Category Archives: Business Angels

Business Plans are worthless and a con

In talking to entrepreneurs the subject of business plans often comes up. While some have excellent plans, others haven’t and feel that business plans are a complete waste of time and just there to line the pockets of consultants.

I think the issue is that the phrase “business plan” has become over used and lost its meaning, conjuring up complicated and costly documents that have no real practical help. Just another form that has to be filled in.

However if you were to ask whether someone has a plan for their business, not a “business plan”, but simply do they have a plan for their business, then most will say yes of course.

Few would imply that they have no idea of what their business is selling, the market it is in and what its aspirations were, even if it’s not written down but just in their heads.

When communicating to potential Investors or applying for a loan however they will want it written down in order to decide whether it is something they are interested in and to filter all the many approaches they receive.

They can’t see or talk to everyone, they need to look at something to decide if the opportunity is in a suitable market area and has sufficient quality that they will then invest time in following up.

That has lead to the structure that we now call a Business Plan. But if you are not applying for funding is there any point in writing down the plan for your business?

Well yes. Because the discipline of having to write down your thoughts for the business is a great way to force you to put in place actions and ideas that will develop your business.

While it’s all in your head it is easy to be fooled that you have this grand plan. Start writing it down and get some detail into the woolly thoughts that you have.

If it is not for funding but only for you, it can be in any format and as long or short as you wish. An action list that goes beyond a few months is a business plan.

So is planning your business worthless? If applying for funding is it unreasonable for the potential Investor to ask for information about the business and its plans in writing so they can read it?

Other resources:
Writing business plans for business angels

Marketing plans

The Business Angel – a hidden treasure of resources

Happy New Year all. Time for reflection and to reinvigorate ourselves. Hope 2014 is a great year for you.

Thought I’d share a little known resource that may be of interest to people. We’ve put in one place good information for both entrepreneurs and Investors including some great tips from active Investors, worth a look…TheBusinessAngel.org

There’s pointers to many other resources as well and if there is anything we’ve missed, let me know, we’ll add it in.

Top 8 mistakes when seeking Investment

Investor reading business plan At Company Partners we talk to a lot of Investors and we often get the same observations about what Investors like and don’t like.

Although I normally try and accentuate the positives to be learned, there are valuable lessons from the goofs to be avoided, here’s my top 8 mistakes when seeking an Investor:

You know it all, any advice about your product, strategy or sales projections is actually criticism and must be defended.
The most important thing is to talk in detail about your product or service, you haven’t got figures but the market is begging for it and the sales will be enormous.
There isn’t a business plan, that’s not your expertise, you just want to get in front of an Investor and they will jump at the opportunity.
Mails and any communication with Investors are perfectly all right with typos and all in lower case or “text speak”, it’s your idea not your spelling they should be interested in.
No work has been done to prove the concept, you’ve not the money, expertise or contacts to do so, that’s why you want an Investor.
Although the business hasn’t started yet and has no revenue you want £100k for 20% of the business.
Good news you’ve found a potential Investor, but his demands of equity are unrealistic, after all it’s your baby we’re talking about.
You don’t have any idea how much investment you need, or what it will be used for, you just know you need someone to invest.

Let’s face it, it’s hard to know what is needed or what to avoid when you are seeking investment for the first time and we shouldn’t diminish the hard work entrepreneurs do in looking to grow their business. It helps to learn from others mistakes though.

Case study – finding a business partner

With Peer-2-Peer lending growing in popularity, Norman Akram realised that there was an opportunity for a company whose business model protects lenders against bad debt (most Peer-2-Peer loans are unsecured).

A well tried model already existed in the form of pawnbroking and Norman set about developing a website platform for lenders and borrowers to interact with one another, allowing loans to be secured by suitably valued goods.

Although Norman had the concept, he required partners with complimentary skills such as finance, management and marketing.

Having tried other places he turned to Company Partners and joined as a member to look for either a business partner or an Investor for his start-up.

That’s where Richard Luxmore came in. Richard had joined Company Partners as an Investor and had a background in accountancy and management, but was looking for a new and interesting challenge.

After finding each other on the site, they progressed through emails and then Norman and Richard agreed to meet up and look at how they could work together.

How did that meeting go? Well the proof is in the launch now of one of the most innovative and fast growing businesses I’ve seen for awhile; Fundingsecure.com .

There are some lessons to be had from this success.

