When you start your own company, you’re in for a marathon rather than a sprint. You’ll hit tons of milestones—some of which are more challenging than others. Writing a business plan for funding, be it for a loan or an investor, can seem like one of the more daunting tasks for an entrepreneur. This is especially true if you’re doing it for the first time (or if you don’t consider yourself to be much of a wordsmith).
But writing a business plan for funding your company appears to be scarier than it really is. In fact, the typical funding request in a business plan follows a fairly boilerplate format. Your would-be business funders want to see specific details about your business (or, if you’re just starting up, what you expect your business to be). So long as you cover these details, know your financials by heart, and can write convincingly about why your business plan and funding requirements make sense, you can take this challenge on without breaking a sweat.
Why Do You Need a Business Plan for Funding Your Company?
The rationale behind drafting a business plan for funding a business is simple: Would-be investors and lenders want to know what they are getting themselves into. Just as you would want to know the specifics of a mutual fund or stock portfolio before you put down money, your investors and creditors want to know if funding your business is a sound idea.
It’s not easy for early investors or lenders to measure a company’s performance. There isn’t a ton of financial history available about new businesses, which means that you have to provide much more information about your vision and projected revenue to help them get a full view of what you’re doing. Plus, some loans require a business loan proposal with your application—such as SBA 7(a) and SBA 504/CDC loans.
So long as you know why you’re creating a business plan for funding, whether that means investments or loans, you can ensure that your would-be investors have all the details they need. Here’s an overview of why you need a business plan for funding your company successfully.
1. To Help Investors Know About Your Business
Before any investor makes the plunge to help you fund your business, they will want to know what it is that your company does. Sounds simple enough, right? Your business plan for funding serves as an official introduction to your company and builds upon any prior conversations you’ve had about what it does.
2. To Share Your Business Objectives and Goals
Investors will want to know what your goals are for your company once they understand exactly what it does. You’ve already addressed what your business is—now you need to explain your vision.
3. To Explain Your Current Financials and Future Projections
Once you’ve explained your vision for the company, you’ll need to dive into the financial details of how you plan to make it happen. You need to provide investors with a complete glimpse into your financial situation in order to make a compelling case for your business.
4. To Persuade Investors to Help Fund Your Business
The numbers tend to do the talking in a business plan for funding opportunities, but that doesn’t mean that you shouldn’t create a compelling case for why you want an investment through other means. A persuasive argument complements robust financials, and a business plan for funding allows you to make your case.
What Should You Include When Writing a Business Plan for Funding?
Now that you know why a business plan for funding is essential, the next step in the process is knowing what you need to cover. Thankfully, the topics covered in your business plan for funding are pretty boilerplate. Investors know what to expect from the typical business plan—so long as you cover them satisfactorily, you’ll provide all the standard details one might want to know about your company. Here are the core components of a successful business plan for funding.
1. An Executive Summary
The executive summary should cover the essential information about your business: what it does, who it serves, and what you’re looking for from the people who read it. A strong executive summary hits upon the problem your company solves, your target market, competitors in the space, and a brief section on your colleagues.
Tailor your executive summary toward investors if you’re writing a business plan for funding. Make sure that it provides the valuable financial information and value proposition behind investing in your company. Sometimes it’s easier to write the executive summary last, as you’ll have an easier time summarizing the other topics you’ve covered in detail elsewhere.
2. Your Business Opportunity
Your executive summary covered the basics behind what your company does, but the opportunity section dives deeper into what sets your company apart and makes it a particularly worthy investment.
Here, you’ll want to get into the nitty-gritty about your product or service, the target market, and how you differentiate your business from your competitors. Show your potential investors why you deserve their money, and back it up with data. The best way to do this is by detailing market share insights within your business plan. For example, discuss the following:
- Total available market: The number of potential customers you could reach
- Segmented addressable market: The portion of the market you actually target from within the total number of potential customers
- Share of market: The amount of customers you believe your company can reasonably reach within your segmented addressable market
Next, you’ll need to cover your key customers—the people within the share of market category. These are the people you intend to target the most. Feel free to go into detail on who they are (as a group, not individually of course), why you’ve selected them, and how they align with leading influencers in your industry.
3. Your Company’s Current Financials
Now that you’ve provided an overview of the potential market for your goods or services, you’ll want to dive into your company’s financials. Don’t be shy on details for this section—your investors need to have a full picture of your company’s current performance, as well as your future revenue projections.
