Why Business Plans Get Rejected

Why Business Plans Get Rejected

By David DuWaldt

December 20, 2008

With all the news about the difficulties the Big Three auto executives had in securing financing from the U.S. government, it is good to know that middle-market business owners do not need an Act of Congress to get funded. However, you can be assured if you are looking for financing in today’s market — every aspect of your business will be examined in detail, including your business plan.

Even with a great product or service and a long list of customers your business may not receive the desired funding. Prospective investors receive so many business plans each year that weeding through them with only a cursory review has become a standard practice.  In order to ensure your business plan gets read by investors, it will need to stand out. From the investor’s point of view, some of the more common problems with a business plan include the following:

Unrealistic Claims About Competition or Risk

Everyone has competitors, so to claim that you have no competition will almost certainly cause investors to conclude that you do not have a firm grasp of the market. The “Competition” section of your business plan is your opportunity to list your strengths as compared to that of your competitors.  Identify the ways that you can compete and accentuate your competitive advantages.

Do not try to claim that your business has no risk.  Instead, try to emphasize how you plan to minimize or mitigate risk.  Be able to back up your claims by showing the research that you have done on both the competition and risk.

Spelling, Punctuation, and Grammatical Errors

A poorly written business plan is a reflection on the leaders of the company. When investors see a business plan with spelling, punctuation, and grammatical errors they immediately wonder if the managers are really qualified to run the company. In the minds of investors, this carelessness in writing a business plan could also mean the managers are careless in other areas, such as operating the business.

Content and Formatting Errors

Your business plan should be written in the proper format with headings, the required sections and the appendix.  Both content and presentation should be error free.  Charts, tables, or graphs should not contain missing labels, incorrect units, or the wrong terminology.  If investors can not easily locate a section such as “Management,” they may decide to reject your plan and move on to another one.

Incomplete or Vague Information

Your business plan should include information for all areas that are standard to your industry.  These areas include customers, products and services, operations, marketing and sales, the management team, and the competition.  The plan should also include information about industry trends. Finally, your plan must include detailed financial forecasts, cash flow and income statements, as well as annual balance sheets.

Writing a business plan is hard work.  Even if you have a great idea to start or expand your business, you’ll need to do the research and investigate everything you can before you even start writing the plan.  Investors look at business plans as a form of “road map” for the business.  If they see that you can not put together this road map for them, then it is likely that your business plan will be rejected.

Sourcing capital for business acquisition, recapitalization or simply growing the business will be a challenge for the next 12 to 24 months. A bullet proof business plan is just one component in securing capital resources. Adding an investment banker to your advisory team will help smooth out the wrinkles inherent in structuring a financing package that meets your needs for 2009.