I have gone over hundreds of business plans and investment memorandums that are seeking to raise money or to sell businesses, recently. Many of them never seem to sell the business or build interest at first look. There is always a need to find something deeper, ask questions and follow up to get more information.
Sometimes the information that fills 70% of the documents have no meaning or purpose to making it a valuable investment opportunity. One thing that is common is of course a revenue projection that is trending upwards over the coming years but is there enough evidence to make the projections convincing?
It is very predictable to see a business talk about the products, then throw information on the market, show revenue projections, and talk about how the sales teams will be developed. This article talks about areas beyond the payback periods, IRRs, ROIs, multiples, due diligences and financial models & ratios.
The plans may manage to raise money or sell the business but it takes a lot of painful, time consuming activities of going door to door, going after follow ups, waiting to get a meeting and many others. Here are a few tips that simplifies the process and saves time and energy of investors and businesses.
In this area, businesses show how the business has performed overtime. What major goals, awards, results were received by the business. This is a good start to give context to the plan. It gets better if you tell a story, not a story that is movie like or a story book. A story of value generation and of what the business has learned and how it has grown intelligent.
Now there is no need to prove to someone that the idea or business is matured or of gaining approval from an investor or the market. The point is to get the story of building value to generate wealth started with a thought engaging first chapter.
Never leave out small wins. Highlight them and make them bigger. Communicate the power of the business and how it is ready to explode and grow to increase value and generate more wealth!
Generally, this is where you find some market figures and say the market is going to quadruple in x number of years. You might add some random facts about what is happening in the market. As you go along the business plan, there is no relevancy of this market facts anywhere!
It is crucial to have market knowledge, but it has to be relevant to what you do as a business. Knowing your target customer and reading reports to find market size is easy but how do these numbers play into your plan? Are you going to be reason to build new revenues in this market?
Will you come and accelerate the market? If you sell gums and people are buying more of it, this does not mean you will automatically sell, there are many more gums, lollipops, sweets to choose from. Look for an inefficiency in the market, then start building a strategy to make it your strength. Start-ups call it problem or businesses may call it growth prospects.
You can also look at it as a point to start a story to build revenue over revenue. Once you are done selling gum, what will you do next? Can you compete on basic mistakes made by other players in the market?
This is where you generally find how the business will push its products to increase sales by X percentage through a wider sales network and building on the department of business development. So here a business should really think hard on what they want to do besides growing? This is the vision, mission, goals, sales pitch and marketing statement all blended into a nice smoothie. This can be a paragraph or bullet points.
The aim is to simply communicate the change and impact the business will make in the lives of your customers. Will the business make them richer? Will the business save their time? How will you achieve this? What is new in your innovation, product or business? Is the business now going to do something that has been missing from the market?
This is the information that builds a plan that people want to listen to. There is no need to hide it behind an NDA unless you are protecting some form of IP.
So now that the business has communicated what it will do, be it different or similar to something that is already being done in the market, it’s time to talk about how it will be done. There is usually areas of building infrastructures, increasing marketing and distribution channels but isn’t that something that anyone can do? The answer is no! Anyone who has achieved scale or growth has somehow consciously or subconsciously acted different in their process, thought, or character.
This can be done by finding existing standards and then building up and advancing them.
Some money will go into infrastructure, some in building something, and then some in business development and sales. This is a pattern, don’t be the pattern. Show the value cycle of money. How is that one dollar in your business going to do something for the business, the customer and the investor? Have you planned to spend money to achieve something that you already can have access to without spending money? The use of money should be concentrated on new money building activities.
Yes sometimes it is good to spend on infrastructure but does It have to be part of the money you are raising as an investment?
Raising money to spend money to raise money again? Bad idea. It is not bad to raise money many times, but it is a really bad idea to run a business with that aim. Do not create a cash burning engine to one day create value. This is very widespread due to some common misunderstanding of the start-up world.
There has to be a smart and wise pathway to put the business on way to availability and sustainability. When will the business actually be near profitability? If there is actual emphasis on this, the business can become profitable in matter of weeks or months. There are excuses of how a business wants to do this and that first to achieve its vision.
These excuses are of course valuable in some way but they can be re-engineered into the business to work with a more valuable and profitable mindset. Yes spending money helps you be first in innovation even if you suffer loss but it doesn’t have to be that way.
Revenue, Revenue, Revenue! The business’s best friend. How is the business planning to build more of this? Selling more is one way but is there a new way to design the payments? Get new revenue streams going? Open up to franchising or licensing?
There are so many ways to make revenues. There is someone out there a business or a person that is coming up with a new way to make revenue so the business should join the race.
So once you are done with achieving revenues, what will be the exit of efforts invested in? What is the return on investment? Do not have a wide spread answer for this. If the plan is to sell to another business, then specify it by its name and justify why they will buy you. After that identify couple of others businesses and do the same. To build more confidence show how the market dynamics are supporting and infavour to you to build and sell the business.
If you plan to take the business and list it to the market, get the plan ready like you have raised money and achieved everything you have planned for. Listing is a different business itself, so get some education and build a convincing real plan that will excite the audience of the business plan.
This is the first page of your plan but has to be done last unless you can think through the whole plan in your mind and get this right. This shows the name of your business and then supports with multiple lines the value you generate, the revenues you bring now and will bring later and how is this an investment opportunity that is exciting and privileged.
Whether you want to sell a business or raise money, the acceleration of the process will come through having a plan. If you don’t have a well-designed, articulate, money making plan it will be very painful to raise money or sell a business. The plan is the taste and the drug that will intoxicate the buyers or investors into dreaming of your business.
I am an investment strategist and business advisor who has globally worked with family offices, leading advisory firms, boutiques, investment companies, financial institutions and startups in various industries.