Do your research upfront. Norman had already gathered accurate statistics and information on competition and the market. When he met Richard, he could present the facts, not just a hopeful idea.
Have a vision of what you want to create. Then when inevitably you have to be flexible in altering aspects of the business you can refer back to that vision to ensure you make the right changes.
Start with a partnership heads of agreement or get something down in writing of how you will work with your business partner, but be prepared to be flexible in changing it as you discover what works.
Build a team of good people around you, be flexible (that word again) with your infrastructure in order to maximise each person’s contribution and to accommodate those good people.
Don’t have high fixed costs, such as premises or cars and do as much as you can yourself. Preparing some external work like web site design before the programmers start and preparing legal documents that the lawyers could then review all help precious start-up funds go further.
For those thinking of a web based business, be aware that offshore web development may seem cheaper, but in a start-up you need to be able to sit down and talk with your developers, Fundingsecure changed from an offshore developer to a local one to ensure communications worked.

If you want to find a business partner like Norman and Richard, have a look at what Company Partners does for its members.

How to write a business plan – the structure of the plan

Last week I looked at the preparation needed to write your business plan, now we are laying out the structure of the plan.

Not all of the following will be needed for every plan and you must decide what to include based on the use that the business plan will be put to. For instance Business Angels will want to see a section on the Management Team, however if the plan is only for you to run the company you could easily leave that section out.

Main sections of a Business Plan:

1. 0 Executive Summary

Normally 2 to 3 pages that clearly states what your business does and summarises the main elements of the plan. If you are looking for investment, the Executive Summary is the first information that Business Angels or banks will want to see. They need to quickly understand your business and its attractiveness before they will ask see the main plan.

Although it comes first in the structure, you will write it last. You can’t summarise what you haven’t yet written.

In the Executive Summary you should state what your companies Objectives or Goals are and even your business’s Mission. Mission Statements are not just the remit of large corporations; they also give direction to fast growing businesses.

Remember the above Exec Summary is done last. First you layout the main Business Plan sections as below.

2.0 Company Summary

Describe where your business is located, is it a start-up or how long it has existed, what services or products does it supply, and to what group of people.

Include in this section who owns the company and the history of the company.

3.0 Products / Services

This is the section most people find the easiest. Everyone enjoys talking about their own products. However apart from describing your products & services do include these essentials:

- What makes your offering different and more attractive than the competition

- Where do you source your raw materials, or service providers from

- How you distribute your product/service What about after sales support

- What about after sales support

4.0 Market Analysis Summary

You will already have some knowledge of your market, but now quantify it. Do some book/web research and get real numbers and statistics. Being able to refer back t0 the sources of your information is vital when talking to Investors, it gives credibility.

Even if not looking for investment, you must base your plan on actual information, not a personal/general impression that may in reality be far from accurate.

Do your own market research, ask people who you believe to be your target customers for information and if they would buy your product. Don’t just ask friends and family.

4.1 Market Segmentation

A key part of your marketing is to sub-divide your potential customers into groups that have some similarity. You haven’t got the resources or funds to market to everyone, so create target groups and you will then be able to decide how best to reach them.

4.2 Target Market Segment Strategy

Look at how understanding the different needs and attitudes of your target demographics may be translated into a strategy.

By having segmented your market, the messages that you give to each of these groups can be very different and delivered in a way that attracts that group of people.

You may also decide to make differing versions of your offering for different segments of your market.

4.3 Industry Analysis

Describe the industry in general and it’s size. Specifically talk about the competition in the industry and how you compare. Describe buying patterns; are sales seasonal for instance, do they depend on other factors, how long is the decision process to buy.

Is there price sensitivity, or is quality and service the most important?

5.0 Strategy and Implementation

5.1 SWOT Analysis

Strength – Weakness – Opportunities – Threats analysis. You may not want to actually include this here. It may be better in a appendix, or kept separate simply as part of the background to understanding your business.

5.2 Competitive Edge

These sections are about implementation, so think about how you will put in place strategies and activity to take advantage of the differences that your products/services have.

5.3 Marketing Strategy

Specify your strategy for reaching your target market and the main actions needed to carry out these strategies. You should include PR, Direct Marketing, advertising, sales calls, customer referrals, special deals/promotions, endorsements, partnerships, sponsorships etc.

Think about your resources, can you afford to advertise a bit, do you have someone who could make sales calls, try getting free PR if possible

You have a great product/service, but no one will buy it unless they know about it. See our resource on making a Marketing Plan and then include the main elements in this business plan.

5.4 Sales Strategy

Will you sell on-line, have your own sales force, franchise or not, will you have distributors, a store, a warehouse? A restaurant, bar or cafe needs premises to sell from. Where and what location, how about “foot-fall” for high street premises.

Will you sell in bulk, or minimum orders, discounts, pricing and loss-leaders, all the nitty-gritty of how sales will be made has to be thought out.

5.4.1 Sales Forecast

The finance section of most business plans includes 3 years of forecast. The first year by month and the next 2 years as separate yearly totals. Some industries may have longer forecast needs, but not normally.

People find this section hard to do, but you have to give it your best estimate. Note down the assumptions that you made in coming to that estimate, so you can justify it. When operating you can compare actuals to forecast and look back and see if any assumptions needs changing.

