Prospective investors usually require business plans as a first step to assess an investment opportunity. In this way, a business plan serves as a means of communicating a new business venture’s potential to an investor in a logical, accessible, and consistent manner.
A good business plan hence needs to carefully articulate the opportunity, the strategy and resource requirements, outline risks and rewards, and introduce the management team.
Potential investors generally use business plans as initial screening tools to understand the company and to overcome the information asymmetry between the entrepreneur and the investor. Business plans thereby serve as a starting point for due diligence in which the business risks are assessed in detail.
The ‘pure’ submission of a business plan to potential investors is, however, by no means a guarantee for successfully raising investments. Only a minority of business plans will ever reach the negotiation stage.
To get off on the right foot, make sure to cover the following 4 aspects:
- Product/service should be attractive to an investor
- Address the target market
- Be clear about the deal
- Management team
Furthermore, keep the business plan simple; avoid jargon and ambiguous and unsubstantiated statements. A business plan should tell a story, and hold the investors’ attention to want to read more. Try it out first on people you know and whose commercial acumen you respect. Finally, always keep in mind: having a business plan does not mean the business will be an automatic success. However, on the basis of experience, business plans will help to beat the odds!
By Dr Stephanie Hussels, senior lecturer in entrepreneurship at Cranfield School of Management