It is generally accepted that a business plan is essential for business owners who are seeking to raise money to help fund their businesses. However, a business plan written by the management team can easily fall into the trap of being inward focussed, i.e. centred around the management benefits of planning. To secure finance, you will need to have a business plan, which is specifically targeted to meet the individual requirements of your finance providers or your investors, and not your management team.
How does a Funding Business Plan help?
Whether debt or equity, a potential backer wants to see why you need finance, how you plan to use it, and what evidence you can provide to back up any claims. It helps convince lenders and investors, that the business owner has thought the strategy through. It also gives any actual investors a set of financial benchmarks for which the business owner and the management team can be held accountable.
What should be included in a good plan?
A good plan that provides you the best chance to raise finance successfully should include the following:
- Executive summary: Your overall vision; a mission statement; plans; the state of the business; your product or service; growth strategy; unique selling points (USPs); sales; forecasts; what funds are needed and when.
- History and background: The business; its origins; historical performance; sales data.
- The market: Size; growth rate; major players; your position; technical advances; forecasts; relevant government regulations.
- Future opportunities: Vision and objectives; customers and their needs; target market; product or service positioning and value offering; USPs (such as plans to make your product cheaper, or to launch a new product); patents or other legal protection; pricing; distribution channels; marketing plans.
- Operations: Financial; organisational and human resources available to the business; any requirements not yet met.
- Management team: Outline background, responsibilities and skills of your key people.
- SWOT analysis: Strengths; weaknesses; opportunities; threats.
- Risks facing the business: Competition; potential pitfalls; barriers to entry.
- Financial forecasts: Sales; gross margin; assumptions underpinning figures (including financial performance to date); profit and loss account; balance sheet and cashflow three-year forecasts; payback; breakeven.
- Financing: Loans and debt arrangements; a breakdown of how finance will be used.
- Exit routes: Possible exit strategies including potential trade sale or flotation.
This structure will cover most forms of fundraising, although borrowing debt requires less detail, with added emphasis on assets in the business, security provided to the lender, credit worthiness of the borrower and aged-debtor analysis of the business.
Any other points to be kept in mind?
The following aspects, if borne in mind, would make your funding business plan appear more professional and thought-through:
- Each section should be succinct (approx 3 or 4 pages). Avoid overemphasising any one section, and only use headline figures in the executive summary.
- Lenders considering offering debt will want to be confident that they will be repaid on time. Talk about how risk can be controlled, loss can be limited, and security that can be offered.
- For equity investors, focus on market opportunities and exit options, such as trade buyers and the chances of flotation.
- While projections are vital to help potential lenders and investors see where you may be going, don’t forget to tell them about your existing sales, customers and the make-up of your management team.
- Presentation is everything. Make sure you keep the language and appearance of the plan straightforward and easily accessible. Use photos and graphics where relevant, but don’t overcrowd it. Supply the plan as a professionally presented document.
In conclusion, having a robust, professionally written Funding Business Plan is absolutely essential to the success of your business. It is the financial road map for your business. If the plan is written well and reflects the assumptions and market conditions accurately, the path to success will be clearly visible for the fund-raising of your business.
So, if you don’t yet have a robust Funding Business Plan for your business, approach us to get started on one right now. You can’t change the past, but you can impact the future—and having a well-designed Funding Business Plan is one of the best investments you will make to ensure that you stand the best chance of successfully charting out your business’ financial future.
Gautam Goenka