How To Write A Business Plan To Secure Funding

When most entrepreneurs need funding to start or grow their business, they quickly learn one key fact: They need a business plan.

Just as you need a resume to apply for a job or a completed application to gain admittance to a university, business plans are required to apply for business financing.

And like resumes and college applications, business plans are viewed as a necessary evil by most entrepreneurs.

Yet, this shouldn’t be the case. Because unlike completing your resume or college application, the process of completing your business plan has been proven to improve your success—not only in gaining funding, but when executing on your business.

Why Business Plans are Important for Securing Funding

Business plans are a critical part of most business loan requirements. Funding sources like lenders and investors often review written company materials before investing. In the public markets, they review annual reports and other financial filings to determine the health and prospects of a company and whether or not they should invest.

The same process holds true when assessing private companies like yours. You need to present a business plan that paints the right picture of your business: one that gets investors and lenders excited to work with you. Here are some reasons to invest the time in creating an in-depth business plan. 

It Acts Like an Annual Report

Look at your business plan like a public company’s annual report. In an annual report, you’ll quickly notice that it’s much more of a marketing document than a research report. Annual reports include quality pictures and graphics, they highlight the company’s top accomplishments, and they paint a pretty picture of future prospects

You should also include market research on competitors. Instead of a massive data-dump, however,  paint a picture of your company’s path to success in the future. 

It Sets Clear Milestones

The process of writing a business plan is a good exercise for internal stakeholders as well. It helps you formalize your company’s goals and identify the steps you need in order to get there. Funding sources want to see that the business has a strategic plan for every anticipated stage of growth.

It Minimizes Risk

With milestones and a strategic vision in place, you’ll have the focus of where to prioritize financial and human resources. You can identify potential issues based on those strategies and create backup plans before issues arise.

What to Include in a Business Plan for Funding

There are four primary components of a business plan: executive summary, the market analysis, financial details, and the funding request. Here’s what to include in each section to maximize your chances of success.

Executive Summary

Start your business plan with an executive summary that provides a quick overview of the most important points from the rest of the business plan. It’s also a chance to introduce the company as a whole such as its mission statement, products and services and management team.

Market Analysis

Detail the target market need or pain: All great companies solve a real customer need or pain. Create a solution and understand both the size of your market and the future trajectory. Is it growing or shrinking? 

Detail both your direct and indirect competition. If there is a real customer need or pain, other companies must be trying to solve it already. In your plan, you must detail how they are solving the need currently. For example, when eBay first launched, it realized that the need for selling personal products was being met by yard or garage sales (indirect competition). This proved that there was a market need or pain.

While researching competitors for your business plan, explain what both their strengths and weaknesses are and pinpoint your strategy for differentiating your own company. 

Financial Information

Provide detailed information on how the company is currently performing and create a credible financial model. Creating a financial model that shows your company’s sales skyrocketing could do more harm than good. Investors and lenders understand that all businesses have ups and downs and that all growth takes time.

In developing your financial model, think through the timing of your growth projections. How long will it take to hire and train the right employees? How long will it take to repeatedly get your marketing message in front of customers until they buy? These processes generally take longer than you initially think. And during this time, you are often incurring expenses and generating less revenue than projected, which could result in a cash flow crunch.

Be careful to consider slower growth scenarios so you don’t run out of cash.

Funding Request

There are a few key sections to include in your requests for funding.

First, clearly state how much total funding you need, as well as the timeframe over which the funds will be used. Instead of grabbing a random number, give a detailed explanation of why and how the funds will be used. 

Also, outline any specific terms and conditions you need. Are you looking for an installment loan, line of credit, or another type of funding structure? All of these details should be answered as part of the funding request.

Finally, provide information on any loans you already have and what your expected repayment plan for the existing loan and the new loan would look like.

The right business plan will get investors and lenders excited to write you a check that allows you to dramatically grow your company. And the right plan will keep you and your team motivated and on track to achieve your long-term objectives. So, don’t treat your plan as a necessary evil. Rather, treat it as an investment that can give you a significant ROI.

_{Information provided on this blog is for educational purposes only, and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strives to keep its content up-to-date, it is only accurate as of the date posted. Offers or trends may expire, or may no longer be relevant.}