How a Business Plan can Help You Get Financing
A business plan does two things: breaks down your business idea into actionable pieces and, if done right, wows investors or banks that you’ve approached with requests for a small business loan or equity investment.
Business owners are operators – they like to sell, develop key relationships, and manage their teams and businesses to success. Small business owners like to show their passion for their product or service through actions, but lots of the everyday activities of being an entrepreneur require sitting down and engaging with business planning. Securing funding to fuel your business’s growth is an important step in the process of developing a successful business. One of the more daunting tasks required to make your case to investors is the drafting of a solid business plan.
Lucky for you, business plans with funding requests usually follow a pretty cookie-cutter template that’s easy to follow. Within your business plan, you’ll outline your business idea, present relevant financial statements and financial projections, the specifics of your financing request, how you’ll be using that financing, outline your target market, present your management team, and inject it all with the passion and ambition that will make you successful and catch a reader’s attention.
We’ve put together a step-by-step guide for drafting a business plan that puts your established or new business in the best light possible to get funding with affordable interest rates and reasonable terms.
Why Do You Need A Business Plan?
When you approach a bank or an investor with a request for funding, they’ll want to understand at a fundamental level why you and your business is the place to invest their money. Lenders are looking for relatively low-risk investment schemes to help make sure that they’ll get their money back.
Whether it’s a small business administration/SBA loan or an angel investor, you need to provide all the necessary information to ease their minds and show that you’re a worthwhile investment. This includes the viability of your business idea, your marketing plan based on rigorous market research, a demonstrated or projected competitive advantage, your company’s financial information, and a persuasive pitch.
A business plan does all of this. It outlines everything an investor needs in a concise, formalized way that’s written in a language that investors understand and are amenable to.
A Rock-Solid Business Plan Template To Get Funding
Below we’ll share an outlined business plan table of contents. At each point, we’ll share the key things that each section of your business plan needs to get the job done and communicate your rock star venture’s qualifications for funding.
1. Executive Summary
As the name suggests, this section provides a broad summary of all of the essential information included in the business plan. A strong executive summary will hit on a few critical pieces of information:
- A description of your company and the problem you’re solving
- Your target audience of potential customers and sales plan
- An overview of your competitor
- A summary of key financial data
- A section describing your management team (if you have one).
When writing this section, your goal should be to write something that could serve as a standalone pitch to investors. Oftentimes small business owners like to write this section last after going into detail in each of the other sections.
2. Your Business Opportunity
Here you’ll dive deeply into how your company is a unique and lucrative investment. This section will get into the weeds about your product or service, your market analysis, and how you are different from existing players in your market. In short, you’re giving a data-driven pitch about why your opportunity is worth it.
When presenting your market opportunity, best practice suggests the following flow:
- Total Available Market: Using available data and research, present the total number of consumers in your space.
- Segmented Addressable Market: From that analysis, discuss which customer segments you intend to sell to. You should go deeper as well, discussing key customers that you will devote most of your effort to and why you’ve chosen them.
- Market Share Projections: Using your market analysis and other factors, state how much of the market your business could reasonably capture in 2-5 years and translate that into projections for revenue generation.
3. A Detailed Description of Your Finances and Financial Plan
Investors want to see proof that your business has been, or will be, successful. One of the best ways to do this is to look at available cash flows and balance sheets. If your business is just getting started, you’ll provide projections for cash flows and profits/losses based on data.
You shouldn’t hold back here. Investors base their evaluation of an investment on numbers, and most of those numbers come from your company’s financial statements: the income statement, balance sheet, and cash flow statement. The more you share here about past, current, and future financial flows (and the reasoning behind your projections), the more likely it is that you’ll get funding.
It might be helpful to have an accountant help you with this. If you don’t have an accountant, paying a visit to one for a quick consult can help you to determine that you’ve done everything correctly.
4. Your Funding Request
Now that you’ve laid the foundations for understanding your business from the ground up, you will make your case for funding. Discuss the requested amount of funding and motivate that number using your business needs based upon projected capital needs.
This section will draw heavily from the previous section’s presentation of your company’s financials. Every number here should be backed up with your diligent accounting and financial forecasting.
5. A Detailed Description of How You Will Use The Funding
After naming your price, so to speak, investors will want to know how you plan to use that investment. The use of the investment is a key part of understanding whether or not the capital they lend to you will be repaid.
They want to know that you’re using their money in such a way that it produces the value and cash flow boost needed to repay the loan.
6. Any Outstanding or Anticipated Business Loans and Repayment Plans
To have a full picture of your small business’s financial health, investors need to know about past investments in the company or loans that are still being repaid. If you have no outstanding debts, tell them explicitly.
Include a discussion of how you’re planning to pay back any outstanding debts. Rock-solid repayment plans show investors that you’re able to take on debt and keep the ship afloat.
7. A Discussion of Your Team
While the numbers are important, creditors are also investing in people. You want to show them that you and your team (if you have one) are competent business people. Your team could be anyone from a co-founder to members of your board of directors. Whoever they are, show that they add value to your organization. Boast about previous accomplishments, prestigious jobs, a history of successful business acumen, and anything else that could add credibility.
Sometimes loan applications will also require that you and your team (and any co-signers) disclose personal financial information like tax returns and credit scores.
8. An Appendix
This is where you’ll include any tables of data or analysis that didn’t make it into the body of the business plan. You might cite to these pieces of information, but never explicitly include them.
For example, you might provide your financial projections in the meat of the business plan but then put detailed information about the methodology and datasets behind those projections in the appendix.
Best Practices for Wowing Investors
Within all of these sections, keep the following bits of advice in mind to make sure that you’re doing all you can to maximize your chances of securing investment.
- Stay Concise: Investors that you approach likely have a ton of other businesses vying for their funding. They’re busy, and a rambling business plan is a waste of their time. They might not even finish going through it. Keep your writing short and sweet, only providing the essential information necessary to motivate your request for funding.
- When In Doubt, Show the “Receipts”: Financial data is the language of investment. If you’re ever unsure of whether or not to include a certain projection or piece of analysis, you should probably opt to include it and explain why it’s relevant. Don’t just copy and paste massive tables, but do make sure that you provide data to back up your assertions and give the “so-what” discussion of why it’s important.
- Customize Your Approach: When you’re seeking funding, you want to make sure that your business plan is written in such a way that the overarching theme is “we need X amount of money and this is why you should give it to us”. Writing a business plan for internal use is different from presenting it to potential investors. Keep that in mind when drafting.