You need to think of what you want and whether your plan’s findings suggest you’ll get it. For instance, is your objective to gain freedom from control by other people? If your plan shows that you’ll have to take on several equity partners, each of whom will desire a chunk of ownership, you may need to come up with a business that does not require capital needs that are very intensive.
Perhaps you want a company that will let you do your work and get home at a reasonable hour, even a business you can start from home. There are so many options when it comes to starting a business, including the size, location, and, of course, the reason for existence. You will be able to determine all of these and so many more aspects of business with the help of your business plan. It forces you to think through all of the areas that form the main concept to the smallest details. This way you don’t find yourself remembering at the last minute that your website is still not developed or that you still have most of your inventory in a warehouse and no way to ship it.
Clarify your future outlook
It may seem odd to say that a business plan can’t predict the future. What are all those projections and forecasts for if they are not attempts to predict the future? The fact is, no projection or forecast is really a hard-and-fast prediction of the future. Not even the French seer Nostradamus could tell you for sure how your business will be doing in five years. The best you can do is have a plan in which you logically and systematically attempt to show what will happen if a particular scenario occurs. That scenario has been determined by your research and analysis to be the most likely one of the many that may occur. But it’s still just a probability, not a guarantee.
You can, however, use your research, sales forecasts, market trends, and competitive analysis to make well-thought-out predictions of how you see your business developing if you are able to follow a specified course. To some extent, you can create your future rather than simply trying to predict it by the decisions you make. For example, you may not have a multimillion-dollar business in ten years if you are trying to start and run a small family business. Your decision on growth would therefore factor into your predictions and the outcome.
There are all kinds of reasons why a venture capitalist, banker, or other investor may refuse to fund your company. It may be that there’s no money to give out at the moment. It may be that the investor just backed a company very similar to your own and now wants something different. Perhaps the investor has just promised to back her brother-in-law’s firm or is merely having a bad day and saying no to everything that crosses her desk. The point is that the quality of your plan may have little or nothing to do with your prospects of getting funded by a particular investor.
But what about the investment community as a whole? Surely if you show a well-prepared plan to a lot of people, someone will be willing to back you, right? Again, not necessarily. Communities, as well as people, are subject to fads, and your idea may be yesterday’s fad. Conversely, it may be too far ahead of its time. It also may be an idea that comes about in a shaky economy or a saturated market. Timing is sometimes a factor that is out of your control.
The same is true of the availability of funds. At times, banks everywhere seem to clamp down on lending, refusing to back even clearly superior borrowers. In many countries, there is no network of venture capitalists to back fledgling companies.
A business plan cannot guarantee that you will raise all the money you need at any given time, especially during the startup phase. Even if you are successful in finding an investor, the odds are good that you won’t get quite what you asked for. There may be a big difference in what you have to give up, such as majority ownership or control, to get the funds. Or you may be able to make minor adjustments if you cannot snare as large a chunk of cash as you want.
In a sense, a business plan used for seeking funding is part of a negotiation taking place between you and your prospective financial backers. The part of the plan where you describe your financial needs can be considered your opening bid in this negotiation. The other information it contains, from market research to management bios, can be considered supporting arguments. If you look at it that way, a business plan is an excellent opening bid. It’s definite, comprehensive, and clear.
But it’s still just a bid, and you know what happens to bids in negotiations. They get whittled away, the terms get changed, and, sometimes, the whole negotiation breaks down under the force of an ultimatum from one of the parties involved. Does this mean you should ask for a good deal more money than you actually need in your plan? Actually, that may not be the best strategy either. Investors who see a lot of plans are going to notice if you’re asking for way too much money. Such a move stands a good chance of alienating those who might otherwise be enthusiastic backers of your plan. It’s probably a better idea to ask for a little more than you think you can live with, plus slightly better terms than you really expect.
Identify strengths and weaknesses
A professional financier such as a bank loan officer or a venture capitalist will see literally hundreds of business plans in the course of a year. After this has gone on for several years, and the financier has backed some percentage of those plans and seen how events have turned out, he or she becomes very good at weeding out plans with inconsistencies or overblown projections and zeroing in on weaknesses, including some you’d probably rather not see highlighted.
If you’ve seen the television show Shark Tank, you’ll understand how shrewd those individuals with the dollars can be. In short, most financiers are expert plan analyzers. You have little chance of fooling one of them with an overly optimistic or even downright dishonest plan. That doesn’t mean you shouldn’t make the best case you honestly can for your business. But the key word is “honestly.”
You certainly shouldn’t play down your strengths in a plan, but don’t try to hide your weaknesses either. Intelligent, experienced financiers will see them anyway. Let’s say you propose to open a small health food store at an address a block away from a Whole Foods. An investor who knows this fact but doesn’t see any mention of it in your plan may suspect you’ve lost your senses—and who could blame her?
Now think about the effect if your plan notes the existence of that big grocery store. That gives you a chance to differentiate yourself explicitly, pointing out that you’ll be dealing only in locally produced foods—which the superstore doesn’t carry but many of its customers may want. Suddenly that high-volume operator becomes a helpful traffic builder, not a dangerous competitor.
So, recognize and deal appropriately with the weaknesses in your plan rather than sweeping them under the rug. If you do it right, this troubleshooting can become one of the strongest parts of the whole plan.