Why Businesses Fail: Business Plans & Financial Models

Welcome to the Why businesses fail series. This is the fourth of five blogs that delve into the reasons for businesses failing and offering solutions. This series was launched by Lucy Robinson of Birkbeck Futures and Ghazala Zia from Windsor Swan. In this blog, they share why having a carefully considered business plan is essential to the success of your business.  

Lucy Robinson is the Employability Consultant for Business and Enterprise at Birkbeck Futures. She runs the Pioneer programme for aspiring and early-stage entrepreneurs and hosts an enterprise series on the #FuturesPodcast.

Ghazala Zia is a Venture Capital Advisor at Windsor Swan, a boutique London business advisory firm. She has an extensive legal background, and currently specialises in advising start-ups of all stages on funding, strategy and business analysis.

We all know the importance of a decent pitch deck when it comes to presenting a business idea to investors, but ultimately, they’ll be looking at the detail behind the pitch when making their decisions. Once you’ve started your business and got a few customers, you should be looking at your business plan and preparing it for an investor. This seems early but is the right time because that’s how long it takes to prepare for investment.

Investors might not ask for a business plan straight away, often they’ll request to see this after a few meetings. Entrepreneurs often wait until they’re explicitly asked before creating a business plan, which isn’t setting yourself up for success.

In reality, a business plan is a living, breathing document, not just something you rustle up on request for the purpose of your funding application to an investor. Showing an investor, a rushed, poorly considered, or insufficiently detailed business plan won’t fill them with confidence.

A detailed and carefully considered business plan isn’t just important for impressing investors – it’s one of the most important tools in your arsenal as an entrepreneur, and when used correctly it can be incredibly valuable for planning ahead, making decisions and staying on track.

The business plan should work for the life cycle of the business, which is approximately 3-5 years. Consider the milestones you’ll reach and issues you’ll face within this timeframe. It should be a professionally written document that you and your team refer to time and time again, meaning that everyone is literally on the same page. It’s not static, and should be amended as you go along. This allows you the flexibility to adapt to new circumstances and continue planning ahead.

As well as your business plan, you also need a detailed, well-evidenced and realistic financial model. The first question to answer here is that of why your business needs funding in the first place. Where are you hoping the business will go in the next 3-5 years? What specifically will the funding be spent on? How have you arrived at these costs? How will the meeting of these needs lead to more growth and profit? Specificity is needed here, as investors awarding significant amounts of money will want to know exactly where that money is going, and how it contributes to their return on investment.

You also should be proportionate and realistic about the amount of funding you ask for. There’s no exact rule about how much funding to request, as it ultimately comes down to your planning, but you shouldn’t expect to waltz out of your first investment meeting with one million pounds. It’s speculative at the early stages, but you can come up with a good financial model that’s relevant to the type of investor you’re approaching if you take the time to look at the detail of your business. Seeking the guidance of a financial advisor is a good step to take here, as they’ll know the right questions to ask you.

When it comes to your business plan and financial model, sit down and spend a lot of time on these. This is why investors often prefer to back entrepreneurs who’ve already tried and failed, because they know the steps to take and the questions to ask themselves.

Read more from the Why Businesses Fail series:

 

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