The best way
to show bankers, venture capitalists, and angel investors that you are
worthy of financial support is to show them a great business or investment
plan. Make sure that your plan is honest, clear, focused and realistic. Then
show them that you have the tools, talent and team to make it happen. Your
business or investment plan is like your calling card, it will get you in
the door where you'll have to convince investors and loan officers that you
can put your plan into action.
A common mistake new investors and business
owners make is they assume that bank managers understand business. The fact
is that very few bank managers have any experience of owning and operating
their own business and investment. They are first and foremost employees,
not entrepreneurs. This means that to get funding one must explain
everything in language they understand.
What language do banks
understand?
Bank language is real estate or property.
Bank managers will usually be willing to only
loan money secured by real estate. The main reasons for this is: they
understand real estate; real estate always has a ready market; they can
always get real estate back from you through a legal method called
repossession. This explains why many business and investment loan
applications in support of pure businesses fail.
However, the bank's business is to loan money
or currency, so do not be afraid to apply. Many investors find that they
need to borrow to buy real estate in order to get the rest
of the business funded. This may not be a problem as you
might want to own the real estate; however, it can be a
costly distraction. There is also the worry that real estate
prices might collapse and drag your business down with it.
Once you have
raised the money to start or expand your business, your plan will serve as a
road map for your business. It is not a static document that you write once
and put away. You will reference it often, making sure you stay focused and
on track, and meet milestones. It will change and develop as your business
evolves.
Does everyone need
a business plan?
Not everyone
who starts and runs a business begins with a business plan, but it certainly
helps to have one. If you are seeking funding from a venture capitalist, you
will certainly need a comprehensive business plan that is well thought out
and contains sound business reasoning.
If you are
approaching a banker for a loan for a start-up business, your loan officer
may suggest a Small Business Administration (SBA) loan, which will require a
business plan. If you have an existing business and are approaching a bank
for capital to expand the business, they often will not require a business
plan, but they may look more favourably on your application if you have one.
Reasons for
writing a business plan include:
-
Support a loan application
-
Raise equity funding
-
Define and fix objectives and programs to achieve those objectives
-
Create regular business review and course correction
-
Define a new business
-
Define agreements between partners
-
Set a value on a business for sale or legal purposes
-
Evaluate a new product line, promotion, or expansion
What's in a business or investment plan?
A business or
investment plan should prove that your business will generate enough revenue
to cover your expenses and make a satisfactory return for bankers or
investors, and you.
1.
Executive Summary
features the highlights of your plan and sells or explains your idea in two
pages or less.
2.
Company Summary is a
factual description of the asset you are buying or creating. This means
understanding the history of your company, your property, and other key
factors such as ownership, and other legal issues that affect your
ownership.
3.
Products (or Services
or both) describes your products and/or services and how they stand out from
competitive products and services.
4.
Market Analysis
provides a summary of your typical customers, competitive landscape, market
size, and expected market growth.
5.
Strategy describes how
you will sell your product, how you will put your plan into action, and
establishes milestones.
6.
Management Summary
provides background on the management team, their experiences, and key
accomplishments.
7.
Financial Plan
contains key financial data, such as the last three years' sales, cash flow,
and profit and loss statements, if they exist. You will also need to provide
three years' financial projections. These will include three year
projections: Cash Flow, Profit and Loss, Funding and Breakeven
Statements
What makes a successful business plan?
-
It must be honest, reasonable and lawful
-
A well thought out idea
-
Clear and concise writing
-
A clear and logical structure
-
Illustrates management's ability to make the business a success
-
Shows that this venture will be profitable
How do you
write a business plan?
Sitting down
looking at a blank computer screen as you prepare to start your business
plan can be daunting. You may want to look at some alternatives that will
make the process a bit easier.
Hire a
Professional?
A
professional consultant will create the business plan for you, but you still
have to be prepared to think through your business and understand the
underlying concepts in your business idea. You will have to work closely
with the consultant to ensure that he or she develops a good plan that
accurately represents your business or business idea.
Buy a Book?
There are
many good books on the market that will help you to understand what needs to
go into a good business plan. You can read Timothy Berry's "Hurdle: the Book
on Business Planning".
Use
Business Planning Software?
A good
business planning software package will provide you with an outline for a
well-developed, objective-based and professional business plan. Software
packages will remove the problem of starting from scratch by structuring
your plan for you. The software should ask you the right questions that will
pull out the most important underlying concepts within your business idea.
Business Plan Pro can be useful.
How
to write Business and Investment Plans?