The main purpose of any business plan when raising finance is to market your business proposal to a venture capital company or investor is to show that if they invest in your business, you (and your team) will give them a unique opportunity to participate in making an excellent return. It should be considered an essential document for you to formally assess market needs and the competition; review the business' strengths and weaknesses; and to identify its critical success factors and what must be done to achieve profitable growth. It can be used to consider and reorganise internal financing and to agree and set targets for you and your management team. It should be reviewed regularly.

Your business plan should emphasise why you are convinced that the business will be successful and convey what is so unique about it. Venture capital investors will want to learn what you and your management are planning to do, not see how well others can write for you.

Many businesses fail because their plans have not been properly thought out, written down and developed. A business plan should be prepared to a high standard and be verifiable.

The following is to provide you with some idea of what is required.

A business plan covering the following areas should be prepared before a venture capital firm / investor is approached.

Executive summary

This is the most important section and is often best written last. It summarises your business plan and is placed at the front of the document. It is vital to give this summary

significant thought and time, as it may well determine the amount of consideration the venture capital investor will give to your detailed proposal.
It should be clearly written and powerfully persuasive, yet balance "sales talk" with realism in order to be convincing. It should be limited to no more than two pages (i.e. less than 1,000 words) and include the key elements from all the points below:

1.       The market

2.       Product or service

3.       Management

4.       Business operations

5.       Financial projections

6.       Marketing strategy

7.       Amount and use of finance required and possible exit opportunities.

Other aspects that should be included in the Executive Summary are your company's "mission statement" - a few sentences encapsulating what the business does for what type of clients, the management's aims for the company and what gives it its competitive edge. The mission statement should combine the current situation with your aspirations. You should also explain the current legal status of your business in this section.

1. The market

• You need to convince the venture capital firm that there is a real commercial opportunity for the business and its products and services. Offer the reader a combination of clear description and analysis, including a realistic "SWOT" (strengths, weaknesses, opportunities and threats) analysis of each area.

·         Define your market and explain in what industry sector your company operates. What is the size of the whole market in terms of value, number of customers or number of units sold annually? What is its geographical operating area, influences and scope? What are the prospects for this market? How developed is the market as a whole, ie. developing, growing, mature, declining?

·         How does your company fit within this market? Explain how your product/service compares with the competition (current and potential) in terms of quality, costs, margins, price, etc. Who are your competitors? How many are there? What proportion of the market do they account for? What are their strategic positioning, strengths and weaknesses? What are the barriers to new entrants? Explain the historic problems the business and its products or services have faced in the market and how they were overcome, or why they are no longer relevant. Address the current issues, concerns and risks affecting your business and the industry in which it operates.

·         Who are your customers? How many are there? What is their value to the company now? Where are they located?

·         What are your projections for the company and the market? Assess future potential problems and how they will be tackled, minimised or avoided.

·         Outline your marketing strategy. Explain your plans for the development of the business and how you are going to achieve those goals. Avoid using generalised extrapolations from overall market statistics. Assess your marketing methods and materials and explain how you plan to maintain or improve your competitive edge.

All these aspects must be rigorously supported by as much verifiable evidence as possible. This will require market research which can include speaking to your management team, customers and potential customers, and may need input from outside marketing consultants.

2. The product or service

Explain the company's product or service in plain English. If the product or service is technically orientated this is essential, as it has to be readily understood by non-specialists.

·         Emphasise the product or service's competitive edge or unique selling point (USP). For example, is it:
- A new product?
- Available at a lower price?
- Of higher quality?
- Of greater durability?
- Faster to operate?
- Smaller in size?
- Easier to maintain?
- Offering additional support products or services?

With technology companies where the product or service is new, there has to be a clear "world class" opportunity to balance the higher risks involved.

·         If relevant, explain what legal protection you have on the product, such as patents attained, pending or required. Assess the impact of legal protection on the marketability of the product.

·         Is the product or service available for sale? What is or will be its price and cost?

·         Is the product or service vulnerable to technological advances made elsewhere?

·         Is there an opportunity to develop a ?second generation? product in due course?

·          

3. The management team

Demonstrate that the company has the quality of management to be able to turn the business plan into reality.

