Roughly one-third of startups fail because of a lack of funding. They may have brilliant ideas, but not enough financial support to survive. The financing industry is becoming very selective and competitive. Key investors will want to look at your Business Plan before providing capital.
An Investor Business Plan is a crucial document when you are seeking to raise capital to source the funding you need, be it a start-up or an expansion program within an existing company. A successful investment proposal appeals to people who have money and may be interested in contributing financially by delivering solid arguments as to why your startup is worth investing in.
A Business Plan is a written document in the of a text document, PDF, or slide show presentation about your startup (product or service) that defines the goals of your business and describes how you will attain those goals.
Gather Information about Investors
First, you should identify what investors you wish to attract. They can be grouped into a few different categories:
- Angel investors and angel groups. These are high-net-worth individuals and groups that fund startups in return for stock, which makes them just as invested in a startup’s success as they are in getting returns. Most of the time, they also have a wealth of entrepreneurial experience, so they can also mentor or coach you.
- Banks. These are not the most common source of investments for startups, but you can still take your proposal to a bank once your project starts to show progress (e.g., by gaining customers).
- Venture capital firms. These companies usually close more deals than angels, as they have more fuel to power startups. Your choice of VC will usually depend on your location, as most of them are created equal.
- Corporate investors. Some corporations take an interest in funding startups as a way to acquire new assets and identify new technology, all of which can help them grow their revenue.
- Peer-to-peer and personal investors. This group can include your close relatives and acquaintances, P2P lenders, and crowdfunding platforms. Friends and family are usually the first people on the list, and sometimes they can lend you a decent sum. However, you can also go straight to potential customers and launch a crowdfunding project.
- Another source of funding is accelerator programs, which help develop your idea and gain traction. These can offer you from $10K to $120K in seed money, as well as additional startup resources such as industry or financial management knowledge.
Common parts of a Good Business Plan are:
Everything starts with a name, and your proposal needs one as well. Ideally, it should be a few words that describe the value of the future product or service and the direction you are taking it, such as the market segment.
- The Executive Summary section includes:
–A first paragraph that introduces your business.
- Your business name and location.
- A brief explanation of customer needs and your products or services.
- The ways that the product or service meets or exceeds the customer needs.
- An introduction of the team that will execute the Business Plan.
–Subsequent paragraphs that provide key details about your business, including projected sales and profits, unit sales, profitability, and keys to success.
–Visuals that help the reader see important information, including highlight charts, market share projections, and customer demand charts.
- The business concept shows evidence that a product or service is viable and capable of fulfilling an organization’s particular needs.
- The Business Concept section:
–Articulates the vision of the company, how you plan to meet the unique needs of your customer, and how you plan to make money doing that.
–Discusses feasibility studies that you have conducted for your products.
–Discusses diagnostics sessions you had with prospective customers for your services.
–Captures and highlights the value proposition in your product or service offerings.
- A Market Analysis defines the target market so that you can position your business to get its share of sales. A startup’s success greatly depends on the pre-development, or discovery phase. This is when you gather data from a market analysis and use it to define the product-market fit. The discovery stage helps you eliminate many of the risks related to unexpected expenses, lack of market demand, and other potential issues.
- A Market Analysis section:
–Defines your market.
–Segments your customers.
–Projects your market share.
–Positions your products and services.
–Discusses pricing and promotions.
–Identifies communication, sales, and distribution channels.
The Management Team section outlines:
–Organizational Structure: Highlights the hierarchy and outlines responsibilities and decision-making powers.
–Management Team: Highlights the track record of the company’s managers. You may also offer details about key employees including qualifications, experiences, or outstanding skills, which could add a competitive edge to the image of the business.
–Working Structure: Highlights how your management team will operate within your defined organizational structure.
–Expertise: Highlights the business expertise of your management and senior team. You may also include special knowledge of budget control, personnel management, public relations, and strategic planning.
–Skills Gap: Highlights plans to improve your company’s overall skills or expertise. In this section, you should discuss opportunities and plans to acquire new information and knowledge that will add value.
–Personnel Plan: Highlights current and future staffing requirements and related costs.
- The Marketing Plan section details what you propose to accomplish, and is critical in obtaining funding to pursue new initiatives. Describes the target market for your product and explains how you will reach that market.
- The Marketing Plan section:
–Explains (from an internal perspective) the impacts and results of past marketing decisions.
–Explains the external market in which the business is competing.
–Sets goals to direct future marketing efforts.
–Sets clear, realistic, and measurable targets.
–Includes deadlines for meeting those targets.
–Provides a budget for all marketing activities.
Specifies accountability and measures for all activities.
Details the costs associated with operating your business and explains how you will pay for those costs, including the amount of financing you may need.
- The Financial Plan translates your company’s goals into specific financial targets.
- The Financial Plan section:
–Clearly defines what a successful outcome entails. The plan isn’t merely a prediction; it implies a commitment to making the targeted results happen and establishes milestones for gauging progress.
–Provides you with a vital feedback-and-control tool. Variances from projections provide early warnings of problems. When variances occur, the plan can provide a framework for determining the financial impact and the effects of various corrective actions.
–Anticipate problems. If rapid growth creates a cash shortage due to investment in receivables and inventory, the forecast should show this. If next year’s projections depend on certain milestones this year, the assumptions should spell this out.
- The Financial Plan is the most essential part of your Business Plan. It shows investors the timeframes you have scheduled to make profits.
- Some elements of the Financial Plan include:
–Key Financial Indicators
–Projected Profit and Loss
–Projected Cash Flow
–Projected Balance Sheet
- Short-term Forecast: Projects either the current year or a rolling 12-month period by month. This type of forecast should be updated at least monthly and become the main planning and monitoring vehicle.
- Budget: Translates goals into detailed actions and interim targets. A budget should provide details, such as specific staffing plans and line-item expenditures.
–The size of a company may determine whether the same model used to prepare the 12-month forecast can be appropriate for budgeting.
–In any case, unlike the 12-month forecast, a budget should generally be frozen at the time they are approved.
- Strategic Forecast: Incorporates the strategic goals of the company into the projections. For startup companies, the initial Business Plan should include a month-by-month projection for the first year, followed by annual projections for a minimum of three years.
- Cash Forecast: Breaks down the budget and 12-month forecast into more detail. The focus of these forecasts is on cash flow, rather than accounting profit, and periods may be as short as a week in order to capture fluctuations.
Operations and Management Plan
- The Operations and Management section outlines how your company will operate. Describes how you will manage the core processes of your business, including use of human resources.
- The Operations and Management section includes:
–Organizational structure of the company. Provides a basis for projected operating expenses and financial statements. Because these statements are heavily scrutinized by investors, the organizational structure has to be well-defined and realistic within the parameters of the business.
–Expense and capital requirements to support the organizational structure. Provides a basis to identify personnel expenses, overhead expenses, and costs of products/services sold. These expenses/costs can then be matched with capital requirements.
References ad Resources also include: