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The Definitive Business Plan, 3rd Edition by Sir Richard Stutely

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THOSE FINANCIALS AGAIN 293
Those financials again
Remember how you looked out of the window and compared yourself with other compa-
nies in your industry (see Chapter 5). Recall how you valued capital projects and assessed
your rate of return (see Chapter 11). This is exactly how others bosses, bankers and
backers will crawl over the financials in your business plan. You know how you did the
analysis so it should not be too hard to visualise how others will do it to you. They will:
review your break even position to ensure you have comfortable safety margins;
look at the state of your profit and loss account and compare costs and revenues;
analyse your balance sheet, checking for liquidity and valuable assets;
examine your cash flow to ensure that it is healthy;
compare you against other companies in similar industries.
None of this should hold any terrors for you you have already worked through these
details. However, as promised earlier, now is a good time to run through the measure-
ments that are taken during your health check.
Why plans fail after passing the first glance
If business plans are rejected after passing the first glance, it is usually because they
do not answer the questions in Figures 12.1 and 12.3. The most common omission
is failing to reassure the reader that marketing and sales will bring home the
silver. The second most frequent problem is lack of operational detail how it will
happen. Both of these boil down to a weakness in (explaining) the strategy. Beyond
these factual details, the major hurdle for new ventures is conveying your vision
as shown by the quotations scattered throughout this chapter.
t
If you go to a doctor for a medical check-up, you will be measured
exhaustively. A nurse will check your age, height, weight, blood pressure,
pulse, take a blood sample and so on. Interesting stuff, but so what if your
red blood count is 4 million/ml? This is meaningless unless explained and compared
against some measure. You do not want to be in good shape for a 60-year-old if you
are only 32. This is exactly how it is with many of your financials.
294 CHAPTER 12 GETTING IT APPROVED
Everybody
1 Can the management adequately describe their ideas? Do they have good communication 
skills?
2 If it is an existing business, how has it been managed up to now?
3 What is the quality of the management?
4 Do they understand their business? Do they have a penetrating understanding of critical 
factors such as costs per item, break even, sales per product?
5 Do they understand the market? Who will buy? Why?
6 Do they understand the competition? Who are the key competitors? What is their market 
share?
7 Where is the action plan? How will theory be turned into action?
Fussy equity investors   Easy-to-please bankers!
Funding requirements
8 How much funding is required?  8 Is there adequate
9 What will the money be used for?  security for loans?
10 What will we be buying – in terms of fixed assets, 
 intellectual property, dreams?
The history 9 Will there be adequate
11 How much money has gone in already?  cash flow to pay interest
12 How much came from the existing owners?*  and repay principal?
13 Where else did it come from?
14 How was it used?
15 With what results?
The future
16 How will further expansion be funded?
17 How will our investment grow and how will it be diluted
 by further share issues?
The deal
18 What percentage of the company is on offer?
19 At what price?
20 What sort of shareholders are required? Passive
or active. With specific skills, expertise, contacts?
21 How will investors unlock future value?
22 What will be the return on equity?
23 What are the risks of losing the investment?
* Yes, I know that the owners, logically, own 100% of the issued capital. However, a founder presenting 
a plan might have spent his entire savings and mortgaged his house in return for 10% of the equity, or 
he might have risked almost nothing in return for 90%. A big difference in perceivedcommitment.
Figure 12.1 The things that they want to know!

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