5 things Investors want to see in a Business Plan

A business plan does so much more than layout the internal structure of an organization.  It provides some key insight to the money-men, the venture capitalists, the angel investors, the private investment bankers or even the traditional bankers.  Remember that these people see hundreds, thousands of business proposals a month.  And they're all looking for certain things that either make them love your proposal -- or send it immediately to the shredder.  We've worked with nearly 50 investment firms at one point or another for clients for whom we have written business plans, and based on our experiences and the people involved, there are some important factors investors look for the most from the business plan.

1.)  How much money is already invested?  Do the client or other individuals/companies have a stake in the business?

Sometimes the difference between getting a loan and getting rejected is as simple as that.  Imagine you're coming to an investor with a fabulous business plan and you need, say, $500 million for a resort and real estate project.  In your proposal you clearly state that you do not have one single dime invested yourself (yes, we had a business proposal like this once!).  Do you honestly believe an investor is going to give you the time of day?  Of course not.  You haven't taken any sort of risk -- why should the investor?

In your business plan, it is key to explain fully, in the executive summary and then later on in the financials, just what monies are involved.  Okay, so maybe you don't have any money involved in that resort project, but you DO own the roughly 50 acres of land it will sit upon which is worth maybe $75 million.  Good!  Mention that in the proposal clearly and accurately, including what kind of land it is, along with a map, some distinguishing features (is it ready for construction, water, pathways, roads, accessibility, etc.)  If you have other sorts of assets, something, ANYTHING that can be used as collateral against your loan, make sure it is explained and described.

If you have partners who have chipped in $250,000 for a project worth at the most $2 million, you have a significant edge over other people.  Most investors we have dealt with like to see at least 10% of the required funds already in place.

2.)  How accurate is the research involved?  Does the client know the market, the competitors, and his or her chances?

We can't begin to tell you how many business plans we have come across that had little or no market analysis or competitive structure.  The client had no idea about the target market, the competition he was facing, nor even demographics of the area.  He had an exciting product, but it was difficult to ascertain just how much success he was going to have SELLING it.

In many cases, an investor isn't as interested in the product as he or she is in the product's success on the market, so a good business plan should have a clear, accurate description of that market.  Many things should be included like:

a.) Demographics of your target market and market analysis, with factors such as age, race, income, etc.  Think about your average customer walking into your store for your product or service.  What are they looking for?  What do they look like?  How much do they want to spend?
b.) A market analysis that describes the trends and statistics of your potential market.  Will your product or service be in high demand for a long time -- or will it have limited 'shelf-life' on the market, coinciding with a new fad, for example.  Will the product or service be affected by shifts in the market?  Is this a stable target market with limited shifts taking place, or does the market wildly fluctuate?
c.) Do you know your competitors?  What are the similarities and differences between what they sell and what you sell?  How are you better than them?  How are you inferior to them? (Yes, you need to include that, as much as you don't want to.)

3.) How realistic are the financial projections?

Be extremely honest.  No start-up business makes a profit in its first year, no matter what you are selling.  So make sure not to show that in your business plan.  Also don't be too alarmed at the first-year loss.  We had a client with a business plan that showed a $400,000 loss against a $2,000,000 loan in his first year of operations and he panicked.  Then we explained that he was going to have a loss because his first year of operations would have high expenses as he organized and finished all his preparations for his new company.

Investors expect you to have a lousy first year -- don't beat yourself up about it.  It's not the first year that concerns them anyway -- they are thinking 3-5 years down the road.  If after three years your company isn't showing a profit, that is when the investors get nervous.  After all, why should they put their money into something if your business proposal shows that you won't be able to pay them back?  Luckily for our panicked client, his second year showed a profit of about $30,000 and his Year Three profits would equal $375,000, almost erasing his first year loss.  He was going to have a steady 40% increase every year after that.

In many instances, the investor thinks long-term, and so should you.  Your financials should explain what is going on, and what will happen.  Don't try to sugar-coat things, per se, but put a healthy spin on a mediocre beginning.  Don't impress the investor with what IS happening -- impress them with what is GOING to happen.

4.)  Does your proposal look professional?

You'd be surprised how many proposals are overlooked with something as simple as a large 'BUSINESS PROPOSLE' on the first page.  This is merely common sense.  If you want people to take you seriously, show your most professional side.  Your proposal should be checked for errors, misspellings, proper formatting, and headings, and have clear, easy-to-read graphics or images.  A client tried to convince us to use a dazzling bold red text over a green bar-chart and we hastily explained to him why it's not a very good idea to ruin the eyes of a potential lender.

Include pictures or illustrations, maps, diagrams and other visual aids, if possible. Also, take a good look at your writing.  The character Rusty, played by Brad Pitt, in 'Ocean's 11' said it quite well: "Don't use 7 words when 4 will do."  Talk about your management team, but don't drone on about how instrumental a part they have played in your life.  Talk about the great product you have, but don't go on about testimonials from other people,(or if you must, include them in the appendix)  And don't be funny.  Humor should be left at the doorstep.  If you want to be funny, become a stand-up comic.  Treat your document and the people reading your document with the utmost respect.

5.)  Is the management team solid?  Are there good people involved?

Remember that your business is not, and should never be, about you.  There should be some good people involved with you to make it run smoothly.  It does not matter what service or product or project is being offered, if you think you can convince an investor you're a veritable one-man show, you are out of your mind.  A client we recently wrote a business proposal for was creating a new mobile-phone service, and amazed us with the list of engineers, technical advisors and IT professionals he had attained.  When we saw how the management structure was fully laid out, and how each individual was going to fit in, we knew right away this particular proposal had a good chance to get in the front door.

Investors want to know who is on board, what their job is, their experience in the field you have chosen to represent, and a little of each person's background and education.  A solid management team, with a full layout as to positions, responsibilities and backgrounds, is a sure-fire way to get an investor looking at your proposal a lot more.