One of the most common myths about Business Plan is that it doesn’t help generating business financing. Well, a few startup funding options may not require the actual business plan, but any serious investor will need a document that explains the business idea, how is it going to work and how will it make money.
This article will discuss the parts of Business Plan that investors are most interested in and complete guide on how to develop those particular areas of the Business Plan.
The Executive Summary
This is the first and most important part of the Business Plan which investor would like to read with interest. So, to write the executive summary of the business plan, make sure:
- It’s not more than two pages in length.
- It contains the business description.
- A quick description of the product or service is there.
- A brief about the market should be there.
- It mentions the potential of the business.
- It contains quick stats of 3 year turnover and profit forecasts.
- It has a clear picture of the required investment its usage.
- Investment that has already been made by directors must be mentioned.
- There should be a clear mention of prospects for the investor.
- A clear exit strategy is defined.
While developing the business plan, the executive summary is the one that is written in the last, so make sure that it should provide a precise overview of all what you have in the lengthy document. You may consider using most of your business plan outline as the executive summary.
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Depending upon the structure of your business, stage of development, objectives , products, the marketplace, and forecasts the contents of one business plan may vary from the another even within the same industry. However, when it comes to generating funding, one thing that is common is:
“What an Investor is Looking for in the Business Plan?”
Here I have compiled a list of questions that an investor may ask when you request him to invest in your business.
Keeping these questions in mind you can add and remove content from your business plan so that it has all that an investor is looking for.
Can the business repay the loan?
Anyone will invest in your business so that they can get a good return on their investment. So, the business plan should have cash flow greater than debt service.
Can you repay the loan if the business fails?
Well, no investor will be ready to lend you the money if he sees that you cannot repay in case of failure. Think, if the collateral is sufficient to repay the loan.
Does the business collect its bills?
Here come the most important stats. Business must maintain account receivables and cash payments and the plan should have updated figures as of last month.
If you have some clients who delay payments, you must first get these payments in order, before crafting the business plan.
Does the business pay its bills?
Exactly like you maintain the incoming records, the outgoing payments must also be updated regularly and the latest data should be updated in the business plan.
Moreover, a healthy personal credit score is also important, just in case if you are reaching out a bank or a lending institution for funding.
Does the business control its inventory?
Record keeping, record keeping, and record keeping. Updated inventory control stats so, it is crucial to have efficient inventory management in place. Using an inventory management software can make things in order within no time.
Does the business control expenses?
This is a big plus to add to the business plan and especially in case of startup expense control efficiency increases the chances of acceptability.
Are the officers committed to the business?
This is more theoretical to explain, however, you can play your own creativity to optimize this area. Highlight team and individual achievements in a way that tells how committed people you have!
Does the business have a profitable operating history?
This is a must for any running business, however, in case of a startup where operations are either not started or else have just been started, any supporting stats from market research or something from the Beta Testing can work great here.
Are sales growing?
This probably doesn’t need any explanation; all you need is to have updated stats, and in case if you are an early stage startup, you should have a fool proof sales strategy in place.
Are profits increasing as a percentage of sales?
Make sure to have this answer in your business plan, simply by doing simple math with sales and profits.
Is there any discretionary cash flow?
If you have, you can adjust the benefit and if you don’t have, it’s not a problem; just have the answer with you.
What is the future of the industry?
Here comes the test of your market research and connectivity to the industry updates. Filling up this section with examples, stats and success stories in your own creative way will work best.
Who is your competition and what are their strengths and weaknesses?
Remember, your investor may be interested in investing in the startup, but if he finds your competitor a better option, i.e. the competitor’s startup is more investable, you will lose the opportunity. So, a careful competitive analysis with an effective pitch that makes you best among your competitors is the key to success.
The Bottom Line
Business plan generates funding only when it attracts investors’ attention and presents him the opportunity to invest.
So, before even developing your business plan for fundraising, identify your investors. If you are targeting multiple types of investors, it’s better to have a specific version of the business plan for each type. This detailed guide on writing business plan for a startup should be quite helpful as well.