By Phillip Chichoni
It is familiar feeling among new entrepreneurs. You submit your business plan. With half dread and half optimism you wait. And wait. For weeks. There is no response from the bank or investor. After a few months, you know your business plan has been rejected. Or you receive a letter of rejection, sweetly saying “Unfortunately we are unable to assist you at his moment.”
You take your business plan elsewhere and the same scenario plays out. Why is your business plan being rejected. It could be because of one or more of the following eight reasons:
1) Presentation. First, remember that first impressions are important in the investment business. If the look of your business plan and cover letter do not represent your plan well, then you can be guaranteed that it will end up in the circular file! Conversely, do not overdo your business plan. You can spend hundreds on creating a truly professional document, even going so far as having it professionally bound. However, this is not necessary, and the investor may interpret it as the fact that you are wasteful with the limited resources your business has, or that you do not really need money after all.
2) The executive summary. If your plan does pass the initial visual inspection, the first thing the investor is likely to look at is the executive summary. If your plan does not have one, then it will end up in the trash. Also, if the summary is too long, longer than three pages, or appears to be only fluff, then you will not be considered.
3) The financials. Once the plan has passed these external looks, then the investor will open the plan. Usually, potential investors turn to the end of the plan, not the beginning. The end of the plan is where you will summarize the financial aspects of the business. Remember, the investor wants to see where he will make a profit. The product or service you are offering is much less important than the financial projections you give. This is when the investor will start looking at the details of the plan. They want to see several pages of financial projections, not just a few summaries.
4) Layout. After passing the financial test, organization of the document is important. Each page should have some white space, and the document should be easy to read, with headers and numbered sections. It should flow smoothly from one topic to the next. At this point, they will actually read the executive summary and start to make a decision. With these initial aspects in place, you will likely have a chance at having your entire proposal read and considered.
5) The right finance product. Some investors only fund specific types of businesses. The same with banks; they may specialize in a certain type of lending or industry. For example, NMB recently had facilities only for horticultural exporters. Other financiers may only fund businesses between certain financial thresholds, or those within a specific range of assets. For these reasons, avoid submitting loan applications to lenders before you have researched the types of enterprises they have funded in the past. This can inform you of lending trends that may influence the type of lender you want to work with. Lenders issue business loans selectively, and knowing your bank and its criteria allows you to be better prepared when you submit your application.
6) A strong team. A business is only as good as the people in it, the management team. A successful business will have a core team of people skilled and experienced in managing the key areas of production, finance, marketing and human resources. If your business is still small, you might need to have some advisors helping in those areas that you are not strong, and include their CVs in your business plan.
7) Industry expertise data. Most new entrepreneurs know exactly what they want to design and sell, and they are personally convinced that everyone will buy one. Yet they often fail to realize that their view is likely biased, and will be instantly discounted by potential investors. Business plans with no “industry expert” data on your target opportunity size and growth are routinely rejected. Your business plan must have an “Opportunity” section, where industry market size and growth projections are included. Within this section, investors look for footnotes referencing external sources, or quotes from notable domain experts. Absence of these raises a big red flag.
8) Competition. Some entrepreneurs may want to give the impression that they have a unique product and that there is virtually no competition in the market. This again shows lack of market research because is no business without competition. Instead, describe your competitors, direct and indirect, and indicate your strategies for winning in the market.
Learn more about how to write a winning business plan from my book “Business Planning Simplified.” You can also attend one of our regular business plan writing classes, visit http://smebusinesslink.com/training-courses-and-seminars for full details.
Phillip Chichoni is the publisher of the monthly BusinessLink digital magazine and also the author of Business Planning Simplified and other business guidance books. Connect with him on Twitter #chichonip, and #BizLinkMagazine
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