Opinion Sur Joven

Most business plans are created to obtain funding, whether from financial entities or private or institutional investors. The most important thing is what the plan conveys. In some cases, an excellent piece of writing based on not such a good idea may allow the investors put their trust on the business project creators. On the other hand, an excellent idea with a bad business plan may cause the investors not to rely on the project and take away their support.

Obviously, adjustments must be made depending on the people who receive the project: if they are large international investors, the plan must be short because they will surely have less time to analyze it; if the plan is submitted before local investors, who analyze a larger number of plans, it can be more complete.

Some of the criteria investors have in mind when selecting plans are the following:

 The strength of the proposal and a real and sustainable competitive advantage.
- Profitability ratios over equity (net assets of debt).
- Does the management team have the necessary qualities and skills for the proper implementation of the plan?
- How high is the probability of needing further capital injections than those specified by the plan?
- Capital appreciation potential.
- Exit strategy.

Experts recommend…

Jorge Grad, former Business Manager at IBM Latin America and member of the IAE Angel Investors Club (a pioneering angel investment group in Argentina), numbers ten aspects he seeks to discover in a business plan as an investor:

1. Wide knowledge of the business and the market. 2. A detailed and realistic pre-money valuation work. (Company valuation) 3. Clarity regarding the actual competitive advantages. 4. Intelligent identification of risks. 5. A clear and planned exit strategy. 6. Value generation vision. 7. Income generation vision. 8. A strong and committed management team. 9. Compatible codes, attitudes and values. 10. Determined and genuine scalability ambitions.

“Scalability indicates that the business project is reasonably multipliable by ten in four years”, he explains. Ultimately, the aim of analyzing a business plan is finding three keys, “global markets, sustainable competitive advantages and product affirmation”.

María José Soler, director of Operaciones Endeavor Rosario (Argentina) and Entrepreneurship professor at Universidad Austral (an Argentine private college), explains what she considers to be the five most common challenges when writing business plans:

1- Less is more. A business plan shouldn’t be longer than thirty pages. Too much information may lead to generating an excessively long document no one will be willing to read. 2- Simplify your financial projections down to two pages. Focus on the key numbers to allow the investor understand the business: Five-year cash flow projection, IRR (internal rate of return), break-even point and repayment period. Investors pay attention to “big numbers”, not details. 3- Include assumptions after estimates. They are much more important and informative than estimates. 4- Prove you know the keys of the industry and why customers will buy your products or services. 5- The plan can be changed. The worst thing an entrepreneur can do is to write a plan and then follow it step by step only because it’s “the” plan. Many successful companies have modified their business plans during the startup. One of the most important characteristics a business plan must include is flexibility.

Edgardo Donato, Director General of Fundación Mundos E (a foundation promoting entrepreneurship) and Instituto América Emprende, acknowledges the importance of business plans, though he admits that very few companies start running with a formal plan. Perhaps this is one of the causes for the high “infant mortality rate” of companies. “In foundation, Mundos E, we give high importance to a concept that comes before the business plan: the business model. In a simplified manner, it aims at answering four essential questions: What are we selling? Who are we selling it to? How can we reach customers? How can me make money out of this?”

And he adds: “If an entrepreneur team is able to model a viable and profitable business, then creating the business plan that allows accessing capital suppliers is simple”, Donato concludes.

Nothing ventured, nothing gained

It is important to have a defined plan at the moment of starting an economic activity. The high mortality rate of new companies proves it. According to data provided by an Argentine association for the development of small companies, 60 per cent of entrepreneurships in said country die on their first year. Only 7 per cent makes it to the second year, and 3 per cent to the fifth.

In spite of it, the Global Entrepreneurship Monitor -a research conducted in several countries to show entrepreneurial activity levels- indicates that one out of seven Argentinians aged between 18 and 64 is involved in some sort of entrepreneurial activity. Our country is once again among the ten most entrepreneurial countries in the world.

For that reason, if you have a good idea or a good plan and you don’t know how to finance it, you have an option. Angel investors, venture capital funds and numerous non-governmental organizations are willing to provide support and financing. Business plan contests such as NAVES (organized by Argentina’s Universidad Austral and IAE), BID Challenge (conducted by the Inter-American Development Bank) or Best Business Plan (by the Junior Chamber International) are good opportunities you could take to gain knowledge through practice, that is, to learn as the engine starts running. Opportunities are there; all you have to do is take them.

Illustration: Lorena Saúl

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