Small Business Plans: How to Write a Plan That Gets Funded
To write a small business plan that gets funded by investors or lenders, you must put yourself in their minds and look at the plan from their points of view. Although they want many of the same things as you (a clear and actionable market opportunity, a strategy that makes sense for the opportunity, and a team that can implement that strategy), they will have a bit of a different focus when it comes to the financials.
Tips For Attracting Investors
Investors come in many varieties. Some are looking beyond financial returns and have an interest in supporting a small business owner and simply receiving dividends greater than the return they'd see in a safer investment, such as a money market fund, government bond, or certificate of deposit. Some are professional investors (angel investors or venture capitalists) interested in leveraging their expertise in helping companies launch in order to see outsized returns.
Outsized returns for a small business will likely result only from a liquidity event. A liquidity event, such as a strategic sale of the company or the receipt of an additional round of funding, sets a market value for shares in the company and gives investors the opportunity to cash out. To prove the potential for a strategic sale or additional round of funding (such as venture capital or private equity funding), explain the target companies for such an event and show the track record they have of acquiring or investing in businesses similar to yours. A section within the financial plan devoted to this exit strategy may be necessary.
Tips for Attracting Lenders
Lenders, on the other hand, do not take ownership in the company and, therefore, will not be as interested in the value of the company. However, they will be interested in the market value of the company's assets at any given time, especially assets which can be liquidated to recover some of their loan in the case of your company's default. This is how a lender can try to minimize the downside risk they face.
Otherwise, lenders will look for financial statements that show steady cash flow starting early on, allowing loan payments to be made on time. The cash flow statement must be backed up by the income statement, revenue projections, and explanation of financial assumptions. In short, they will want to see a well thought out business idea and the ability of your management to execute it, but will be less concerned with the upside potential for returns than an investor would be.
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