12 questions that your business plan must address if you are to get financing

The real value in preparing a business plan is not so much in the finished document itself but in the process the entrepreneur goes through to create it, a process in which he or she learns how to compete successfully in the marketplace.

A solid plan is essential to raising the capital needed to start a business; lenders and investors need it. Lenders and investors are favourably impressed by entrepreneurs who are informed and prepared when requesting a loan or an investment.

When attempting to secure funds from professional venture capitalists or private ventures, the written business plan almost always precedes the opportunity to meet “face-to-face”.

  1. What is the problem?

A clear illustration of the problem that your company intends to solve is essential to a successful presentation. This has to be clearly stated in your presentation in the simplest of words so that the would-be lender or investor knows what exactly what your proposal is all about.

  1. What is your company’s solution to the problem?

How does your company’s product or service provide a unique or improved solution to the problem? Your presentation should emphasize the competitive advantage that your business offers. Lenders and investors shy away from businesses that suggest “me-too” solutions that offer no benefits over existing solutions to a problem.

  1. What is your company’s business model?

In other words, what is your strategy for building a successful and sustainable business? A company’s strategy determines its success in its attempts to capitalize on a market opportunity. The wrong strategy, even though a management team may execute it to perfection will cause a company to fail every time. Be sure that your presentation shows how your company will generate sales and profit, both of which are very important to potential lenders and investors.

  1. What is your company’s underlying technology or magic?

Has your company developed unique technology, approach, to the market, or some other “magic”? If so, explain it in simple, non-technical terms. Do you have patents, trademarks, or copyright to protect the “magic” component of your company? How long will it take competitors to replicate your company’s magic?

  1. What is your company’s marketing strategy?

Who are the target customers at whom your company is aiming its products or services? How much do you know about them? What drives their purchase decision? How will you reach them? Although market research reports are important, and can provide the foundation of a marketing plan, convincing potential lenders and investors requires providing feedback or firm commitments from actual customers. What surreys or test marketing efforts have you conducted? Lenders and investors want solid proof of a strong base of customers exists for your company’s product or service. The marketing strategy question is the one that most entrepreneurs fail to answer sufficiently. Don’t let this happen to you.

  1. What is your company’s sales strategy?

In other words, how will you connect with (and stay connected with) your customers? One helpful tool when answering this question is to explain how you will communicate your company’s unique selling point (USP), the key customer benefit of a product or service that sets it apart from the competition, to your customers and why it matters to them. Is your product or service a luxury, a “nice to have” or a “must-have”? Which channels of distribution will your company use? How important are repeated sales? What will you do to capture them?

  1. Who are your competitors and what can you learn from them?

Every business has competitors, and entrepreneurs who claim that their companies face no competition make lenders and investors nervous. What do your competitors do well? What can your company learn from your competitors and leverage on? Be specific. When discussing the competition, be sure to identify your company’s competitive advantage.

  1. Who are the members of your team and what makes them uniquely qualified to create this business?

Lenders and investors want to see a sound business strategy aimed at solving a real customer problem, but what they really put their money in is the management team. In your presentation, be sure to emphasize your management’s team’s qualifications and experience. Have you or your co-founders launched other companies? If your organization chart has holes in it, to be honest about it but be prepared to address how you plan to fill those holes. Inexperienced entrepreneurs should consider creating a board of advisors who can bring experience and expertise.

  1. What is your financial forecast?

Business plans are once included in five years of financial forecast. Today’s potential lenders and investors know that any long-range financial forecasts usually are just guesses and are unreliable. You should include a summary of your company’s income statements for three years (or more), focusing on sales, major expenses, and net income. You should also demonstrate an understanding of the importance of cash flow to your company’s future. Ensure that all of your financial forecasts are realistic, otherwise, you lose all credibility with lenders and investors – and with all hope of receiving financing.

  1. How much capital will your company require now and three years in the future?

How much money have you raised? Where did it come from? How much money does your company need and how do you intend to use it?

  1. What is the exit strategy?

Before potential lenders and investors put money into a business, they want to know how they will get it back – preferably with an attractive rate of return. Depending on the type of investors with whom you are dealing, the time frame for executing the exit strategy may be from three to ten years or more. Two common exit strategies include selling the company to a larger business and making an initial public offering, but only a handful of small companies will qualify for the latter.

An initial public offering or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also retail investors. An IPO allows a company to raise capital from public investors. Meanwhile, it also allows public investors to participate in the offering.

  1. What are the risk factors?

Every business involves risk. Entrepreneurs must walk a fine line with this question, however, dwelling too much on the risks associated with the business can dissuade potential lenders and investors. Ignoring the risks altogether makes an entrepreneur appear to be unprepared, unrealistic or dishonest. What market, financial, technological, and management risks does your company face?

Once you have answered these 12 questions, it is time for you to summarize the key points of your presentation and use this opportunity to extend a call to action to the potential lenders and investors in your audience