Alexei Garan, Head of Business Funding at Shaw & Co, shares some essentials for business owners to consider when preparing a business plan for growth funding.
Unfortunately, doing this comes with great risk. A lot of that risk derives from being unprepared for funder scrutiny of your business plan. When a weak business plan is presented to a funder, you can quickly lose their confidence and jeopardise your chances of securing funding.
"It’s always better to be challenged by your corporate finance advisor rather than a funder!"
Conversely, having a robust business plan generates vital funder confidence and increases your chances of securing the funding you need. Remember that it’s always better to be challenged by your corporate finance advisor rather than a funder!
Here are six essentials to get right when preparing a business plan that will increase that funder confidence and maximise your chances of securing funding:
Every business needs their business plan to be an up-to-date working document. A funder can easily spot plans coming straight from a drawer or those that are stale! Your business plan should be a live document, regularly reviewed and updated as new information emerges. A good plan will underpin your company’s strategy and operations, clarifying your purpose, helping you to spot potential threats, setting objectives and measuring your progress. Most importantly, without a clear, robust – and searingly honest - business plan, any application for funding or equity investment will not be taken seriously.
Wild and unsubstantiated assumptions in the business plan are a huge turn off for funders. Being able to substantiate your assumptions, and that your plan is achievable, drives funder confidence in that you’re a prudent investment for their capital. It’s easier to believe you’ll double next year’s sales if you doubled them last year, than it is to accept you’ll win 5% of Google’s revenue in your first year with no supporting evidence.
Using management tools such as SWOT, Porters 5-Forces and Resource Based View (RBV) can help you identify the drivers of your competitive advantage in your business plan. This will help you analyse which projects will make you stronger by overcoming existing weaknesses, which opportunities in your marketplace will help you grow faster, and what macro-economic forces you need to defend against.
Your leadership team should apply these (and other) models as part of the annual business review. It’s tempting to pay lip service to these models, but using them in the right way can demonstrate to a funder that you have a good grip on the challenges facing your business and the opportunities to pursue.
To make an investment decision in your business, a funder needs confidence in your unique selling proposition (USP). It is easy to overlook what makes you different from your competitors, so you must be able to articulate why and how customers buy from you, how you’re defending your USPs against the competition and what your innovation roadmap looks like. You also need to explain if your business carries the right level of resources (human, financial and technological) needed to deliver the plan .
One of the easiest ways to lose funder confidence is by over- or under-estimating the Total Addressable Market (TAM). Being able to substantiate the size of your market, how it will change and what share of revenue you are targeting among all competitors is critical information for a funder. Accurate market analysis can demonstrate to a funder that your plan is realistic and achievable, making you a prudent investment.
Your business plan must contain robust commentary on your historical and current financial performance, and expectations for the next 3-5 years. You can quickly lose funder confidence if you don’t know your numbers or can’t answer their questions (see our dedicated blog on financial modelling here).
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