The Common Mistakes to Avoid in a Business Plan

A lot of work goes into preparing an investment pitch. Between conducting due diligence, marketing your start-up, and closing a financing transaction, you may have more things on the go than you can keep track of.

However, a lack of preparation can cause important aspects your pitch to fall through the cracks. And it’s hard to know what will make or break an investment if you’ve never experienced the pitching process before.

While we already have a guide to help you deliver your pitch, it’s also imperative to anticipate and avoid any pitfalls which may arise after you’ve left the room and investors study your plan in greater detail. The following tips will help make sure you’re as prepared as possible.

Ten common pitch mishaps

1. Lack of focus

Ensure that you clearly and confidently define your core revenue model and target markets.

2. No executive summary

Distill your business plan into key highlights so investors don’t get lost. Your executive summary will tell investors what to expect from the presentation, provide a copy of the presentation itself, and conclude with an opportunity overview.

3. Too much detail

Ensure you’re conveying the most important and pertinent information to the investors’ decision. Don’t dilute both your financial and non-financial value propositions.

4. Unrealistic forecast

Factor risk in your financial forecast and include this with your final assessment. A lot of time will pass from the time you’ve made your presentation, and investors will hold you accountable for any variances from actual results. Above all, avoid financial forecasts that project a unrealistic growth rate of revenue or the so called “hockey stick“ projection.

5. Sources and use of cash

Clearly define your sources of cash (including capital expenditures), working capital requirements, cash reserves, debt / liability payouts, and owners draws.

6. Financial model

Include profit and loss, balance sheets, and cash flow statements, along with a sensitivity analysis. At minimum, the next fiscal report should be provided on a monthly basis once you begin working with investors, and quarterly thereafter.

7. Human capital

Include an organizational chart. Focus on key management bios as well as longer term plans for identifying, attracting and securing key human resources for management and below. This is critical.

8. Execution Risk

Always consider the risk of execution from an investor’s perspective. In other words, is your identified level of execution risk realistic, attainable and aligned with investors expectations?

9. Milestones

A three- to five-year timeline can help investors visualize your future success within their desired exit window. Identify past and future milestones and ensure these are measurable and achievable. Investors will want to see an exit strategy, so remember to include liquidity risk as well.

10. SWOT analysis

Be transparent about your strengths, weaknesses, opportunities and threats, especially in terms of your competition. Don’t pretend you’re perfect. Investors want to know they’re making an informed decision.

Weaknesses and threats can demonstrate gaps and limitations, emerging competitors or negative press coverage, but you can also leverage strengths and opportunities — including patents, skilled talent and the growing need for your business — to differentiate yourself from the competition.

Building a financial forecast

A robust financial model can help you build a financial forecast which satisfies investors’ desire for detail without treading into the domain of the unrealistic. Include balance sheets along with cash flow and line item details like revenue verticals, operating expenses, capital expenditures, and research and development costs.

Investors will want an idea of your near and long-term financial health. Address benchmarks, growth rates, profit margins and industry-specific success factors like page views or subscribers. You’ll also want to address strategic partnerships and supplier quotes which could play a role in your finances throughout the year.

Contact:

Dan Porter is Managing Director of MNP’s Corporate Finance team in Toronto. Dan has more than 35 years of experience assisting public and private companies across a wide spectrum of industries develop, implement and achieve innovative financing strategies that help them reach their business and capital financing goals. To learn more, contact him at 416.515.3877 or [email protected]