·         The senior management team ideally should be experienced in complementary areas, such as management strategy, finance and marketing, and their roles should be specified. The special abilities each member brings to the venture should be explained. This is particularly the case with technology companies where it will be the combination of technological and business skills which will be important to the backers. If some members have particular flair and dynamism, this needs to be balanced by those who can ensure this occurs in a controlled environment. A concise curriculum vitae should be included for each team member, highlighting their previous track records in running, or being involved with, successful businesses.

·         Identify the current and potential skills gaps and explain how you aim to fill them. Venture capital firms will sometimes assist in locating experienced managers where an important post is unfilled - provided they are convinced about the other aspects of your plan.

·         Explain what controls and performance measures exist for management, employees and others.

·         List your auditors and other advisers.

·         The appointment of a non-executive director (NED) should be seriously considered. Many surveys have shown that good NEDs add significant value to the companies with which they are involved. Many venture capital firms at the time of their investment will wish to appoint one of their own executives or an independent expert to your board as an NED. Most venture capital executives have previously worked in industry or in finance and, what is most important, all will have a wide experience of companies going through a rapid period of growth and development.

 4. Business operations
Explain how your business operates:

·         Explain how you make the products or provide the service, firstly in brief and then in more detail

·         Outline your company's approach to research and development

·         Make a statement of corporate objectives for both the long and short term.

5. Financial projections

Consider using an external accountant to verify and act as "devil's advocate" for this part of the plan.

·         Realistically assess sales, costs (both fixed and variable), cash flow and working capital. Produce a pro-forma profit and loss statement and balance sheet. Ensure these are easy to update and adjust. Assess your present and prospective future margins in detail, bearing in mind the potential impact of competition.

·         Explain the research undertaken to support these assumptions.

·         Demonstrate the company's growth prospects over, for example, a three to five year period.

·         What is the value attributed to the company's net tangible assets?

·         What is the level of gearing (ie. debt to shareholders' funds ratio)? How much debt is secured on what assets and what is the current value of those assets?

·         What are the costs associated with the business? Remember to split sales costs (eg. communications to potential and current customers) and marketing costs (eg. research into potential sales areas). What are the sale prices or fee charging structures?

·         What are your budgets for each area of your company's activities? What are you doing to ensure that you and your management keep within these or improve on these budgets?

·         Present different scenarios for the financial projections of sales, costs and cash flow for both the short and long term. Ask "what if?" questions to ensure that key factors and their impact on the financings required are carefully and realistically assessed. For example, what if sales decline by 20%, or supplier costs increase by 30%, or both? How does this impact on the profit and cash flow projections?

·         If it is envisioned that more than one round of financing will be required (often the case with technology based businesses in particular), identify the likely timing and any associated progress "milestones" which need to be achieved.

·         Keep the plan feasible. Avoid being over optimistic. Highlight challenges and show how they will be met.

6. Amount and use of finance required and exit opportunities

State how much finance is required by your business and from what sources (ie. management, venture capital, banks and others) and explain what it will be used for.

·         Include an implementation schedule, including capital expenditure, orders and production timetables, for example.

·         Consider how the venture capital investors will make a return (see page 50). This may only need outlining if you are considering floating your company on a stock exchange within the next few years. However, it is important that the options are considered and discussed with your investors.

Although the above might seem a little daunting, it really isn’t and can be a very useful tool when written down.

The length of your business plan depends on individual circumstances, but should be long enough to cover the subject adequately and short enough to maintain interest. For a multi-million pound company with sophisticated research and manufacturing elements, the business plan could be well over 50 pages including appendices. By contrast, a proposal for £200,000 to develop an existing product may be too long at 10 pages. It is recommend erring on the side of shortness as if interested, investors can always call you to ask for additional information. Unless your business requires several million pounds of venture capital and is highly complex, your business plan should be no longer than 15 pages.

3. Appearance

Use graphs and charts to illustrate and simplify complicated information. Use titles and sub-titles to divide different subject matters. Ensure it is neatly typed or printed without spelling, typing or grammar mistakes - these have a disproportionately negative impact. Yet avoid very expensive documentation, as this might suggest unnecessary waste and extravagance.