When potential lenders or investors review a business plan, they are keenly aware of the risk/return tradeoff: the greater the risk involved in the venture, the greater the return demanded. Potential lenders and investors are keenly aware of the following twelve factors as they review business plans. How well does your plan score?

 

My plan describes a marketable idea.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10
 

Hypothetical customers that
exist only on paper.                      

Firm purchase orders in hand
from customers

Logic: Lenders and investors want to see proof that customers want your product or service and are willing to buy it for a price at which you can make a profit. The more tangible evidence you offer of this claim, the higher your score.

 

My plan shows good profit potential in a short period of time.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Annual rate of
return 10% or        
more

Annual rate 
of of return of
50% or more.

Logic: Because new business ventures are so risky, they are expected to earn a high return--25% annually, at a minimum. The higher the rate of return you can offer investors and the faster you can produce it, the higher your score.

 

My plan targets a clearly defined market with enough size and purchasing power to produce a profit.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

A small, specialty
market with little or
no growth potential.

A large market 
with high growth 
potential.

Logic: Lenders and investors look for businesses whose target markets are clearly defined. They also prefer large markets with high growth potential. They avoid businesses that attempt to be "everything to everybody."

 

My plan explains clearly the "competitive edge" my product or service has over rivals.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

My product is "me-too"
and poorly differentiated
from the competitors'
comparable offereing.      

My product or service
is new and unique and
offers real customer
benefits.

Logic: One key to success is having a product or service that truly is unique, offering customers something that the competition does not. Lenders and investors look for clear evidence of a competitive edge.

 

My plan shows my company's ability to control both the delivery and the quality of the product or service.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Total dependence on
outside contractors 
and mercenary sales 
force to make and
service the product.

Complete in-house 
control of all resources
needed to distribute
the product/service.

Logic: Dependence on outside contractors and sales representatives is a potential weakness--especially when the quality of delivery, installation, and service of the product is a key factor.

 

My plan shows that managers and employees have the skills and the experience to make the company a success.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Managers have never
operated a business 
of their own before 
and employees are 
inexperienced.

All managers and
employees are
experienced in
this business.

Logic: Lenders and investors don't put their money into businesses; they put it into people. Skilled, experienced managers and employees can make a business work even when resources are stretched thin and conditions are tough.

 

My business idea is not overly complex.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

A large number of complex
products or services sold
to customers who must
be educated about their       
benefits

One--or just a few--
products or services
sold to customers who 
understand their benefits.

Logic: Most successful companies start with just one product or service--or a few, at most. Trying to do too much too fast--and having to educate the consumer about a product's or service's benefits--can push a company under before it's out of the blocks.

 

My plan shows that I've made a personal investment in this business venture.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Entrepreneur has put
up "sweat equity" only
and refuses to risk any
personal assets.

Entrepreneur has
almost all personal
assets at stake.

 

Logic: If you don't believe in your own venture enough to invest at least some of your own money in it, how can you expect others to? "Sweat equity"--unpaid personal time and hard work--can be important, but lenders and investors like to see an entrepreneur with an important financial stake in the business. It's a tremendous source of motivation.

 

My product or service offers customers a long-term benefit.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Product or service could
be potentially dangerous
to the world

Product orservice
is good for the world.

Logic: Customers--and therefore lenders and investors--are more sensitive to products or services that have the potential to damage the environment or to harm people. Does your product or service offer a way to make the world a better place? Have you considered the environmental implications of its packaging and disposal?

 

My plan lays out a clear, well-conceived, workable strategy for getting this business up and running.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

No real strategy exists
- except in my head.
No time to put every-
thing down in writing ...
I know it'll work!

A well-designed 
clearly formulated
business strategy 
exists.

Logic: Nothing scares off lenders and investors faster than an entrepreneur who has no time to prepare a business plan that lays out a clearly defined, workable business strategy. Preparing a plan is an essential ingredient in making a new business venture work. There are no shortcuts!

 

My plan contains realistic financial projections covering most likely, pessimistic, and optimistic scenarios.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

No financial projections
or only "best-case" 
projections included.             

Complete financial
projections (including
cash flows) based on
clearly identified,
reasonable assumptions.

Logic: Potential lenders and investors want to be sure that the "dollars and cents" of the deal make sense, and that's why realistic projections are important. Most entrepreneurs underestimate the amount of money needed for startup. Don't get caught short!

 

My plan communicates my vision for the business and why it will succeed to potential lenders and investors in a clear, concise fashion.

    1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

My written plan is stained
with coffee drippings but, after
all, it's content that really
counts. My idea speaks
for itself.                                     

My written plan is polished
and professional, and 
so is my oral 
presentation.

Logic: Don't fool yourself. You must sell your idea on paper before you have a chance to sell it in person. Lenders and investors formulate opinions about entrepreneurs and their business ventures based on first impressions, which often come on paper in the form of a business plan.

 

Scoring:

How did you do? Use these scoring guidelines to see if your plan is likely to win financing or if you need to "go back to the drawing board."

 

POINTS COMMENTS

108 - 120 The "gold" standard. Your plan stands a good chance

  of getting funded.

96 - 107 The "silver" standard. Your plan needs some

  polishing, but you'll likely be able to attract some

  financing (though maybe not all you seek).

72 - 95 The "bronze" standard. There is a possibility your

  plan will get funded, but it will be difficult to find a

  source.

71 and below "Back to the drawing board." Funding is very unlikely.

     You've got a lot of work to do!

 

Return to FAQ's

    

Source: Adapted from Bruce J. Blechman, "Go For The Gold," Entrepreneur, April 1993, pp. 20-22.