Writing an Effective Business Plan: Do’s and Don’ts

Business plans are vitally important documents, both to attract investment and to generate a common understanding of proposals for the future. Most of these plans take weeks to produce, and many are written with the help of corporate financial advisors and other professionals. We have the pain and privilege of being a paid plan reviewer, and the scary reality of our experience is that most of them fall somewhere in the poor to terrible range. However, most problems can be fixed with a few simple disciplines.

In this article, we list the most common mistakes we see and some recommendations for writing a more effective plan.

Common mistakes

The plan is too long.

No one will invest directly from the back of a plan. If it intrigues them, they will want to meet you and find out more. The plan should be sensible, but if they invest, they are investing in you. They will be supporting your ability to achieve the plan or, more likely, something just as good when life inevitably turns out differently. So your goal is simply to say enough so that the reader can decide if he wants to meet you or isn’t interested, and as a result no one wastes time.

Whoever your target reader is, you need to read the plan in one sitting and retain what you read. This means you have 10-20 pages to convey your plan. It is not possible to detail every idea, initiative and evidence in a ten page document. So your challenge to the plan is to summarize the important points, just enough to whet your readers’ appetites and entice them to either want to meet you or quickly decide that it’s not for them.

The plan is too optimistic, ignoring the risks and downsides.

Plan writers naturally try to convey their idea in the most positive and engaging way possible. This is natural, and it is important to be positive and transmit your passion; but most plans end up as blatantly optimistic sales documents, with no thought to the risks and downsides. Unfortunately, this propensity is increased by the use of low-skilled advisors.

Readers want to see their concerns quashed and rigorously addressed in the plan, not dismissed or ignored. His plan is a chance for him to present himself as a passionate but practical business person, and build his credibility before meeting potential investors. If the plan stops only on the positive side, it seems unrealistic.

It looks like a complete template

Some sections of the plans are really necessary most of the time. It’s rare that you don’t need a section discussing relevant market trends, distinctive differences in your service, or projected finances. However, crowd-barring in a SWOT analysis or Porter’s Five Forces puts you in grave danger of coming across as an amateur business plan writer, rather than a savvy professional with a compelling investment proposition. If a section adds to the reader’s understanding in an uncluttered and focused way, then proceed with it, but blindly applying template trading tools will make his plan much worse.

Contains too many broad generalizations.

Most plans focus on a specific opportunity in a specific market, but the descriptions of the market and the opportunity are often so general as to be meaningless. If your plan is to keep pets at home in London, showing how many millions of cats are bought each year in the UK is almost irrelevant.

Describe your service, your market, and the reasons why people will buy as accurately as possible. You’ll need to make assumptions, but as long as you state what they are and why they’re credible or conservative, you’ll have meaningful context for everyone involved.

It is written in language that impairs the readers’ judgment of the business.

It’s amazing how many people have a writing style that detracts from the quality of their thinking and business ideas. A business plan is a serious document that needs quick and simple writing to get the message across: one idea per paragraph, one point per sentence. No sales jargon, no rhetorical questions, no use of complex technical language. Also, too much business jargon is common in many plans, but it gives the impression of vague thinking and impracticality in the real world, it can be annoying and put off the reader. Language may not improve the appeal of your business, but it allows the reader to clearly understand your thinking without distraction.

OK, that’s what not to do. We now cover the key aspects of an effective plan.

Writing an effective plan

Be clear about who and what the plan is for

You should think about this to determine what is in the plan and how much you need to explain. The plan is limited to the information and context relevant to the target audience to achieve this end. For example, a plan used to attract an outside investor will need a market section that explains the fundamentals; one used to generate Board agreement on a new course of action may need only a comment on recent changes or trends.

convince yourself first

A good plan must transmit passion and credibility. Credibility is the factor that is almost always missing. The more the plan writer challenges his own thinking and his own assumptions, the more credible and of higher quality the plan will be. Your own concerns and lack of clarity will surface at some point in the process, so you need to be the one to take control: test them and get ahead of them before someone else does.

Realizing that the plan is step one of many

The most successful and well-written plan will not be the only decisive step that alone secures investment, agreement to proceed, or whatever the end goal may be. It is only the first step, which will be followed by meetings, questions and challenges.

The role of the plan is to help clarify the opportunity for everyone involved and build their credibility, so that subsequent discussions are productive and focused on how things are to be done.

be brief and clear

The plan should contain enough to describe the opportunity, why it is attractive, how it will be exploited, and nothing else. If you are enthusiastic about the opportunity, you will be able to write extensively, most likely beyond the tolerance level of most readers. You will need to be deliberate in your efforts to highlight the most important points, reduce redundancy, and be clear and specific about anything that is open to interpretation. Use the document to intrigue the reader, don’t cover all angles.

That covers the key features of the most effective plans we review. We now describe the typical sections that we expect to see in some form in the plans we review:

content plan

The bullets below show a typical framework for a plan. This framework is a starting point and nothing more than that. It needs to be cut and changed to tell the story you want to tell in the clearest and most relevant way. With the right plan mindset and style, you can tailor the sections below to get your idea across and build credibility and interest from your target audience.

business plan template

Executive Summary (1 page)

Summary description of the business that contains enough for a person to understand it in 5 minutes. One paragraph each on:

– Business background (business description)

– Vision and strategy

– Background and relevant market trends.

– Income and cost expectations (brief summary table)

– Key next steps in the implementation plan

Business Description (1-2 pages)

Background

– Description of the products or services that the company will provide and why they are better or different from those that already exist

– Description of customer groups

– Any other relevant background necessary to understand the business

– Any relevant story

Vision

– Description of your vision for the business that will get people excited. Include tangible goals in terms of sales, customers, product performance, market share, etc.

Strategy

– Summary description of how the business will achieve the vision described above. Please include relevant descriptions of how your product or service will be developed and marketed, and any other issues important to getting it right, eg technology, product sourcing, etc.

Market (1-2 pages)

– Description of the market, including estimates of the total size and opportunity for your product/service

– Description of any market trends that are relevant to the demand for your product/service

Contest (1 page)

– Description of direct competitors and alternative products or services that customers have to buy your products/services

– Explanation of why your product/service is better or different from the competition

Sources of income (1 page)

– Description and quantification of all major revenue streams over a three-year period, clarifying all assumptions

Costs (1 page)

– Description and quantification of all main costs for a period of three years

Implementation Plan (1-2 pages)

– Explanation of all the main steps necessary to start the business and its performance during the first year. This is best done as a table outlining all major actions with deadlines and responsibilities.

Financial projections (1 page)

– Summary account of profit and loss for 3 years

– Description of all major investments

Team Background and Credentials (1 page)

– A paragraph about each of the team members

So there you have it. In essence, a great plan will describe a great idea, supported by a great team, but it will do so in a short and clear way that gets to the point and intrigues the potential sponsor.

The last plan we wrote was for a start-up sports team and raised a £40m investment, from the first sponsor the team approached, within two months. The plan was short and simple with no SWOT analysis in sight, but it was a great idea and had a great team. The plan was only the first step.