Raising money for your business is a big deal. Writing a convincing business plan would help you find investors to talk to, and you should be ready for those investor meetings to improve your chances of getting funding. To be well-prepared, it’s a good idea to create a business plan. Not every investor will ask for it, but going through this planning process will help you think about all aspects of your business and be ready for any questions investors might throw at you.
So, why do investors want to see a business plan? It’s not just about the document itself; it’s about the knowledge you gain by making the plan. Having a business plan shows that you’ve thought deeply about how your business will operate and what you want to achieve.
When you create a business plan, you have to think about things like your target customers, how you’ll sell and market your product, the problem you’re solving, and who your competitors are. A business plan helps you organize these thoughts and puts your answers in one place, making you prepared for the questions investors will ask.
Even if an investor doesn’t ask for your business plan, the work you’ve done will help you answer their questions intelligently. But if they do ask for it, you’ll be ready, which is much better than scrambling to put it together at the last minute.
Investors also want to understand your financial projections. They want to know how your business will make money, your “business model,” and where you’ll spend money to grow the business. This financial plan is part of your business plan and is crucial for investors to understand your business’s financial health.
Now, what should be in your business plan to impress investors? There’s no such thing as a perfect business plan, but here’s what they generally want to see:
Certainly, let’s expand on each point in a more detailed manner:
A Vision for the Future:
Investors are interested in your long-term vision for your business. They want to know where you see your company in the years to come. This involves defining your target market and understanding how your products or services will address their needs. It’s essential to communicate your aspirations clearly, even if they may evolve over time. Investors appreciate entrepreneurs who think beyond the immediate future and have a well-thought-out plan for growth and development.
Product/Market Fit and Traction:
Investors are not just looking for an idea; they want proof that your idea works in the real world. To demonstrate this, you should provide evidence of product/market fit, which means showing that there is a genuine demand for your offerings. This might include customer testimonials, user metrics, or early sales figures. The more traction you have (i.e., a growing customer base), the more appealing your business becomes to investors.
Funding Needed and Use of Funds:
When seeking investment, you should have a clear understanding of how much capital you require and why. Your financial forecast should help you determine this amount. Investors want to see that you’ve calculated your expenses and cash flow requirements accurately. Additionally, you should specify how you plan to allocate the investment. This is often detailed in the “sources and uses of investment” section, which outlines where the money will go and how it will help your business grow.
A Strong Management Team:
While a great idea is crucial, the ability to execute that idea is equally important. Investors want to know that your team possesses the skills and experience needed to turn your vision into a successful business. In your business plan, introduce key team members, highlighting their backgrounds and expertise. If there are gaps in your team that still need to be filled, acknowledge this and explain your recruitment plans. Demonstrating that you understand your team’s strengths and weaknesses is vital.
An Exit Strategy:
Investors provide funding with the expectation of eventually making a return on their investment. Your business plan should outline your thoughts on how this will happen. Common exit strategies include selling the company to a larger one or taking it public through an initial public offering (IPO). Providing clarity on your exit strategy helps investors understand the potential for a profitable exit down the road, which is a key consideration for them.
Now, regarding the essential documents that investors may request:
Cover Letter: Your cover letter is like the introduction to your business. It should be concise but captivating, highlighting the specific problem your business addresses for your target market. Often, it tells a relatable story or scenario that illustrates the challenges your potential customers face and how your product or service solves them. Its purpose is to pique investor interest and secure a meeting where you can present your business in more detail.
Pitch Deck: A pitch deck is a visual presentation that allows you to dive deeper into your business during meetings with investors. It typically covers key aspects such as the problem you’re solving, your solution, the target market, market trends, competition, financial projections, and your team. A well-structured and engaging pitch deck can make a strong impression on potential investors and is a valuable tool for presenting your business.
Executive Summary or One-Page Plan: Sometimes, you won’t get an immediate meeting with investors, and they may request more information before considering an initial meeting. An executive summary or one-page plan comes in handy here. It’s a brief but more detailed document than the cover letter, offering additional insights into your business. This document provides a snapshot of your business, helping investors decide whether they want to learn more.
Financial Forecasts: Investors are keenly interested in your financial projections. Your business plan should include a range of financial documents, such as a sales forecast, expense budget, cash flow forecast, profit and loss statement, and balance sheet. If you have historical financial data, include that as well. Investors scrutinize these documents to understand the financial health of your business and to assess the potential return on their investment. Be prepared to explain your assumptions and plans behind these numbers in detail.
In your comprehensive investor business plan, you’ll typically include these sections:
Executive Summary: While it’s usually written last, the executive summary is an essential overview of your business. It encapsulates the most critical aspects of your plan and can sometimes be used as a standalone document to provide investors with a quick understanding of your business.
Opportunity: This section dives deep into the problem you’re solving, your solution, and any data or evidence you have to prove that there’s demand for your product or service. If you have any customer validation, such as surveys or early sales figures, highlight them here.
Market Analysis: Describe your target market thoroughly, including key trends, growth patterns, and any shifts in customer behavior. Discuss your competition and how your business positions itself in the market. Investors want to see that you’ve done your homework and understand the competitive landscape.
Marketing & Sales Plan: Outline your strategies for attracting customers and growing your sales. This should include both marketing initiatives and your sales process. If your sales cycle is complex, explain how you plan to navigate it.
Milestones/Roadmap: Lay out the key milestones you aim to achieve and when you plan to reach them. These milestones may include product development, important partnerships, and other significant goals. Investors want to know your roadmap for the future.
Company & Management: This section provides insights into your business’s structure, including your organization’s hierarchy and any important positions you need to fill. Introduce your team members and their backgrounds, emphasizing their roles in your business’s success.
Financial Plan: As mentioned earlier, this is where you present your financial projections, including profit and loss, cash flow, and balance sheets. It’s essential to create an optimistic yet realistic financial plan, documenting your assumptions and strategies for managing the business financially. Be prepared to answer detailed questions about your financials during investor meetings.
In summary, creating a convincing business plan and related documents is not just about presenting information; it’s a strategic process that helps you thoroughly analyze and plan your business. Investors value the thought and effort put into this process, as it demonstrates your commitment and readiness to navigate the challenges of entrepreneurship.