A well-crafted business plan is a crucial tool for securing funding from banks and investors.
It serves as a roadmap for your business, outlining your vision, strategy, financial projections, and how you plan to use the capital.
Why banks and investors care about your business plan?
Here are a few guidelines that will help you to significantly increase your chances of securing the funding you need to grow your business.
- Understanding Your Business: A clear and concise business plan helps potential funders understand your business model, industry, target market, and competitive landscape.
- Assessing Risk: Lenders and investors want to evaluate the risk associated with your venture. A well-structured plan demonstrates your understanding of potential risks and your strategies to mitigate them.
- Financial Projections: Your financial projections, including income statements, cash flow statements, and balance sheets, show your expected revenue, expenses, and profitability. This helps funders assess the potential return on their investment.
- Management Team’s Capabilities: Your plan should highlight the experience, skills, and track record of your management team. A strong team increases confidence in your ability to execute your business plan.
- Exit Strategy: While not always explicitly stated, investors often consider your exit strategy. This shows your long-term vision and how they might realize a return on their investment.
Here is a breakdown of how to effectively use a business plan to attract funding.
A. Using business plan for raising capital from bankers
Bankers want assurance of orderly repayment. If you intend using this plan to present to lenders, include:
- Amount of loan.
- How the funds will be used?
- What this will accomplish? How will it make the business stronger?
- Requested repayment terms (number of years to repay). You will probably not have much negotiating room on interest rate, but may be able to negotiate a longer repayment term, which will help Cash Flow.
- Collateral offered, and a list of all existing loans against collateral.
B. Using business plan for raising capital from investors
Investors have a different perspective. They are looking for dramatic growth, and they expect to share in the rewards:
- Funds needed short-term.
- Funds needed in two to five years.
- How the company will use the funds, and what this will accomplish for growth?
- Estimated Return on Investment (ROI).
- Exit strategy for investors, e.g. buyback, sale or Initial Public Offering (IPO).
- Percent of ownership that you will give up to investors.
- Milestones or conditions that you will accept.
- Financial reporting to be provided,
- Involvement of investors on the Board of Directors (BOD) or in management.
The generic business plan should always be modified to suit specific type of business and the audience for which the plan is written. And remember that by effectively communicating your vision and demonstrating the potential for a strong return on investment, you can significantly enhance your chances of securing the necessary funding.
