3 min read18 February 2019
Writing a business plan is a useful thought exercise if you’re preparing to start a business, but if you are seeking financial backing for your new venture then it can be so much more.18 February 2019
Prospective financial backers, whether they are private individuals, banks or specialist business lenders like iwoca, are more likely to back your idea if it comes with a clear and realistic plan for growth in the short-to-medium term future.
But what details should you include in a winning business plan, how should the information be presented and, just as importantly, what should you leave out? Here are six simple steps to craft a plan that will help you stand out from the crowd.
First and foremost, include all of the essential information in a clear and digestible format. These details should include the business you are proposing, how you will generate revenue, details of your previous experience in the market and your motivation for creating something new.
These facts are important because they allow prospective backers to gauge your aptitude as an individual and whether your proposal is realistic—ie that your business has prospects and stands a good chance of growing in the way you say it will.
Lenders and investors see a lot of business plans, which in some respects means your plan is competing for attention with dozens of others. Think of it as a CV you’re submitting for a sought-after job; it needs to stand-out—and in a good way.
That doesn’t mean colourful paper, glitter and comic sans; it does mean packing useful information into a brief, easy-to-read format. Move the important stuff to the top of the page, present your paragraphs in a professional manner, cut out any waffle or filler, and ensure that any graphical data is relevant and realistic. If you have lots of facts and figures, append them at the back of the document.
Investors do their homework, so don’t say a market is wide-open when it isn’t or claim that your product is unique when actually it’s one of many. Financial companies have reams of data about economies, markets and product lines, making it impossible to pull the wool over their eyes.
Instead, impress them with your experience, knowledge and expertise in the sector. Explain why you think there is an opportunity to disrupt the market and describe the ways in which your business will be able to muscle its way in and compete with existing players.
You may well be starting up alone, but if you have a team or a business partner then sell their skills as well as your own. How many years of experience does the team boast collectively? In what ways do individual skillsets complement each other? Who will be doing what in the business and how do you plan to work together?
If you are starting-up alone, then consider talking up any partners, suppliers or support networks you might have put together already. From mentors and advisers to a supportive supply chain, backers will want to hear about the support structure around your business that will help it to grow.
If your business is already trading, then its financial information could be a real asset in your bid to win financial support. Be clear about sales generated, contracts won and money in the bank. Incoming cash is part-proof of the business’ ability to pay back any loan.
If you need finance to fulfil a big order or complete a major contract, make sure this is obvious to anyone reading your pitch. Businesses are more likely to receive backing if the money is for something specific that will generate a return.
Just as important, however, is money going out. Clearly, revenue minus costs equals profit, but if your costs are high then it might make financiers think twice about lending or investing, especially if spending outstrips income.
Justifying your business case and describing its potential is one half of the battle, the other is explaining why you’re asking for this particular amount of money and how it will be spent. Lenders want realistic pitches – asking for too little is as big a mistake as asking for too much—and practical reasons for needing the money.
In general, lenders will give you money to invest in growth; for example to develop a new product line, win a contract or grow into new markets. They are less likely to pay to cover staff salaries or late utilities bills.
A caveat to this last point is if your business is due a payment from a client or customer and it requires a bridging loan in the meantime. You will need solid evidence that money is coming in, as well as the date you expect to receive it.
A great business plan is detailed, honest and clear. Follow this blueprint and you’ll do a better job of impressing the moneymen.
Get a regular dose of the best small business finance news, stories and curated articles sent direct to your inbox. Sign up for our newsletter. No spam just inspo.