This post originally appeared on startupnation.com/start-your-business
Business plans are created for various reasons. Sometimes a plan is prepared for a strategic partner. In this case, the partner might want to better understand your strategy, milestones and staffing to determine whether to work with you. Sometimes a business plan is created to convince prospective employees to join you. And oftentimes plans are developed to brainstorm and assess strategic options.
As you can imagine, in each of the above cases, your business plan will differ based on the audience. Strategic partners, prospective employees and internal management each have different needs, and each will assess your plan based on how it specifically affects them.
One business plan audience with very specific needs is funding sources such as investors and lenders. Unlike other audiences, funding sources are bombarded with business plans and are only able to fund a small percentage of plans they see. As such, when creating business plans for this highly competitive audience, be sure to do the following.
Be clear in defining your company
For example, let’s say you were creating a mobile app business plan targeting the tourism industry. Rather than starting your plan with the backstory of how you conceived the idea, start with a concise definition. For example, you could say, “Our company is developing a mobile app targeting the tourism business.”
By starting with this concise definition, readers quickly understand what you do, and whether they’d like to continue reading. Conversely, oftentimes when you start with a backstory or wordy definition of your business, investors who otherwise might have been interested stop reading. They simply do not have the time to read through business plans, particularly ones which might not fit their sweet spot.
Detail your unique success factors
Funding sources must understand why your company is uniquely qualified to succeed. If you don’t have unique qualifications, then it’s hard for you to be successful.
Think about every aspect of your business in identifying your unique success factors. For instance:
- What is it about your management team (e.g., experience, expertise, relationships) that makes your company uniquely qualified to succeed?
- What is unique about your products and/or services, that ideally can’t easily be replicated?
- Do you have any marketing advantages, such as strategic partnerships or contracts with customers?
- Have you developed operational capabilities that give you competitive advantage?
Detailing your unique success factors gives investors and lenders increased comfort that you’ll be successful, and that they’ll get a return on their investment.
Identify your risk-mitigating funding milestones
Risk-mitigating milestones are those events, that when accomplished, reduce the risk of your company failing.
Let’s go back to the mobile app example. As you can imagine, when you simply have the idea for the mobile app, the risk of failure is high. But, once you build the prototype app, your chance of failure is reduced. And after you gain user feedback and modify the app, risk is further reduced. And clearly, once you gain 1 million users and generate $1 million in revenue, your risk has diminished much further.
Importantly, when developing your business plan for funding sources, detail your risk mitigating milestones. In addition to identifying them, document when you expect each to occur and how much funding you need to accomplish them.
Present a credible financial model
Equity investors want to get a sizable return on their investment in your company, while debt investors/lenders want to be confident you’ll be able to repay your loans with interest.
In both cases, your financial model is a key tool they’ll use in determining whether to invest or not. Of critical importance is that the model you prepare is credible.
To create a credible financial model, research comparable companies as much as you can. How fast have they grown? While it’s possible that your company can grow faster, it’s probably not feasible that your company grows twice as fast as any company ever has.
Likewise, pay attention to costs like human resources. How many staff members do you need? How much will they cost? How long will it take to hire and train new members of your team? While you’ll never answer these questions with 100 percent accuracy, it’s important to think through these questions and include them in your model. If not, investors and lenders will deem your financial projections incredulous and not fund your business.
Fundable business plan summary
It doesn’t matter whether you create your plan using business plan software or a regular word processor, just that you include these crucial points in your plan.
Keep in mind that funding sources want to fund businesses like yours. That’s how they make money. The key is to present your business in a way that compels them to get excited about your business. Once you do, they’ll invite you to meet with them, during which they’ll ask additional questions and determine if there’s a fit between their firm and yours.