More and more people now fully appreciate the immense importance of a business plan. Whether they draft one using shortcuts or diligent work they know it is vital. Be that as it may, did you know that roughly 1 percent of all drafted business plans ever get funded? Surely that it is too paltry a number which necessitates us to dig deeper. Why do some business plans fail to get funded? This shall be the focus of this article as we look at possible reasons for this. Your biggest takeaway from this should be that the things we shall discuss should be mistakes you should avoid.
1. Impractical Financial Projections
Most people know that prospective investors or financiers keenly look at the financial projections. In a bid to sweep them off the ground they come up with unrealistic projections. This is usually borne out of a misconception that showing huge profits in the projections will convince the potential investors or financiers.
This is a smoking gun and if you are asked certain questions you might find yourself tongue-tied. For examples of good business plan financial projections click here. Be more concerned about business growth (that is what is looked for most in a business plan). If you operate from that standpoint you will inevitably come up with realistic financial projections.
2. Weak Or No Unique Value Proposition
Starting a business has to be about addressing a human need in a monetizable way. That is the essence of entrepreneurship anyways. If this attribute is lacking in your business plan then your value proposition will either be weak or non-existent. If your unique value proposition (also known as the unique selling point) is not on point then sales will be a struggle for you. This is even worse when you consider having to contend with other competitors for market share. No serious investor or financier would bankroll a business plan that clearly has no or a weak value proposition. Two questions – will people buy your product(s) to begin with? Will they prefer yours over your competitors’? If by going through your business plan the answer to those questions is unclear or outright ‘no’ then you will not get funding.
3. Poor English, Layout, And Size
These three elements are intricately connected which is why we hold them up together here. Poor English comes in various forms e.g. wrong spellings, incorrect grammar, or poorly constructed sentences. The other two things commonly found in most business plans are verbosity (using big or empty words) and loquacity (being unnecessarily wordy). You must also desist from being too superlative (using exaggerated expressions). An example is “our product range is uniquely top-placed with no viable competition at all.” People think this will impress the ones the business plans are presented to. Business plans should also not be too long or too short.
Then there is the issue of layout; lots of people lose out on this. There are various formats for business plans but there are basic components that must be included. These are components such as the executive summary, company description, market analysis, management structure, products, marketing and sales plan, and financial summary or analysis. Some people try to be creative by coming up with their own formats. This could be coming from a place where one thinks being unique will gain them a favour. Well, potential investors or financiers have most likely gone through many business plans before. If they do not immediately see a familiar format they can possibly write you off.
4. Poor Analyses
A business entails lots of analyses some of which are market analysis, competitive analysis, risk analysis (which touches on a wider range of areas), SWOT analysis, and financial analysis. These analyses are the premises upon which investors or financiers base their decisions. Remember that entrepreneurship entails enormous risks that you have to convince someone that they are worth taking due to the subsequent payoffs. Poorly done analyses will not do you any good because a potential investor will not have confidence in your business plan.
5. Copy And Paste Business Plans
The copy and paste syndrome is widespread and business plans are no exception. Many people draft business plans this way i.e. getting a pre-done business plan online or a template. They then slightly edit it to somewhat suit their context. For experienced investors and financiers, this is easily noticeable. In some cases, a potential financier can even know what the source document is. So many people have lost funding because of this. It shows a lack of authenticity and seriousness; funders loathe that.
6. Unclear Intended Use Of Requested Funding
It is very possible for someone to inflate the amount of funding they need for a business. One of the tell-tale signs of this can be a failure to clearly account for why you need the amount of funding you are requesting. You see, you cannot cheat and think it will not show. Your financials in a business plan are interrelated – if there is a discordance between your financials and the funding you need that is not a good sign. Failure to explain what you need the money for, down to the last detail, is suspicious and investors or financiers withhold funding in such scenarios.
7. Biting More Than One Can Chew
This is informed by a misplaced quest to impress investors or financiers. Some people think if you come up with a business plan that has many products then you will be easily funded. Having many products is akin to being all over the place or being a jack of many trades (being master of none). A single product is hectic to establish as it is what more several? All this being at a point when you are only starting out in business. This will definitely remove any prospects of getting funding.
These are some of the reasons why funding eludes most aspiring entrepreneurs. Seeking to impress potential investors or financiers is at the heart of most of the reasons we discussed herein. There is nothing wrong in that desire but do it authentically.