Countless business plans won’t receive the funding they need to get off the ground. This article explores some of the key reasons why this occurs and what you can do to avoid them.
Planning can be a crucial element to ensure that your business is a success. Indeed, studies suggest that the right plan can ensure companies grow 30% faster than their competitors. Unfortunately, many business plans do not receive the funding they need and thus never come to fruition.
Despite this, many individuals are interested in setting up their own company. Indeed, according to SME loans, 46% of applications for loans in the past year were for startups. As such, it does make sense to investigate why many plans are rejected. Here are the key issues you must keep in mind.
Failing To Address A Pain Point
Identifying a pain point and focusing your business plan around it will be essential to ensure success in the early days of your business. Customers have various needs and pain points.
A pain point can be anything from struggling with a PC that takes an age to load to a garden that they don’t have time to maintain themselves. The more specific the main point you target is, the more likely you are to win support from a lender. By addressing a pain point, you can show that there is a clear audience for your business that is ready to spend. This increases the chance of your company being profitable, straight out the gate.
Ideally, you should focus on a clear and significant pain for your target audience. The more prominent the pain point is in their life, the more likely they will be to pay for a service or product to fix it.
Make sure that your solution is a focal point of your business plan.
Unrealistic Financial Goals
A key focus for investors in your business will be whether you understand the profit potential of your company within a given amount of time.
Most business plans will include projections for the first five years the company spends on the market. You need to show that you understand exactly how much your company could earn during this time.
Most businesses will not achieve more than $100 million in sales five years after opening.
However, if you project your company will earn less than $25 million you could struggle to attract serious investors.
It’s all about finding the sweet spot that shows you understand your potential without raising the hurdle too high.
Small Issues With Serious Significance
You might think that small issues with your business plan will be ignored by investors. However, you would be surprised by the details they will pick up on.
For instance, there should be no spelling mistakes or grammar issues in your written business plan. This suggests that when you are managing your business you won’t be prepared to pay attention to the little details.
You need to make sure you get to the point as well. If your plan is too
repetitive, investors could lose interest and question whether you have a set focus in mind for your business.
As well as this, as is often the case in the business world, appearance does matter. If your presentation is sloppy and poorly executed your plan will fall to the bottom of the pile.
Don’t forget, you won’t be the only one attempting to gain the attention of a particular investor. There will be thousands of potential business owners attempting to gain funding from the same individual or corporation. Small mistakes give them a reason why you shouldn’t be considered at all.
The Master Of Many
It’s a rookie mistake and can also be referred to as biting off more than you can chew.
New business owners often believe that bigger is better but this isn’t the case. You shouldn’t push the idea that you can sell multiple products or services straight out the gate. Instead, investors want to see that your plan has a pinpoint focus.
Rather than focus on multiple diverse markets, you should be fixated on providing for the needs and addressing the pain points of a single market. This should be sold through one distribution strategy instead of pushing several.
No Clear Marketing Strategy
Marketing could be another element that can cause your business to be tossed aside. You need to ensure that you’re explaining your marketing strategy as part of your plan.
You must ensure that you answer three vital questions. These are:
- Who is going to buy your product or service?
- Why would they want to buy it (the pain point)?
- How are you going to reach them?
Answer these questions to the satisfaction of funders and you will be one step closer to achieving your goal.
It’s a simple issue but one that you do need to address. Do remember that funders interested in your business will be busy. They won’t have time to read extensive business plans. This is another reason why you need to keep your written plan succinct and on point.
Leave out the details that an investor will have no interest in and try to write it from their mindset. Understand what they need to know and what is just going to bore them. Essentially, cut out the waffle.
What are the risks that will be present in your business model? This is an essential piece of information for any investor. You will need to show them how you plan to deal with these risks effectively.
There is a range of different risks that could be relevant for your business such as:
- Operational Risks – You need to think about what could go wrong with the day to day operations of your company
- Tech Risks – Are you able to deliver your product on time and to a specific set budget?
- Legal Risks – Think about what happens if your solution is not effective and whether you can limit your liability in this scenario
Your Business Idea Is Flawed
Sometimes the right answer is the simplest one. It’s quite possible that the reason your business plan has failed to gain funding is that the idea at the core is poor.
Usually, this will be the case if it becomes apparent that a target market wouldn’t be interested in your product. One of the ways that you can avoid this issue is by focusing on “user-driven development.”
In doing so you can guarantee that the products or services at the heart of your business plan are user-centered. You can also use feedback to adjust your plan accordingly and ensure that issues here can be corrected.
Underestimating The Capital That You Need
The key reason to present your plan to investors is to gain capital for your company model. As such, the worst possible scenario will be if you request funds that aren’t enough to keep the lights on in the first year. At the same time, asking for too much money could ensure that your business plan is immediately dismissed.
You need to assess your financial position carefully and ensure that you ask for enough funding to go the extra mile for your future clients.
To impress investors, you need to ensure that your plan is organized. This will guarantee that it is easy to digest and has the right level of focus while appearing professional.
There is no individual set business plan structure that you need to follow. However, there are elements that must be part of your business plan.
For instance, it should always begin with a cover page that is simple and clear, including key contact information. An executive summary may follow and provide everything that the reader needs to know about the full document. It should stand alone and be no more than 3 pages.
It’s tempting to stuff your business plan with technical jargon. Some prospective business owners believe that this demonstrates knowledge and expertise. However, the reality is that investors aren’t particularly interested in tech jargon unless it effectively demonstrates how you are going to solve a problem.
You can address all the questions a business plan needs to answer without resorting to a full and detailed technical discussion of how things are going to work.
The message here is clear. You need to keep your business plan simple. If technical aspects must be addressed, this can be completed through separate white papers.
We hope this helps you understand some of the key reasons why a business plan could struggle to get the funding required. If you understand these issues, you can take preemptive measures in the early days of your company to avoid them completely.
A business plan is important and it’s vital to ensure that it is well written, hitting the right marks with the appropriate detail where necessary. However, you will also need to ensure that you take steps to guarantee your business stands out to investors in a massive ocean of competition.