It's rare at Envestors that we come across the perfect business plan – most fall down in some areas, and one of the key tasks we undertake with companies is to try and point out the weaknesses in their plans before it's too late. It's better to get the skeletons out early and address them before your send your plan onto an investor.

There are a number of elements to a business plan that investors look for, but below are a few top tips to help you generate interest in yours.

What the Investor Wants to See

1. Stage

Investors prefer to see an existing business which is already generating sales. This de-risks a business considerably as it demonstrates;

• the product can be sourced or made
• it works as intended
• that there are customers who want it and are prepared to pay for it at the price being charged
• that the founders are capable of selling the product and can organise themselves to run a business operation.

On exceptional occasions, at Envestors we might consider ventures ‘close' to generating meaningful revenue, i.e. within 3-4 months, but it will be harder to find an investor to match to the business.

2. Valuation

For most early stage businesses you need to expect a pre-money valuation of less than £1m (certainly under £2m), so that there is an opportunity for an investor to take 20% to 40% of the equity. The TV show Dragon's Den has shown time and time again how easily owners can over value their businesses, however the rule of thumb is turnover less than a million, valuation less than a million.

3. Management Team

A full time management team of at least 2 people is preferred, although the full team need not be in place during the fund raising. However any gaps in the management team should be identified.

Most importantly you need to have someone on board capable of looking after the money. A book keeper at minimum but ideally a qualified accountant or experienced FD (either a director or Non Executive Director).

4. Skin in the Game

Investors like to see that the management have a significant investment into the business. This needs to be more than ‘three years of lost earnings' or just sweat equity. You can't beat a cash commitment and even though you will have most likely invested during start up funding, it is taken as a positive sign if you are prepared to invest more in the current funding round.

This ensures the founders have a vested interest in the success of the business and most importantly, when the going gets tough (which it WILL do), that the management don't find it tempting to slip back into their previous jobs.

5. Potential for Explosive Growth.

Investors are looking for highly scalable, well executed businesses, with the potential for explosive growth. They are looking to make a return in excess of 10x their initial investment.

6. Qualify under the Enterprise Investment Scheme (EIS)

The UK government has a very attractive tax incentive scheme that considerably de-risks the investment for an investor should the company fail. Statistically 4 out of 10 angel investments will fail, and the tax relief afforded under the EIS scheme more than halves the downside risk for investors.

7. Exit opportunities within 3 – 5 years

Investors don't want their money locked up in illiquid businesses, and will need convincing that there will be a viable way for them to exit their investment. Note: It's all too common for us to see this covered off in the business plan with a glib one-liner saying “Exit will be through trade sale or flotation”. That doesn't exactly inspire confidence that the founders are serious about exit. If possible, provide examples of companies from your sector that have been bought out, highlight the favourable valuation achieved and give some background to the acquiring company.

Great Business Plan but then we Groan

It's not unusual for us to review a business plan which looks great initially but once we dig a little deeper, we discover flaws. Here are the top 10 worst offenders. Make sure you don't have any of these elements in your business plan!

1. Top heavy management & board. A highly qualified and experienced team/board often with senior management experience. However, they hold values appropriate for the corporate world, which don't always translate to the early stage business market. A common subset of this group is the investment banker who has raised billions in another life and thinks raising £750,000 should be easy.

2. Laughable valuation. A great business but ridiculous valuation which implies the founder isn't realistic or prepared to compromise and let go of the business.

3. Serial dabblers. The founder of the business professes to be an experienced entrepreneur who set up another business 2 years ago, and has a couple of other businesses on the go. A few have been folded and abandoned but none have successfully exited.

4. Flawed revenue assumptions / top down sales approach / ludicrous sales forecasts. We are wary of top down sales approaches (“The market is worth x billion and we aim to capture just 0.5% of it”) or sales assumptions that simply grow too quickly. It amazing how easy some entrepreneurs think they can achieve £10m of sales.

5. Strong product / weak execution and management. We love the product, but not the right founder to drive the business to a successful exit.

6. Too dilutive in future funding rounds. The business is going to require a lot of additional funding, and the structure of the deal will mean early investors and founders risk being diluted to nothing.

7. Too complicated a deal structure. Most private investors prefer straight forward ordinary shares. Most can't be bothered with complex deal structures via convertible loan stock, redeemable preference shares, companies listed in foreign countries

8. Being cute with the investors. The company is seeking investment in the UK, but a separate holding company will own the IP rights for the rest of the world.

9. Raising too much money (or occasionally not raising enough money). “We are a pre revenue start-up business and we are looking to raise £1.5m“. Realistically it's not going to happen. Raise a smaller seed amount (£250k), get the business trading and then raise a larger sum. Understand the difference between risk capital and growth capital, and recognise you don't need to pay risk capital rates when its growth capital you are after.

10. No significant stage reached with funding. The investment should get the company to a definable stage (either break-even or profitability), or if future funding will be required, the company will be at a stage where the product / market can be better evaluated by the next round of investors and an increase in the valuation can be expected.

Raising finance can be a long, difficult and painful process but if you start out with the right attitude, avoid the pitfalls mentioned above, you can end up with an investor and mentor who can add much more than just money.

Envestors runs a network of 350 business angels and matches entrepreneurs looking for investment to these angels, who generally look to invest between £20k to £2m in early stage companies poised for explosive growth.

For more information on Envestors visit www.envestors.co.uk, or click here to find out more about Envestors work with Coutts' entrepreneur clients.