Featured News
As quoted in Investor's Business Daily
Hit box buttons. Skip the hollow hype.
Explain in one sentence how your business will stand out from rivals
or blaze a new path (known as "your competitive advantage" and "being
first to the space"). Pinpoint unique elements it brings together.
Your first paragraph should include a sentence like, "This
company combines X and Y to fill a niche." said Michael Goldstein,
President of Professional Planning Associates Inc. in Ft. Lauderdale,
Fla. "It may combine the power of the Internet and the market demand
for widgets to make a $50 million impact on the widget industry.
That's a strong start."
- Investor's Business Daily
Article from vfinance.com
A Venture Capitalist and Business Planner Look at
Business Plans
by David Pierce-Pierce Investments and Michael Goldstein-Professional
Planning Associates
There are more clichés and misunderstandings surrounding
business plans than any other part of the capital raising process.
These range from the belief that plans are not needed (my concept is
so good that it sells itself) to the "thicker the better" school of
business plans. This group supplies the fund raiser with an 100 page
book that includes 20 pages of newspaper clippings and a scholarly
treatise on the industry complete with 15 pages of charts and graphs,
which may be impressive. but is not read. The failure of both of these
approaches stems from a misunderstanding of the role of the business
plan in the capital venture world.
Contrary to popular belief, no capital venture firm
or angel (defined as persons who invest their own money in businesses)
hears a presentation or reads a plan and then writes a check on the
spot. An angel is no different than a capital venture firm in his or
her desire to make a prudent investment. I remember sitting at a forum
on angel investing, when an audience member indignantly accused the
panel of angels of being no better than venture capitalists because
they wanted experienced management, collateral, growth industries and
significant returns on their investment. The thought was that an angel
investor suspended all prudent business practices and just threw money
at any project presented by glib entrepreneurs. Nothing can be further
from the truth. Each venture capital source must present the plan to
a committee or advisors to determine if further processing is warranted.
The business plan is the door opener, if the plan is favorably received
the firm or individual will proceed to the next step, due diligence.
What does the venture capital community want to see
in a business plan. Pierce Investment has reviewed hundreds of plans.
The projects that are selected achieve a business comfort level that
encourages further pursuit. If a project or business is inherently
unsound, a skillfully drafted plan can not cure the flaws, nor does
a poorly written plan automatically condemn an excellent company’s
chances for financing, however it does make it significantly more difficult.
Most proposals received fall in between. In these cases the business
plan is crucial.
What do capital sources want to see in a plan ? They
basically want these questions answered:
- What is unique about this company or project?- The investor or
lender is not necessarily looking for a unique product, but one with
growth potential that sets it apart from other industry members or
from other proposals received.
- What does the company do?- The reader wants to be able to understand
the company’s product and services and the operations of the company.
- How does or will the company attain profitability?- This area entails
discussion of the market and competition as well an analysis of areas
such as revenue and profit margins.
- What benefit will be derived from a capital infusion?- In other
words how will the proceeds of the financing be utilized and what
results benefiting the investor will be achieved. This should translate
into increased revenues and profits and an excellent return on investment.
- Is management capable of implementing the business plan?- Many
investors consider this the most important element of a business
plan. An investor must be comfortable with the experience and abilities
of the management team. An outstanding management team can, many
times overcome other plan deficiencies.
- Do the financial projections make sense?- Over optimistic projections
reflects on management’s judgment. Projections can be aggressive,
but must be within the realm of the real business world.
- Is there an exit strategy for the investor- Does this business
have the potential to merge, be acquired, go public or buy out the
investor ? This is important, since the most popular venture capital
vehicle is the convertible debenture. The investor must be confident
that either the debt payments can be sustained or that their stock
conversion rights have home run potential.
If the business plan satisfactorily answers these questions,
the plan has served its purpose. The details of the plan, answering
these questions is the job of the business plan writer.
Does the format and style of a plan make a difference
to an investor. It definitely does. Pierce Investment looks more favorable
upon a plan that is easy to read, well laid out and written in acceptable
business plan style. The style of a good business plan is somewhat
unique. It is between the syntax of an SEC document in which every
aspect of the business is doomed to failure and a marketing piece in
which everything about the business is wonderful. It is a factual document,
but it is also a presentation piece, in which positives can be featured,
but not overly emphasized.
Attractive packaging of the plan can be beneficial.
Appropriate color graphics and an attractive cover always sets a positive
tone. However, the proper balance must be reached. We get turned off
when a plan has a large number of pictures making the plan look like
a marketing piece.
The next logical question is should an existing business
or start-up prepare the plan or retain a business plan writer ? It
is a question of time, ability and money. A typical business plan prepared
for the purpose of obtaining financing, takes at least between 30 to
50 hours to reach the final product. It will be considerable more if
a learning process is involved There are many software programs that
serve as guides, however it takes a high level of writing ability to
draft a plan. If one has the time and the ability to prepare the plan
it is a feasible option.
Retaining a business plan writer has many advantages.
Since a business plan writer does this for a living, the plans can
be produced faster and written at a professional investor friendly
level. The writer also is detached from your business allowing for
a realistic presentation of the business and its future. Investors
can always detect a plan prepared from a software package versus a
professional prepared plan. Investors generally favorably note that
the company has gone through the expense to present a professionally
prepared plan. The cost of having a plan professional prepared is small
as in comparison to the amount of money the average business is seeking.
Fees for plans usually start at $3,000 and can increase to $10,000
or more depending upon the complexity of the plan. It is usually a
good investment for most seekers of financing.
It is hoped that this articles has clarified the role
of the business plan and will make the difficult task of raising capital
just a little bit easier.
David Pierce is president of Pierce Investment Corp.
E-mail - pierceinv@lookwithin.com Pierce
Investment represents capital venture firms and real estate investors.
Michael Goldstein is president of Professional
Planning Associates, Inc. Tel: (954) 829-2523, Fax: (954) 537-7945,
E-mail, mgoldstein@proplana.com, www.proplana.com Professional
Planning is a consulting firm specializing in the preparation of
business plans.
For further articles including "Internet
Business Plans-Follies from the Past" and "Business
Plans for the Bad Times" e-mail proplana@gate.net.