Sometimes you can get an idea of your likely sales by looking at your competitors, or competing products & services.

6.0 Management Summary

If the plan is only for internal use, you will not need a full biography of the management team of the business, which you will certainly need for Investment purposes. Even if it is a one person start-up, you will need to say something about your background that makes Investors believe that you are capable of being successful with their funds.

There’s no need for a full CV in this section, just a summary, picking out relevant details.

In this section also you can say how the personnel levels will grow over time and what skills or positions will be expanded.

7.0 Financial Plan

As mentioned with the sales forecast, the financials are normally the first year by month and then the next 2 years as a yearly total.

If you have the sales forecast ready, all you need then as preparation are the costs of the business. Typically these are split between fixed costs and variable costs. The putting together of the financial side of the business can be done on a spreadsheet for small businesses but larger concerns will need to use an accountant to translate the forecast and costs into full financials that include a balance sheet, cash flow and Profit & Loss accounts.

Alternatively, there is software around that will guide you through putting all the sections of a plan together and also produce the full financial section. Try this business plan software, we’ve looked at many and this turned out best in our review.

Finance sections to include:

- Important Assumptions

- Break-even Analysis

- Projected Cash Flow

- Sales Forecast

- Projected Profit and Loss

- Projected Balance Sheet

It’s important not to get stuck in any one section of the plan. Do your best and move on, keep momentum going. If possible bounce ideas around with your team, a business partner, or a friend. If you need a Business Partner, Mentor or Investment don’t forget to join Company Partners.

Start or grow your business now – what’s holding you back?

Start and grow your business in 2013

It’s a New Year and the entrepreneurial juices are flowing. It’s time to start the business that you’ve been talking about for years. What’s stopping you?

Or maybe you’ve already got a business but it’s not growing as fast as you had thought, what has to happen to make this year the year it doubles its revenue?

I’ve talked to thousands of prospective entrepreneurs and small businesses over the years and surprisingly it’s not always lack of funding that is the biggest hurdle. It’s fear of the unknown.

Whether you are dreaming of starting a business or hoping that this year your business is going to somehow take off, it is much more comfortable to continue dreaming than to do something about it. The dream is warm and cosy; we can lie in bed and feel comforted that our lives can change for the better at any time. But if we take action, what if it doesn’t work out? There’s no longer a dream just trouble.

When I started Company Partners, one of the key drivers was to allow people to find a business partner with complementary skills and a like-mind. Having a partner will motivate and encourage anyone starting a new business. It’s quite daunting by yourself.

For existing businesses, sometimes it’s not a new (expensive) employee that you need but someone else with ideas and energy that could join as a risk (and reward) taking partner to grow the business.

Yes having the funds to start or grow a business is also important and that’s why we have such a strong Investor community on Company Partners, but the first thing is to stop dreaming and do it.

There are things you can do to get the ball rolling. Write down your ideas for a business, or the way that you would like to grow, think what you need to do in order to make this happen. Dare I say, join Company Partners and search for a business partner, or Investor.

The key is to get started. Don’t wait, have drive, energy builds on energy.

Do Non-Executive Directors get paid?

Non Executive Directors (NEDs) are a valuable asset to any growing company, but although they may be very experienced in their market area, for some it’s the first time that they have acted as a Non Executive Director of a business.

The business also may be new to taking on an NED, so between them there is a lot of uncertainty of how the time and efforts of a Non Exec should be rewarded.

In Company Partners we’ve put a resource page on Non Executive Directors that may be helpful. www.companypartners.com/content/resource/Non-execs

In that we give an example of a real business (approx £1M T/O), which gave a 1 or 2 percent share of the business to each of two non-execs (the full-time directors/founders owned the rest), based on this they paid the non-execs a share dividend equating to about £400 a month. This paid for the non-execs time and ensured they had a keen interest in the company.

For complete start-ups however, who may not even be paying the founders a wage, it can be difficult to get a Non Executive Director on-board, since there is no revenue yet to reimburse the NED for their time and expenses.

This is where the young company has to make what they are doing interesting and show that there will be rapid growth, after which the Non-Exec would be able to be compensated. In the mean-time a small percentage of shares could be made available.

It is best to first have a trial run of a couple months with each other to ensure a good fit. Also phase any share holding in over a period of time, making sure that the shares are recoverable should the NED leave. There are specialists who can help with drawing up share investing agreements.

For the Non-Exec, working with a young company can be a fantastic experience, seeing it grow and feeling that you have helped to create something of real value. Being flexible in how you are rewarded will enable the growing company to afford your time.

But to answer the original question, do Non Executive Directors get paid, yes mostly they do, how you arrange that can be agreed between you.

Business Angel or Venture Capital – which to use

Just back from giving a business plan workshop to a group of MBA students, many of whom were keen to start their own business. So naturally the subject of how to fund a business came up.

