Raising capital is a difficult process
that has complexity, aggravation, headache, and heartache. However, while it is
a difficult process, it is not impossible, and diligent entrepreneurs can often
receive the funding they need. The information contained below will help you understand
the dynamics of a properly written business plan.
First, of course, the legal disclaimer
Please note that the information
in this article is not to be used as consulting, accounting, or legal advice. The
following information is provided with the understanding that this article is not
a substitute for professional advice, and is merely for informational purposes.
TheFinanceResource.com is not responsible for the use of any information contained
below or for the factual accuracy of any statements made below.
The first step to raising capital
is to develop a business plan that showcases your business in a rational manner.
This includes a description of the business, the products and services offered by
your business, market research about your industry, market research of your customers/competitors,
proforma financial statements (what you expect to earn over the next three to five
years), and the potential pitfalls, risks, and problems of the business. Too often,
we see business plans that either focus solely on the products/services of the business,
or exaggerate the financials or promise of the business. A great business plan shows
the business in a positive light, provides reasonable financial forecasts, and also
shows an understanding of the problems/risks of the business venture. Potential
investors want to know that you have thought through a business venture thoroughly,
and that you have drafted a plan that will clearly outline how the business will
start, and how the owner will deal with the problems and risks of the business.
A business plan should have the
An executive summary – The introduction to your business.
This section should contain a brief introduction about the business, the owner/senior
management, how much money is being sought and on what preliminary terms, the products/services
to be offered by your company, and a brief summary about the financial highlights.
An offering summary
– This part of the business plan
provides a brief overview of the investment that management is seeking. This section
should contain statements regarding how much money is sought, how these funds will
be used, the company’s exit strategy, and preliminary terms offered to an investor(s).
Products and Services Description
– This part of the business
plan should describe, in detail, the products and services you intend to market.
This description should contain a very clear understanding of what you offer, but
do not overwhelm this section with positive claims about your service. The key is
to describe positively; you are not selling your products/services to the investor.
Overview of the Organization – This section describes the corporate
entity, the mission statement, organizational objectives, and a biography for each
founder or senior officer of the business.
- Market Research and Strategic Analysis
– This analysis should contain a description of the general economic environment,
an analysis of your business’s industry, a demographic profile of your customers,
the scope of your market, and an analysis of your potential competitors. If your
business has significant operating complexity, legal issues, or external factor
issues, you should include documentation of in this section of the business plan.
Marketing Plan – This should document how to you
intend to promote, market, and advertise your business. This includes specific information
of where you should advertise, how you will market your products/services, and how
you will promote early and ongoing sales.
– This section should contain an
examination of the corporate hierarchy, and a list of employee positions and salaries,
and the number of employees that you expect.
Financial Plan – This section is the most important
part of your business plan. The reason you are starting a business is to make a
profit, and the key to developing a strong business plan is to develop a semi-conservative
financial statement that shows the profit/loss (monthly for the first year, and
quarterly for the next two to five years), cash flow analysis (monthly for the first
year, and quarterly for the next two to five years), balance sheet (yearly), breakeven
analysis, sensitivity analysis, and business ratios. You may want to have an accountant
or consultant help you with financials if you do not understand how to properly
draft a set of financial statements.
Problems and Risk
– This analysis should contain a
list and description of the problems and critical risks of the business, and how
you intend to deal with them. Be specific and be honest. Every potential investor
knows that EVERY business has issues and problems, and the key to running a successful
business is to understand these issues and to develop a proper plan for managing
Once you have finished your initial
draft, it is imperative that you review it, and review it again. It takes time to
perfect a business plan, and with each revision, your business plan will get better.
It is also important to remember that your business plan is only a roadmap to the
development of your business. It is highly unlikely that your business venture will
follow the plan that you have outlined. This is especially true in regards to the
financials of the plan. It is imperative that you develop a sensitivity analysis
for your financial plan. You should constantly question the validity of your model,
the product/service that you are selling, and the price point of your market.
Also, as you develop your business
plan, study your competition carefully. See how they are operating their businesses,
try to estimate the amount of business they are generating, and what they can improve
about their business. Do not assume that you have no competition for the market
you are entering. You will always have competition, and this is true even if you
have a great patented product you are selling. At some point, someone will sell
a product that is substantially similar to yours. If you really find that you have
no competition, then you should reevaluate your business model. No competition may
mean that there is simply not enough business for you to run a profitable business.
The best thing to see is bad competition. Companies that are providing products/service
that are similar to yours, but aren’t doing a good job means that you can enter
the market and blow them out of the water.
If you are having trouble writing
your business plan, drafting the financials, or developing the market research,
then it may be in your best interest to hire a firm that can help you write your
business plan. There is nothing wrong with receiving professional assistance that
knows how to write a proper business proposal. However, at the end of the day, no
one will care about your business the same way that you do. For many people, the
hardest part of writing a business plan are the financial statements that you must
develop. If you are not familiar with financial statements, then you should definitely
buy an introductory accounting book and begin to teach yourself accounting. You
can also enroll in many online and community college courses that will give you
a firm understanding of this science. It is absolutely necessary for a business
owner or senior manager of a business to have a command of accounting and how financial
statements are prepared. Otherwise you will have no other way of understanding where
your revenues are going.
Profit is the bottom line of any
business, and any business concept you have should focus equally on developing a
great product and creating a great profit. A business will not survive long without
It is also important to remember
that a business plan is not a legal document, and when you find an interested investor,
it is important to hire the proper legal and accounting professionals to assist
you in negotiating the investment, filing the proper forms, and ensuring that all
issues relating to the investment are done in a legal and prudent manner. The business
plan is not a contract, it is a sales and planning tool to generate capital. The
contract between you and an investor is known as a private placement document.
In conclusion, a well developed
business plan that examines the product/service you intend to sell, how much you
intend to make, the market you are entering, and your competition. Do not make the
mistake of turning your business plan into a product brochure. Banks and investors
want to see that you have an economically viable business, and you are not there
to sell them your product, you are there to sell them your business.