Every business should have a business plan in place that it works to and compares its performance against. These are usually functional plans that have the intention of serving as a guide to management, but may not be the best plan for impressing potential sources of funding for the business. Businesses often need to borrow money or attract investment capital, and when doing so need a business plan that’s both realistic and will demonstrate to those not involved in the enterprise that the business is well managed and has clearly worked through its organisational and marketing issues. These are the areas investors pay close attention to when scrutinising a business plan.
What it is that you’re selling?
You aren’t just selling products. You’re marketing a package that adds up to your value proposition. It includes product, sales and service, and even the image of the company. You need to be very clear about just what it is you’re selling and show that there is a real demand for it in the marketplace. Not every product, especially in high technology areas, will be familiar to investors. They may not use it themselves and have a hard time working out just what its potential really is. Describe what it is, how and where it’s used, and who buys it. Convey a sense of why it’s needed and describe the needs it satisfies.
Who you’re competing against
No investor would put money into a company whose business plan claims it has no competitors. If there’s nobody else in the marketplace, what’s wrong with it? And if you’re unaware of the competitors you’re fighting with for a share of the market you don’t represent a good risk. Identify and analyse your competitors in detail. Give a profile of their strengths and weaknesses against your own company, then show how you propose to gain business from each of them. Prove that you’re able to profitably employ the capital you borrow to grow your business.
Who you’re selling to
Successful businesses know exactly who their products will sell to. They know about their customers and prospects – especially how to market to them. You need to describe your customers and why your product appeals to them. How will you bridge the gap between your company and prospects that don’t know you or those that buy from someone else? It’s even better if you can provide a demographic and behavioural analysis of your customers. This will demonstrate that you understand your customers and thereby infer that you will succeed in satisfying their needs with your product.
How you’ll use the money
There’s no point in approaching an investor with a request for funds simply to advertise more or put on another salesperson. You need to show end-to-end how the funds will be applied to the business and what they’re going to accomplish. Investing additional capital will impact on several areas of the business – it may mean increased production which will then require additional sales which will then raise marketing costs, and so on. All this needs to be clearly documented so the business plan accurately models the revised structure of the enterprise.
How you’ll repay the money
The final, and probably the most critical part of the business plan, is to show how the business will repay the money it’s borrowed. Borrowing fresh capital will increase the amount the business has to generate to pay off its debt; any increase in borrowing needs to be offset by a commensurate increase in funds generated for this purpose. Business plans are useful tools for any organisation, but a business plan presented to a potential source of funds needs to be prepared specifically for this purpose.