For this final blog in my series about creating a strategic business plan that will help you to secure capital funding, I’m going to cover some of the common – but entirely avoidable – mistakes that CEOs make.
The top six most common mistakes are:
- Over-aggressive growth rates, unrealistic financial projections, and data that doesn’t have real-world historical backup.
- Not presenting the competition completely or from the customer’s perspective.
- Narrative filled with jargon and hyperbole.
- Not clearly explaining the unique selling proposition that shows what problem the business is solving.
- More than one projected outcome. Don’t supply best and worst case scenarios – just supply one realistic one.
- Incomplete strategies for implementation; no plan of action for after funds are received.
Here are some other important principles to remember:
- Never include letters from customers. This makes the business plan look cheap and over selling.
- Never include a term sheet. If you indicate that you will give up 30% of the company, no one will offer less – even if they might have done so without the term sheet.
- Never change the business plan to fit the lender’s criteria.
- Don’t speculate on exit strategies as to future valuation.
- Don’t supply weaknesses as information.
The number one mistake is having a shaky financial foundation – a financial forecast that is poorly created and/or documented. Lenders want all your data to be sound, and backed up by credible, verifiable resources.
What resources do lenders deem credible and verifiable?
Most lenders will be open minded about the data you use, so long as it is verifiable. Good sources are historical actual numbers, independent third party data and management estimates. If done properly, the strategic business plan not only establishes a compelling business model and growth story, but also educates the lender about what is important to analyse from a risk standpoint.
Historical numbers should be based on reality, not your high aspirations and optimism. Including financial statements audited by an independent third party would make the potential lender more confident in the numbers being presented.
If you follow the above tips, and those in my previous blogs on this subject, you will stand a much better chance of attracting not only world-class lenders, but also the right types of lenders for your product. For a recap, please revisit my blogs about strategic business plans to present to banks, mezzanine lenders and venture capitalists, and what to do differently if you are an early-stage company.
If you would like further advice on any aspect of strategic planning, please email me or call me on 020 7099 2621.