If you’re just getting your company off the ground and don’t have revenue to show yet, be sure to include detailed income and expense projections instead. The more information you can provide about your company, the better your odds are at getting funded.
4. Your Current (and Future) Loan Requirements
This section should include your current funding request, as well as any anticipated funding requirement in the foreseeable future. Be candid and upfront about why you’re requesting a loan or investment in your company, outlining precisely what you expect your needs to be based on your bookkeeping and financial forecasting.
5. A Description of How You’ll Use the Funds
Creditors and investors won’t just want to know how much money you need. They’ll also expect to know what you intend to do with the money they give you. After all, it’s in their best interest to understand how you plan to spend these funds—this can help lenders and investors determine if your plans are sound and can yield the best chance of repayment possible.
6. Your Current (or Future) Loan Repayment Plans
Your prospective lenders and investors need to know about any outstanding investments in your company, or loans you’ve already taken out. And if you’re starting out with neither of those two, you’ll need to provide this information to give your funders a full sense of your business financials.
An outline of your current and expected loan repayment plans gives these groups a better understanding of how you intend to pay them back. A strong repayment plan is an essential part of a successful business plan for funding. The more convincing your plan, the less risky your business appears.
7. A Brief Description of Your Team
Creditors and investors don’t just want to know the financial ins and outs of your business. They want to know more about the people within your company itself, too. This is particularly true if members of your organization come with a distinguished background. Anything you can boast about with regards to personnel could help woo investors.
If your loan application requires a business plan, you’ll have to do more than just provide team member bios. Get ready to spill the details on your own financial history (and that of any co-signer on the loan), as creditors want to know if you have a personal history of solvency and debt repayment.
8. An Appendix (If Necessary)
Your appendix is the ideal place for any information or graphics that don’t quite flow with the rest of your proposal. Say, for example, that you want to include more details about your revenue projection. Putting this information in the main text of your proposal could shift focus away from the essential details about your request. Place these materials at the end of the proposal document, and opt for an in-text citation for these materials instead.
How a Business Plan for Funding Differs Between Investors and Lenders
A business plan for funding through loans looks different than a proposal that you’d present to prospective investors. Lenders are interested in your business plan, surely, but their primary concern is your company’s financial outlook, as well as when and how you intend to pay back your loan.
If you’re drafting a plan for lenders, make sure you include the following:
- Loan amount
- Loan purpose
- Personal credit score
- Business credit score
- Time in business
- Industry
- Entity type
- Business licenses and permits
- Employer identification number (EIN)
- Proof of collateral
- Annual business revenue and profit
- Bank statements
- Balance sheet
- Personal and business tax returns
- A copy of your commercial lease
- Disclosure of other debt
- Unpaid invoices and bills
- Ownership structure
- Legal contracts and agreements
Note that each lender may ask for some of these materials, and others may ask for even more than what’s listed here. Be sure to ask before submitting your application to forestall any delays during the loan review process.
How to Write Your Best Business Plan for Funding
We’ve sorted out why you need a business plan for funding through loans and investors, as well as what to include. But actually writing the proposal can be a challenging task in its own right. There are plenty of approaches you can take to the text to make it fit your style, but these essential tips work across the board with nearly every business plan.
1. Keep It Brief
When writing your business plan for funding, use easily understood language, small sentences and paragraphs, and do not assume that your audience knows your business as well as you do. This is not the place to impress your would-be funders through sesquipedalian loquaciousness (i.e. using a lot of big words when a few small words do the trick).
2. Keep It Customized
Writing to your audience isn’t just a matter of using succinct language. Persuasive language also requires you to customize your business plan for different kinds of investors and lenders. An investment proposition is a different animal than a business plan for funding through a loan. Know what your potential funder is looking for within the opportunity you present, and cater to them.
3. Keep Your Chin Up
Most entrepreneurs will say that confidence is key. When you believe in yourself and your business, you stand a better chance of getting others to believe as well. Your business plan should exude confidence in your company’s present and future (but not cockiness, of course). Convince the funder that you, as well as your business, are worth the investment.
Getting funding requires a good bit of work, patience, and perseverance. But the best thing any small business owner can do is to know the ins and outs of their company, as well as the standard requirements of a business plan. By covering all of the major details, writing to your audience in a persuasive manner, and demonstrating the strengths of your company, you can make the process a much smoother one. And in the end, you’ll find that this mile marker on your small business journey feels a bit easier to hit than it seemed in the beginning.
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from Fundera Ledger https://www.fundera.com/blog/business-plan-for-funding/
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