A Business Plan Takes Your Vision For The Future and
Puts It Down On Paper For Others To Understand
There comes a point for most small companies when capital is needed to grow the business. It may be a new product idea, a tantalizing market opportunity or an innovative sales technology tool that can boost revenue and profits—but money is needed to invest in these opportunities.
A carefully thought-out and executed business plan can mean the difference between leaving a bank or other capital provider with pockets full or empty. Here are a few crucial tips to help increase the chances of the former.
Know What You Seek
Too many business plans fail to articulate the important reasons why you need growth capital and why the amount you’ve specified is the right figure. They can get lost in describing the company, when what the bank wants to read in the first paragraph is a succinct summary of how much money you want and for what purposes.
The writer of the business plan should describe in brief, understandable and compelling language the value of the growth opportunity to your business. Once presented as a simple story, transform this narrative into dollar figures—that is, how the money will be spent and the timing of the return you expect from this investment.
Plain & Simple Does It
It’s easy for a business owner to let ambition get in the way of truthfully describing the organization and its goals. Banks and venture capital providers are professionals able to spot a gilded lily in two paragraphs.
Resist over-telling your story with over-the-top growth rates and financial projections. Stick to historical facts and figures—verifiable (if not audited) internal data, as well as external data from independent third-party providers. Resist exaggeration and overstatements and, when it comes to financial projections, qualify them with words like “may,” “might” and “could.”
“A good business plan for securing any stage of capital validates the key assumptions and turns them into data,” said Dirk Brown, director of the Faber Entrepreneurship Center at the University of South Carolina’s Darla Moore School of Business, where he is a clinical professor in the College of Engineering and Computing.
Be Honest About the Risks
Even rosy projections have thorns. State these risks early in your business plan, getting them out of the way quickly to dwell more deeply on the potential rewards. Point out how the plan may mitigate these threats, if not eliminate them. Banks and other capital lenders understand that business is a chess game with ebbs and flows. Point out your competitors and their strengths and strategies.
Sweeping the risks under the rug only makes their absence stand out. Capital seekers should provide “a clear understanding of how the organization is well positioned to manage the company across a broad range of scenarios, given that we all know things won’t work exactly according to plan,” Brown said. “It also demonstrates that the executive team has thought through these scenarios and is prepared to adjust or pivot the plan as needed.”
Know Your Capital Provider
Banks are driven by different needs than other capital providers, such as venture capitalists. Both have a stake in your ability to deliver on the terms of the agreement, but venture capitalists are looking for sustainable growth and exponential scalability—fast-paced business expansion.
If your company does not have an idea that truly sets it apart from the competition, chances are venture capital firms will pass. Banks, on the other hand, primarily want surety that you can pay back the loan on time, over time. The more sure a bank is about your business in this regard, the greater the likelihood that it will lend a higher amount at a lower rate.
There’s Help If You Want It
Organizations such as the U.S. Small Business Administration (SBA) and local chambers of commerce can help small companies draft a business plan with strong legs underneath. The SBA, for instance, has templates that business owners and operators can use to start the process.
The templates help guide the business plan writer to explain how the organization will use the funds it receives, such as to retire debt, to invest in a new technology system or to fund working capital needs. Different types of funding are addressed, such as equity and debt capital. There’s also a breakeven analysis tool to show how your sales revenue can cover both your ongoing fixed and variable business expenses and the loan repayment amount.
No company should go half-armed when battling for dollars. An honest, well-written business plan can win the day, but it is the planning that goes into the document that can be key. As Dwight Eisenhower said, “Plans are nothing. Planning is everything.”
If you would like learn more about how you can create a powerful and effective business plan that will help you secure growth funding, call Coach Michael Stelter at Advanced Business Coaching, Inc. (262) 293.3166.