Why Business Plans Get Rejected

Why Business Plans Get Rejected

If you have a business idea you really believe in, with all your market research pointing to the probable success of the venture, you may think you are ready to win funding. According to Sweeney, you need far more than self-belief to help your business to succeed.

And it all starts with getting your business plan right, by thinking about it from a perspective other than your own. One of the major functions of a business plan is not to raise funds, but to enable investors to decide whether or not they would like to meet you to find out more.

These are the common factors that turn investors off a business plan without even meeting you:

Your business does not fill a need

People have varying needs and pain points and these are what products and services are expected to help them with. Some people are unable to move house or office themselves; some have difficulty in navigating their obligations with the introduction of VAT to the region; and others need tech help for a variety of reasons. There is an endless list of needs that people are ready to pay to be filled and to make their pains disappear. The bigger the pain and the better your product or service is at alleviating it, the greater your market potential. If your business plan does not explain what need your business wants to fill and how you will fill that need, you will not attract funding interest.

Trying to be 'Master of all things'

Many early stage companies believe that more is better. In their business plans, they describe a huge range of products or services they intend to start with, or boast about how their offers can be applied to multiple, diverse markets. However, what investors want to see is a more focused strategy, especially for start-ups with little or no previous experience in any market. They prefer to see a single product or service that solves a problem in a single, large or growing market that can be sold through a proven distribution strategy.

No clear go-to market strategy

Another reason for many business plans getting rejected is that they fail to explain the sales, marketing and distribution strategy. Investors need to see your detailed plan of approach for these three areas when assessing your business plan.

Business plan areas

• Who will buy your product / service?
• Why will they buy it?
• How well you reach them?

Overly technical terminology

While you should talk about your tech, use technical words moderately in your business plan. Focus on demonstrating your understanding of the business and the industry, as overdoing technical jargon and terminology is one of the most common reasons business plans don’t get funded. Bear in mind that investors are interested in your technology only in terms of how it solves a big problems that people will pay for, how it is better than competing solutions, and how it can be implemented on a reasonable budget. You do not need a highly technical business plan to explain these points.

No risk analysis

Funders want to balance risks and ROI. One of the things they therefore look out for in your business plan is an explanation of the risks inherent in your business and how you plan to mitigate these risks. These include market risks, operational risks, technology risks, management risks, legal risks, and so on. A business plan that doesn’t contain this is an obvious candidate for rejection.

Poor organization

Your business plan should follow a classic format, which places the executive summary first, followed by your company overview, at the outset. This works well with how investors typically scan through the document and assess it. Trying to be innovative in this regard could be counterproductive.

Too long

most investors are too busy to read through long business plans, so keep your business plan as short as possible, without leaving out any of the important details that will be of interest to them.

Poor spelling and grammar

This can turn off investors quickly if your writing is full of errors. The impression you give is that if you cannot avoid such mistakes in your business plan, you will probably have an inattention to detail in your business.

If a potential investor sees a poor writing style, they will wonder if you will be sloppy when running the business itself

Risks and Solutions for business plans

The business plan is badly written

The risk: If a potential investor sees poor spelling, punctuation, grammar and an inappropriate writing style, it will be tempting to wonder if you will be equally sloppy when running the business itself. Are you good with ideas and poor when it comes to execution? Do you only see the big picture and miss the finer details? Or do you just not care enough about getting things right? If your business plan writing is not of a professional standard, you risk losing credibility and overshadowing your business idea with doubts about you.

The solution: Investors are able to tell a lot about your business management from the way you present your business plan. And you really need them to have confidence in you, as well as the business idea. So, before you put your plan forward to any kind of lender or investor, check every word carefully. If perfect written English is not your strong suit, get a professional business plan writer to work closely with you to produce your document.

The presentation of your business plan is unprofessional

The risk: If you are not experienced in producing a business plan, you risk presenting your data in a visually jarring or uncomfortable format. Mismatched page number references, too many fonts, images with no captions, missing headings and inconsistencies will all jump out at the reader. An investor may only spend minutes looking through your plan and getting an initial feeling about investing in you, and taking these risks simply makes you look careless, incompetent and unprofessional.

The solution: Whether your business plan needs a professional to help you write it, or someone to proof read your finished document, do enlist the help of someone to take care of the potential problem issues.

Your business plan is either too vague or too detailed

The risk: A business plan with gaps about how you plan to target your market, achieve sales, or otherwise operate the business effectively, may seem poorly thought-out to potential investors. Too much rambling detail, especially technical detail, might seem like a good way to convey your passion, but in reality, it can be boring and off-putting to read. Tech start-ups need to be particularly wary of this!

The solution: Get business plan advice from someone who is experienced at putting themselves both in your shoes and those of the reader. Just that little bit of impartiality can make all the difference in the final quality of your business plan.

You need a second, impartial opinion on the business plan, which can often help make the difference between funding success or not

Being honest about your assumptions

The risk: If you do not make it clear where you are using assumptions, and justifying them strongly, you risk your business plan losing credibility.

The solution: Link all your assumptions to industry research wherever possible, based on what is already proven or benchmarked within your industry.

Your business plan research is poor

The risk: Once they are interested by your business plan, if an investor’s own research reveals issues you have not covered, you could face losing credibility and therefore the investor’s interest. Failing to research the competitor environment is a common mistake.

The solution: Research every aspect of your business plan well – your market size and potential, market trends and evidence for the gap in the market for your offering. The research should be exhaustive, so do enlist a professional business plan helper if you need to, who will undertake your competitive market analysis, if needed. Remember, the quality of your research is a major factor in the ability of your business plan to attract finance - and for your business ultimately to succeed.

University of Pennsylvania - Business Plan Writing  

5 Top Mistakes in Business Plan Writing

Too much hype

Investors are impressed with a solid business idea, backed up by thorough market research data and a realistic financial forecast, not with words like ‘best, greatest’ and ‘unique.’ A well-researched market study will be far better at convincing an investor to back your idea than any amount of hype.

Ignoring your weaknesses

Investors know that every business has its weak areas, so address them, rather than ignore them in your business plan. Without focusing on your weaknesses too much, detail your strategy of how you will address any weak points in your management team, sales/marketing strategy, or other problems.

Bad research

All research must be from up-to date sources, independently verifiable and with the references to any cited studies clearly stated. When investors conduct their own due diligence, it should resonate with your research, not contradict it.

Failure to define your target market

Market If your product appeals to a mass audience, you still need to break your target market into specific market segments, define your justifications for targeting these segments and explain in detail how you will target them.

Poor understanding of your competition

If your business plan claims that you have no competition, this is a red flag for potential investors. Some investors even stop reading the plan at this point. If you are right, and you truly have no competition, it may indicate that there is no market for your offering. Do your competitive market analysis research thoroughly and present the options that your target market currently use. Be sure to demonstrate why you can enter the market with an attractive alternative.

Investors know that every business idea has its weak areas, so ensure you address these well rather than ignore them in your business plan