If you are looking for an investor or even a bank loan, a business plan can be of great help. Your business plan can provide the investor with the details of your business, such as type, location, business structure, and markets addressed. The plan can help the investor understand your vision, and how you intend to steer the business to success.
But what should a business plan have to make it an effective tool to attract investors? According to the business plan software company Palo Alto, the following factors contribute to the success of a business plan:
- Presents a well thought out idea
- Contains clear and concise writing
- Has a clear and logical structure
- Illustrates management’s ability to make the business a success
- Shows profitability
Garrett Sutton, in his book “The ABC’s of Writing Winning Business Plans: How to Prepare a Business Plan That Others Will Want to Read — and Invest In” offers a number of advice on how you need to craft your business plan to improve your chances for securing the funding:
- Money follows management. Investors look first at the people involved in the company. If you are just starting out and don’t have relevant experience, investors expect to see that you have an experienced team of advisors and employees helping you in the business.
- Make sure you “sell” the one reason your business will become profitable.
- State clearly the strategies you will employ to get the word out about your business. Your business plan must show how you will leverage the Internet, public relations, viral marketing, and other strategies to attract customers.
- Present realistic estimates of the time, energy and costs of building a successful business. Do not underestimate or overestimate revenues. While investors know your numbers are simply guesses, they want to see that your numbers are within the “range of reality.” Be careful of your financial statements: this is one area where you can easily lose credibility if presented poorly.
- Benchmark similar companies to show that you’ve done your homework and researched the market.
- Your Executive Summary is your calling card. If it is not a winner, investors may not even read your entire plan. Emphasize your own as well as your team’s track record in the Executive Summary.
- Before sending your business plan to lenders and investors, send it out first to a few in order to get feedback. You’d want to correct your plan if someone tells you that you’re way off mark, rather than have a potential investor tell it to you and lose the chance to get the funding you need.
Many entrepreneurs are finding that the above factors are indeed critical to wow the investor and make him agree to finance the business. The article “How to Write a Winning Business Plan” by Forbes.com shares the story of two New York entrepreneurs who successfully convinced investors to support their venture. Here are the factors that made their business plan very enticing to investors, many of which confirms the tips from Sutton’s book:
- Your idea will not sell itself. Backup your claims with solid financial projections and metrics, including but not limited to number of users, user growth, costs for expansion and so on.
- Investors are looking for startups that can prove that they are successful. Investors will view your business as more desirable if it is already up and running before submitting the business plan.
- The most important element of your business plan is a a succinct, punchy and clear statement that describes your business idea, why it’s necessary, how much money it will make and why you are the person to implement it.
- Include a profit and loss statement, as well as balance sheet. Also, know each and every single expense item the business will incur — from salaries to rent to legal fees. Cashflow is also important for some investors.
- Explain who will run your company. It is also recommended to have board of directors and advisory board in place.
- Get guidance from an expert, especially with regards to talking and dealing with investors.
- If you need to, get professional assistance when putting together your business plan.