Wednesday, 28 December 2011

How to write a winning Funding Business Plan

Part 1:  10 common Mistakes

Writing a winning funding business plan is not that difficult as long as you understand what an investor or is expecting to see. There are 10 common mistakes that management teams make when writing a funding business plan.
Mistake No 1: Not understanding that  milestone business plans that you have great experience in writing is a different document to a funding business plan. The funding plan is an external sales document with different content. (See Part 2 next month)
Mistake No 2: Not understanding that the investor is only interested in what he/she wants to know and not what you want to say. So understanding what they are expecting to read is the most important element of writing a success plan.
Mistake No 3: Not understand how a business plan is read. It is not read all the way through from page 1 to 30. The first part that will be read is the executive summary and if they like that they will then turn to the section of the plan that they have most knowledge about. If their experience is in sales they will read the sales plan in great detail and they will judge the opportunity on that basis. This means that every part of a plan must be first class as you can never tell what experience the investor might have. You must also make it easy for the reader to find the sections that he/she wants to read, so a detailed table of contents is essential.
Mistake No 4: Not understanding the importance of the first page and a half, the executive summary. After reading the executive summary approximately 90% of all investors will through the plan away. The executive summary is the most important part of the plan and must have the mandatory 8 points that an investor wants to understand. (See part 2 next month)
Mistake No 5: Most management teams understand their product and marketplace and often these two sections make up the majority of their plan. These two sections are very important, but not as important as detailed sales, marketing and operations plans as well as a thorough explanation of all the assumptions made. These are the sections that explain how the business works and that is what the investor is interested in.
Mistake No 6: Many plans only provide a short summary of the financial model. It is imperative that full three year, monthly profit and loss and cash flow forecasts are included and a balance sheet.  Make certain that the financial model is formatted well so that it prints out correctly. It is also important that a written section explaining the financial model is provided for those who will not read the spreadsheets.
Mistake No 7: A very important part of an investment decision is how  the investor is going to get his/her money back and how quickly, so a well explained exit strategy is important but so often left out.
Mistake No 8: This is a serious mistake; 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.
Mistake No 9: Another serious mistake is not understanding the implications of the EIS scheme and how important the scheme is to an investor. The scheme helps protect the investors from losing all their money.
Mistake No 10: Believe it or not some plans that I read have no contact details on the front page so I have to search for a phone number if I want to make contact.
If you understand these 10 points then writing a funding business plan is not difficult. For more ideas about writing a winning funding business plan see my blog next month.
Peter Kelly: 01932 244810

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