One of the areas that regularly seems to cause confusion with the students is the difference between Private Equity, Business Angels and Venture Capital.

At first glance they may all look the same. But there are differences and which you use varies with situation.

Firstly let’s clear up the term Private Equity. Although it’s a generic name for having a company owned by a person or group of people where the shares are not in the public domain (ie not on the stock market). Private Equity in investment terms tends to mean those large investment companies that buy up the majority of shares in a significant sized established business.

Most entrepreneurs will be more interested in Business Angels and Venture Capital companies where they both invest in younger businesses and don’t generally take the majority of shares.

The main difference between these is that Venture Capital firms are investing money gathered from other people who have bought into a Venture Capital fund. Whereas Business Angels are investing their own money.

This is an important difference because it means that Venture Capital firms have to invest in less risky opportunities. Hardly ever do they invest in start-ups, preferring to be involved after the business has proved itself and is ready for high growth. To cover their overheads these also tend to be larger opportunities.

Since Business Angel investors are using their own money, they will be prepared to take slightly more risk, start-ups and early stage companies are more suited to these individual investors. Occasionally in order to share risk or to be involved in larger deals Business Angels will form a consortium, generally headed by a lead investor.

Business Angel Investor’s names and contacts are not in a “yellow pages” of investors, otherwise they would have people camping on their doorsteps, never mind the security issues, they tend to use intermediaries to act as gatekeepers and screens.

Some of these intermediaries are expensive to use, which is why Company Partners set itself up as a “members site”. For a small monthly membership you have access to a full database of Business Angels.

SEIS Seed Enterprise Investment Scheme

As promised the chancellor has confirmed in his March budget documents that there will be a Seed Enterprise Investment Scheme (SEIS) starting from 6th April 2012, although it didn’t get a mention in his actual speech.

Just to clarify for anyone confused by the similarity of SEIS with an existing scheme, there is already an Enterprise Investment Scheme (EIS) which targets larger businesses rather than start-ups.

This big brother to the SEIS also received good news in the budget, with the qualifying size of a company moving from a maximum gross asset size of £7 million with 50 employees, to £15 million with 250 employees. This means later stage investment prospects will now qualify for EIS (see EIS for more information).

The basic information that I covered on my last blog on the SEIS remains unchanged, so I won’t go over that again. Suffice to say it is worth ensuring that your new business qualifies (not all industries do – eg. Property development and financial services) and publicise to potential Investors that they can get tax relief by investing in your business.

Clearly for Investors it’s a no-brainer that you should utilise this new scheme for your investments.

So how do you make use of it?

Luckily those nice people at HMRC have put together a fairly comprehensive web-page that explains the SEIS and how to apply for it. See http://www.hmrc.gov.uk/seedeis/index.htm

They are careful to say that although the scheme starts on the 6th April, until the budget gets Royal Assent (around July) it isn’t set in stone, but it’s unlikely to alter in my view.

The HMRC web-pages have a section on how to get advance assurance that your business and the shares that you are going to issue to an Investor will qualify. It can be useful to do this in making your opportunity attractive.

SEIS Start-up Investment

Business Investment SEIS (Seed Enterprise Investment Scheme) is a new government incentive to help UK start-ups and young companies.

It starts in just a few weeks on April 6th, so now is a good time to start building this into your funding plan for your start-up. Or if you are an Investor, have a look to see if this will be applicable to the businesses into which you are investing.

There has been a similar incentive around for some time now (see EIS) but the SEIS is specifically targeting new companies.

The details will come out in the Chancellors budget speech next week (21st March), but these are the basic points:

The business must be new, or 2 years old or less, with fewer than 25 employees. It must have less than £200,000 of gross assets and not quoted on a stock market.
Directors or executives cannot use the scheme to invest in their own companies.
You can raise up to £150,000 of funding through the SEIS, but mustn’t have already raised any money under EIS or venture capital trust (VCT) schemes. This is in total not per year.

An Investor can have up to 30% of a share in the business under this scheme. The SEIS makes it attractive for an Investor to fund a start-up because of the number of tax reliefs that they would receive:

Investors can claim back income-tax of 50% of the amount invested.
An Investor can have a ‘capital gains tax holiday’. Capital gains tax (CGT) can be avoided on any asset sold during the financial year 2012-2013 as long as they reinvest the proceeds in a SEIS eligible start-up in the same year.
The combined effect of the CGT holiday and the income tax break gives relief of up to 78% in the first year.

There is as you can imagine, a number of detail points that would need to be investigated but this should whet your appetite. It’s well worth while finding out more about the scheme either to make your new business attractive, or to maximise your investment returns.

After the chancellor has given final details next week, I’ll do a summary here and point you towards the required forms that the revenue will need to be completed.

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