Flow
- Forecast Balance Sheet & Fixed Assets
- Start Up Cost
Its usually advisable to have financials for 3-5 years with the first couple of years completed
monthly.
Section Five - Why should I give you my money
You have to explain to the the audience exactly how much money you require and what you
intend to do with it. This is the whole point of doing the plan so make sure you ask for a
reasonable amount and can back it up.
In this section you should also get the audience a glimpse of the long term plan for the
business going beyond the timeframe of the plan. If you think in 10 years the business can
be a global brand now is the time to mention it. This should lead into your exit strategy for
the business, Investors want to know when they will get their money back. The only likely
exit strategy for most businesses is a trade sale to a larger business. Mention in your plan
the type of business that would potentially be interested in your business in the next few
years.
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17. The Modern Business Plan
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Section Six - Final Thoughts and Troubleshooting
Below are the essentials of what a business plan should contain
1. Executive Summary
2. Mission / Vision Statement
3. Operations Overview
4. Competitive / Market Analysis
5. Marketing & Sales Plan
6. Financial Planning & Business Metrics
7. Funding Plans & Options
8. Key Milestones
9. Management Team
10. Intellectual Property
11. Long Term Projections
A key thing to remember is that your business plan is also a key selling tool for your
business. Your plan should be succinct and concise, between 20 and 30 pages, any additional
information can be put in an appendix.
Summarize your business plan by creating a presentation, it's a great way of focusing your
business.
You should also tailor your business plan to the audience that you are presenting it to,
highlighting what you think they will be most interested in. A great example of this is the
difference between a bank and an investor.
Banks want to be sure you will repay your loan so you should place emphasis on your cash
planning.
An investor wants to know how profitable the business will be and how much money they
can earn from the business and how quickly they will see a return on investment. When
presenting your plan to a potential investor you need to explain how much money they could
make from their investment and when they will get this.
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18. The Modern Business Plan
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Below are some of the most common mistakes made when writing a business plan.
Don't Understand The Purpose Of The Plan
A business plan is a sales document where you are trying to sell your business and your
management team to the potential investor. The whole document should be tailored to the
needs of the audience. A business plan is not the place for detailed product descriptions and
narratives.
Don't Sell Their Business In The Executive Summary
As mentioned before, the executive summary should sell the rest of your business plan. If
your executive summary does not demonstrate you have a unique, viable and business the
rest of the plan will not be read.
Don't Explain How This Will Achieve Targets
Stating how many sales you will make or the revenue targets you will hit is not enough. You
should explain how you plan to achieve your targets.
Your marketing and sales plans should demonstrate how you will engage with your target
market and how you convince them to buy your product or service. It is also not enough to
calculate the market size and then say you will capture a small percentage.
It will only convince an investor if they have specific industry knowledge and can understand
the value proposition of your business.
No Full Financial Model
This is a very easy mistake to fix. You should include the full financial plans with your
business plan as part of the appendix. If the investor is interested in your business, they will
probably ask a financial minded person to double-check the financial model before they
commence due diligence on the business.
When presenting the summary financials within the actual plan, include a narrative of what
the financial models are trying to convey. Most investors will not understand the financial
model alone.
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19. The Modern Business Plan
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No Acceptable Exit Strategy
Professional investors want to know how much money they will make and when they will get
their money. The only realistic way this will happen is if you sell the business to a larger
organisation. On your business plan mention that you believe the business will be valuable
enough to be acquired from a larger business within 2-5 years. IPOs and management buy
outs are rare and do not appeal to investors.
No Disclaimer
There must be a legal disclaimer at the beginning of the plan explaining the workings of the
Financial Services and Markets Act 2000. Without it you could be in trouble. Likewise you
must make certain that each eventual investor has signed a form stating that they are either a
High Net Worth Individual or a Sophisticated Investor.
Don't inform the investor about potential tax relief
Making investment your business more attractive understanding the implications of the EIS
and the more recent SEIS schemes and how important they are to an investor. Both
schemes provide significant tax benefits to the investor and ultimately make it more
attractive by reducing his/her exposure and by de­risking the opportunity. Ensure your
business complies with at least one of these schemes.
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