Starting and running your own business is a long-term venture that requires plenty of effort. On your path to becoming a successful business owner, you’ll face many obstacles and checkpoints that will give you a chance to prove your business acumen and skill. One of these checkpoints is the drafting of a business plan. Drafting a business plan can be crucial to obtaining necessary funding in the form of investments or loans.
If you’re writing a business plan for the first time, the challenge might seem insurmountable. However, there’s no need to have the challenge of writing a business plan loom like a large specter over your head. Many business plans and funding requests are drafted per a standard form. All you need to do is insert the valuable information about your business.
If you haven’t actually started your business yet, you should have a concrete plan for what that business should look like. All you have to do to become successful in writing a business plan is to thoroughly detail every relevant aspect of your business and be familiar with the output of your business and its financial status. Then, you need to connect those things to the requested funds and logically explain how the requested funds will jump-start your business.
If you want to convince a lender or an investor to hand over funds to help your company, you need to give them a business plan so that they understand the risks and benefits of funding your venture. They need to be sure that your business will reach the minimum level of financial solvency required to generate investment profits or allow you to pay back loans on schedule.
While it’s relatively simple for investors and lenders to assess the status of a company that’s been established for a while, the same can’t be said for companies in the early stages of their development. Since your business hasn’t yet forged a strong credit history or performance record, you have to delineate your short-term and long-term objectives for your company and do your best to realistically calculate your business’s projected revenue. If you need to acquire business loans for startup capital, many of them require that you draft a business plan and submit it with the rest of your supporting documents.
There are many reasons and justifications for drafting a business plan to secure funding. If you can link the plan with the specific purpose for its drafting, you can provide all of the necessary and correct information to potential investors. Here are a few reasons why you should draft a business plan to get additional funding for your enterprise.
The acquisition of financing is your end goal when you draft a business proposal. If you can’t convince the investors or lenders to finance your venture, then your hard work will be for naught. Your argument should create a solid connection between your company vision and your company’s financial statements.
Investors need to know the primary activity of your business. Not only does it help them make an informed investment decision, but it also prevents them from accidentally investing in businesses that violate their ethics or investing in the competitors of businesses with which they already have strong ties. If you’ve already had verbal conversations with investors, make sure that your proposal confirms what you’ve told them verbally.
Investors need to know how their funds will be spent. That’s why you need to give them a quick summary of the goals you have for your company. They’ll be able to understand how their investment is taking your company to the next level in its growth and development.
Investors also need to know the current financial status of your business. Are your liabilities so extensive that any investment will go toward paying off existing debts, or will the funding go toward financing new equipment and hiring employees to boost productivity and revenue? In order to make the best argument to convince investors, you need to be both hopeful and honest.
The necessary nature of a business plan means that you must be sure to cover every element in the proposal. Business plans tend to be standard form, which means that every business plan has the same components. Therefore, investors are looking for specific information and details to be presented in a way that makes sense with prevailing business norms and customs. Now is not the time to get excessively creative. All of the expected information should be presented and discussed in a comprehensive and satisfactory manner. Here is a list of the critical elements of a successful business plan.
The executive summary is the first component that the investor will see when he or she reads your business plan. This means that you have to start strong. Make sure that the executive summary contains all of your company’s most basic information. Mention your company’s main products and industries, your intended and actual customer base, and the role that the investor can play when their funds interact with your business. The best executive summaries identify the niche in which your company operates and the market needs that it meets. It also discusses your competitors within the same market and your regular suppliers and subcontractors, if applicable.
You don’t need to write your executive summary first if you’re not sure how to consolidate the topics that you’ll be discussing later on. If it’s easier for you, write the financial information first and use that to complete the executive summary. If you’re not actually sure what your business road map is, this is a great opportunity to get honest with yourself. The executive summary is the opening to a detailed pleading to investors for funding. You have to provide some kind of value for the investor to justify their investment.
At the end of the day, investors want to see profits. They need to know why giving you money isn’t just an act of charity but a viable business opportunity. In the business opportunity section, you’ll outline what distinguishes your company from its competitors. You’re not the only business owner out there, and others will likely be sending similar proposals to the same lender or investor. Show the investor that investing in your company will lead to profitable returns down the line.
While you mentioned your products and services in the executive summary, you’ll need to provide more details in the business opportunity section. All of your earlier statements must be supported by concrete facts and statistical data. You can do this by discussing your market share and its key customers within the total available market. The total available market is the sum of the possible customers who are out there while your market share is the number of customers you have the capacity to reach with your current resources. Explain how an expansion in funding and resources could actually grow your market share and increase revenue. Your key customers are the elite sector from within your market share that will be the target of a more intensified marketing drive. Once you’ve identified those key customers, you’ll need to share the methodology and purpose for selecting them with potential investors.
Don’t make the fatal mistake of lying about your company’s financial status. Go into as much detail as possible so that your investors have a complete and full understanding regarding your company’s assets and liabilities along with the monthly and annual net income. Be sure to add in realistic revenue expectations for the future. Even if you haven’t actually earned any income because you’re still in the launch phase of your business, you can still include a summary of your projected income and expenses.
In this section, you’ll put forward your request for a loan or an investment. If you’re applying for a smaller loan, it makes sense to talk about your future loan requirements as well. This gives lenders and investors a better idea of your future liabilities and allows them to more accurately evaluate your ability to pay back the loan.
An investor needs to know how you’re going to spend the funds if they give them to you. Are they just a stopgap to keep your business afloat temporarily, or are they the critical difference between an average company and an outstanding one? Let them know how the funds will be used. Then, go into detail about how you’ll ensure that they get their money back. Will you make fixed monthly payments? Will you secure the loan by putting up your business as collateral? How many years will it take for you to pay back the loan?
Financial information and future goals are all well and good. However, investors sometimes want to know more about the team they’ll be working with, especially if they’re envisioning a long-term relationship. Include team bios of the key members and associates of your business. The bios should play to each individual’s strengths and make them seem like attractive investment partners.
Business plans for investment proposals are slightly different from those for loan proposals. Loan proposals have to include additional elements and information. Here is a list of loan-specific information that you shouldn’t omit:
A well-written business plan is brief, positive and specific to your business. While there are boilerplate business plans out there that can be downloaded from the internet, entering your information into a copy-and-paste template could indicate to investors and lenders that you’re not dedicated to your business. You should draft a customized plan for each investor and lender from which you request funds. Finally, be succinct and don’t use difficult industry-specific terminology. You’re an expert in your sector, but your investors might not be.
Chris Fuller went to the University of South Florida and has worked in the financial sector for over 20 years. He has extensive experience in all aspects of personal and small business lending, from personal loans, equipment finance to cash flow based solutions for small mom and pop businesses, and large corporations.