The real value of preparing a business plan lies not so much in the finished document itself as in the process the entrepreneur goes through to create it, a process in which he learns how to be competitive in the marketplace.
A solid plan is essential to raise the capital needed to start a business; lenders and investors need it. Lenders and investors are favorably impressed by entrepreneurs who are informed and prepared when applying for a loan or investment.
When seeking funding from professional venture capitalists or private companies, the written business plan almost always precedes the opportunity to meet “face to face”.
1. What is the problem?
A clear illustration of the problem your company intends to solve is essential to a successful presentation. This should be clearly stated in your presentation in the simplest of words so that the potential lender or investor knows exactly what your proposal is about.
2. What is your company’s solution to the problem?
How does your company’s product or service provide a unique or improved solution to the problem? Your presentation should emphasize the competitive advantage that your company offers. Lenders and investors avoid companies that suggest “me too” solutions that offer no advantage over existing solutions to a problem.
3. What is your company’s business model?
In other words, what is your strategy for building a successful and sustainable business? A company’s strategy determines its success in its attempts to capitalize on a market opportunity. The wrong strategy, even if a management team can execute it perfectly, will cause a business to fail every time. Make sure your presentation shows how your business will generate sales and profits, two very important things for potential lenders and investors.
4. What is the underlying technology or magic of your business?
Has your company developed a unique technology, market approach or other “magic”? If so, explain it in simple, non-technical terms. Do you have patents, trademarks or copyrights to protect the “magical” component of your business? How long will it take your competitors to replicate the magic of your business?
5. What is your company’s marketing strategy?
Who are the target customers to whom your company intends its products or services? What do you know of them? What drives their buying decision? How are you going to reach them? While market research reports are important and can form the basis of a marketing plan, convincing potential lenders and investors requires providing strong feedback or commitments from actual customers. What surveys or test marketing efforts have you conducted? Lenders and investors want solid proof of a solid customer base for your company’s product or service. The question of marketing strategy is one that most entrepreneurs fail to answer sufficiently. Don’t let this happen to you.
6. What is your business strategy?
In other words, how will you connect (and stay connected with) your customers? A useful tool to answer this question is to explain how you will communicate to your customers your company’s unique selling point (USP), the main customer benefit of a product or service that sets it apart from the competition, and why it matters to them. Is your product or service a luxury, a “nice to have” or a “must-have”? What distribution channels will your business use? How important are repeat sales? What will you do to capture them?
7. Who are your competitors and what can you learn from them?
Every business has competitors, and entrepreneurs who claim their business faces no competition make lenders and investors nervous. What are your competitors doing well? What can your business learn from your competitors and what can it build on? Be specific. When discussing the competition, be sure to identify your company’s competitive advantage.
8. Who are your team members and what makes them uniquely qualified to build this business?
Lenders and investors want to see a solid business strategy aimed at solving a real customer problem, but what they really invest in is the management team. In your presentation, be sure to highlight the qualifications and experience of your management team. Have you or your co-founders started other businesses? If your flowchart has holes, to be honest, but be prepared to explain how you plan to fill those holes. Inexperienced entrepreneurs should consider creating a board of advisors who can contribute their experience and expertise.
9. What is your financial forecast?
Business plans are once included in five years of financial forecasts. Today’s potential lenders and investors know that long-term financial forecasts are generally only guesses and are not reliable. You must include a summary of your business’s income statements for three years (or more), focusing on sales, major expenses, and net income. You must also demonstrate an understanding of the importance of cash flow to the future of your business. Make sure all your financial forecasts are realistic, or you lose all credibility with lenders and investors – and all hope of receiving funding.
10. How much capital will your business need now and in three years?
How much money did you raise? Where is he from? How much money does your business need and how do you plan to use it?
11. What is the exit strategy?
Before potential lenders and investors invest money in a business, they want to know how they will get it back, preferably with an attractive rate of return. Depending on the type of investors you are dealing with, the execution time for the exit strategy can be three to ten years or more. Two common exit strategies are to sell the business to a larger company and make an initial public offering, but only a handful of smaller companies will be eligible for the latter.
An initial public offering or stock launch is a public offering in which shares of a company are sold to institutional investors and usually retail investors as well. An IPO allows a company to raise capital from public investors. In the meantime, it also allows public investors to participate in the offer.
12. What are the risk factors?
Every business involves risk. Entrepreneurs should respect this issue, however, dwelling too much on the risks associated with the business can deter potential lenders and investors. Completely ignoring the risks makes an entrepreneur seem unprepared, unrealistic, or dishonest. What market, financial, technological and management risks does your business face?
Once you’ve answered these 12 questions, it’s time for you to summarize the key points of your presentation and use this opportunity to issue a call to action to potential lenders and investors in your audience.