10 do’s and don’ts of writing a business plan

When it comes to writing a business plan, one single golden rule dwarfs all others – your business plan must address each of the key concerns of your potential backer.

If you fail on this first point, all the other things you should and shouldn’t do pale into insignificance, and even a great business idea might fail to get the backing it needs. A good business plan keeps the investor happy, so follow these 10 Dos and Don’ts to ratchet up your chances of success:

1. DO show that you understand market demand

A strong understanding of your micro-economic environment is essential for a good business plan, so be sure to show that you have carefully considered the influences which drive demand up or down in your market.

2. DO use sensible numbers

You may have calculated your revenue will be £4,672,591 in three years, but for backers, stating such a precise forecast is a giveaway that the writer does not think strategically.

A more experienced strategist would forecast revenues of £4.7m, recognising that suggesting a greater degree of accuracy three years down the line would be ludicrous.

Financial forecasts should be easy to digest so the backer can see if the business will make money.

There is no need for reams of spreadsheets showing complex numbers. A few charts and graphs can quickly convey the key information.

3. DO stick to a clear storyline

Sit down and write a single sentence that explains why someone should back your business plan. Don’t get distracted from this key message – your business plan should just support this sentence and remind the reader repeatedly why your business is worthy of backing.

You might write a 200-page business plan that delves into every detail, but your backers will get lost if you stray from the key story, so trim it down to a lean argument with a few supporting appendices if necessary.

4. DO make it clear why your business is special

So now you have painted a clear picture of the market, it is time to show how your business fits in. Make sure your business plan answers the following questions;

• What is the sustainable competitive advantage that makes it special?
• Why is your idea different from the rest?
• Why does that mean you can generate attractive returns for your backer?

5. DO tackle the risks head-on

Risk is inevitably a backer’s number one concern, so don’t be afraid to tackle it directly. Show your backer you understand the risks—to market demand, competition, your strategic positioning, and your resource deployment—and show how you plan to mitigate them, where possible, or insure against them when not.

The flip side to risks is opportunities, so point out that this risk could happen, but that counter-balancing opportunity is just as likely, even more likely, to happen.

Set out the balance of risk and opportunity in easy-to-understand graphics so the backer can weigh up the investment decision, which will surely be in your favour.

6. DON’T ignore the fact that your competitors will respond

Backers will be aware that markets are always changing, so try to consider what your competitors’ response might be if you were to follow the strategy set out in your business plan.

Could your competitors’ response threaten the achievement of your targets? Be honest and show your backer that you have thought through the implications thoroughly.

7. DON’T forget who you are writing for

Each paragraph of your business plan should be geared toward your target audience, which may be your board, a banker, or an investor.

Identify what concern your potential backer is likely to have and tackle them head-on.

Stop thinking about what you want to write and focus on what your backer needs to read.

You may be very proud of what you have achieved in your business to date and have big ideas about what you will achieve, but if that information is not relevant to your backer’s decision, then it should be left out.

8. DON’T underestimate the resources you will need

You may be operating out of your loft or your garage at the moment, but if you have big plans, then sooner or later, you are going to need help, and that means you will need resources.

Set out exactly what resources and partnerships you will realistically need to achieve the forecast growth rates, including;

• Employees,
• Managers,
• Premises and Equipment,
• Suppliers,
• Advisers,
• Agents and Distributors.

9. DON’T dismiss the competition

When writing a business plan, it is very easy to fall into the trap of doing insufficient justice to the competition. However good your idea is, your backer will be savvy enough to know that customers will always be tempted by alternative offerings, so don’t shy away from that fact.

Examine what your competitors do well, where they are weak, and what they are likely to do that could affect the level of competition.

10. DON’T think your backer was born yesterday

If they are serious about backing your business, investors will do their own due diligence and talk to customers, staff and maybe even competitors. This will inevitably uncover bad news, so don’t be tempted to brush it under the carpet.

If they find out something that you really should have told them, any trust that has built up will evaporate, and they will walk away.

The same is true for forecasting. Please don’t be tempted to lie or exaggerate, or you can lose your backer altogether. Sure, you should be upbeat, but you should also be realistic, or your backer will quickly see through you.

If you’d like to learn more, read Bytestart’s comprehensive 12-part business plan guide.

This guide was written for ByteStart by Vaughan Evans, author of The FT Essential Guide to Writing a Business Plan, published by FT Publishing, and priced at £16.99.