The wrongs that write a business plan; What to avoid if you want to raise finance

June 11, 2013 4:36 pm

The wrongs that write a business plan

By Luke Johnson

What to avoid if you want to raise finance

Iread two or three business plans a week. I’ve developed a checklist of irritating elements that entrepreneurs are best advised to avoid if they want to succeed in raising finance.

● Complicated and aggressive non-disclosure and confidentiality agreements There is often an inverse relationship between the length of the NDA and the scale of the project. While entrepreneurs should try to protect their intellectual property, these contracts are really more of a ritual than of any practical use.

● Advisers taking a disproportionate fee Investors don’t want to see a material amount of their money going to pay corporate financiers. I was presented with a plan last year where the adviser stood to collect 20 per cent of the funds raised. It put me off the proposition.● Founders offering no “hurt money” I want to see the promoters having plenty on the line, to make sure they don’t give up too easily if the scheme goes wrong. Obviously, their financial commitment should relate to their personal resources: staking a big chunk of their net worth is always compelling.

● Complex financial modelling I read a plan recently for a £100,000 revenue confectionery business that had 10 tabs of Excel spreadsheets. My eyes swam when I tried to understand it. I worried that whoever prepared the plan knew too much about modelling and perhaps not enough about confectionery. ● No business plan Even worse than a bad plan is the complete absence of one. If the founder can’t be bothered to write a proper proposal then they aren’t very serious about their undertaking.

● Vague CVs The most important ingredients in any business plan are the résumés of the participants. These career descriptions must be detailed, specific and honest. If they are superficial or inaccurate, trust evaporates. Sentences such as “Ted worked for 10 years in the chemical industry in a number of senior positions at various blue-chip companies” are very off-putting.

● Business plans written by someone else The founders should roll their sleeves up and become their own authors. I’m not interested in literature: I want the words to reflect the personalities, knowledge and ideas of the entrepreneurs – not those of an accountant hired to ghostwrite the paper.

● Too much focus on five-year financial projections What interests me are the next 12 to 18 months – further out is pure speculation, especially for an early-stage business. I never buy shares based on what might be possible years away – I want to see what milestones can be achieved in the near future.

● Too technical Most financiers are not experts across every industry. Specialist facts presented in an obscure fashion will alienate most of them. I get the impression studying prospectuses for certain high-tech businesses that they are designed to bamboozle. Explanations and background material should illuminate, not confuse.

● Out-of-date facts A few months ago I received a business plan with numbers that were two years old. A package that obsolete feels stale, and is very unlikely to receive support.

● Boring content A business plan should be exciting, telling the story of a bold endeavour, written with genuine enthusiasm. Too many are endless and dull, full of tiresome prose and meaningless figures. They are not meant to be dissertations; like any sales pitch, they must engage the reader.

● Full of jargon Don’t automatically use the acronyms, catchphrases and clichés that suffocate so many management communications. Try to be original and fresh in your language. And don’t copy others.

● Asking for too much money Overfunding can be very dangerous. The cash always gets spent, often unwisely. Showering entrepreneurs with excess finance is like spoiling children: it leads to bad habits.

Of course, a sound and convincing business plan is only the start of a challenging journey. But getting the written vision right can make a big difference.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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