Refining Your Business Plan For Raising Capital

In order to tailor your business plan for raising capital you must understand what your specific audience wants to see and know when looking at your business plan. Follow these guidelines to refine your plan for raising capital:

For Bankers

Bankers want assurance of orderly repayment and they will want to see:

  • Amount of loan
  • How the funds will be used
  • What this will accomplish – how will it make the business stronger?
  • Requested repayment terms (number of years to repay). You will probably not have much negotiating room on interest rate but may be able to negotiate a longer repayment term, which will help cash flow.
  • Collateral offered, and a list of all existing liens against collateral.

For Investors

Investors have a different perspective. They are looking for dramatic growth, and they expect to share in the rewards:

  • Funds needed short term
  • Funds needed in two to five years
  • How the company will use the funds, and what this will accomplish for growth
  • Estimated return on investment
  • Exit strategy for investors (buyback, sale, or IPO)
  • Percent of ownership that you will give up to investors
  • Milestones or conditions that you will accept
  • Financial reporting to be provided
  • Involvement of investors on the board or in management

For Type of Business


  • Planned production levels
  • Anticipated levels of direct production costs and indirect (overhead) costs – how do these compare to industry averages (if available)?
  • Prices per product line
  • Gross profit margin, overall and for each product line
  • Production / capacity limits of planned physical plant
  • Production / capacity limits of equipment
  • Purchasing and inventory management procedures
  • New products under development or anticipated to come online after startup

Service Businesses

  • Service businesses sell intangible products. They are usually more flexible than other types of businesses, but they also have higher labor costs and generally very little in fixed assets
  • What are the key competitive factors in this industry?
  • Your prices
  • Methods used to set your prices
  • System of production management
  • Quality control procedures. Standard or accepted industry quality standards.
  • How will you measure labor productivity?
  • Percent of work subcontracted to other firms. Will you make a profit on subcontracting?
  • Credit, payment, and collections policies and procedures.
  • Strategy for keeping client base.

High Technology Companies

  • Economic outlook for the industry.
  • Will the company have information systems in place to manage rapidly changing prices, costs, and markets?
  • Will you be on the cutting edge with your products and services?
  • What is the status of research and development? And what is required to:
  • Bring the product or service to the market?
  • Keep the company competitive?
  • How does the company:
  • Protect intellectual property?
  • Avoid technological obsolescence?
  • Supply necessary capital?
  • Retain key personnel?

High-tech companies sometimes have to operate for a long time without profits and sometimes even without sales. If this fits your situation, a banker will probably not want to lend to you. Venture capitalists may invest, but your story must be very good. You must do longer-term financial forecasts to show when profit take-off is expected to occur. And your assumptions must be well documented and well argued.

Retail business

  • Company image.
  • Pricing: Explain markup policies. Prices should be profitable, competitive, and in accordance with company image.
  • Inventory: Selection and price should be consistent with company image.
  • Inventory level: find industry average numbers for annual inventory turnover rate (available in RMA book). Multiply your initial inventory investment by the average turnover rate. The result should be at least equal to your projected first year’s cost of goods sold. If it is not, you may not have enough budgeted for startup inventory.
  • Customer service policies: These should be competitive and in accord with company image.
  • Location: does it give the exposure that you need? Is it convenient for customers? Is it consistent with company image?
  • Promotion: methods used, cost. Does it project a consistent company image?
  • Credit: Do you extend credit to customers? If yes, do you really need to, and do you factor the cost into prices?



Your Easy Guide to Creating a Business Plan To Attract Investment

The following questions will help you answer what you need for your business plan.

I. What business are you in? What do you do? Many organizations have a brief mission statement, usually in 30 words or fewer, explaining their reason for being and their guiding principles. Goals are destinations, where you want your business to be. Objectives are progress markers along the way to goal achievement. For example, a goal might be to have a healthy, successful company that is a leader in customer service and that has a loyal customer following. Objectives might be annual sales targets and some specific measures of customer satisfaction.

What is important to you in business? To whom will you market your products? Is your industry a growth industry? What changes do you forsee in the industry, short term, and long term? How will your company be poised to take advantage of them? Describe your most important company strengths and core competencies. What factors will make the company succeed? What do you think your major competitive strengths will be? What background experience, skills, and strengths do you personally bring to this new venture?

Legal form of ownership: sole proprietor, partnership, Corporation, Limited liability corporation (L.L.C.)? Why have you selected this form?

II. Write your Executive Summary section last. Make it two pages or fewer. Include everything that you would cover in a five minute interview. Explain the fundamentals of the proposed business. What will your product be? Who will your customers be? Who are the owners? What do you think the future holds for your business and industry?

Make it enthusiastic, professional, complete, and concise. If applying for a loan, state clearly how much you want, precisely how you are going to use it, and how the money will make your business more profitable, thereby ensuring repayment.

III. Now outline a marketing strategy that is consistent with your niche. How will you get word out to customers? What media, why, and how often? Why this mix and not some other? Have you identified low-cost methods to get the most out of your promotional budget? Will you use methods other than paid advertising, such as trade shows, catalogs, dealer incentives, word of mouth (how will you stimulate it?), and network of friends or professionals? What image do you want to project? How do you want customers to see you?

In addition to advertising, what plans do you have for graphic image support? This includes things like logo design, cards and letterhead, brochures, signage, and interior design (if customers come to your place of business). Should you have a system to identify repeat customers and then systematically contact them?

How much will you spend on the items listed above? Before startup? (These numbers will go into your startup budget). Ongoing? (These numbers will go into your operating plan budget). Explain your method of setting prices. For most small businesses, having the lowest price is not a good policy. It robs you of needed profit margin; customers may not care as much about price as you think; and large competitors can under price you anyway. Usually you will do better to have average prices and compete on quality and service. Does your pricing strategy fit with what was revealed in your competitive analysis? Compare your prices with those of the competition. Are they higher, lower, the same? Why?

How important is price as a competitive factor? Do your intended customers really make their purchase decisions mostly on price?

IV. Products and services need to be described in depth on your products or services (technical specifications, drawings, photos, sales brochures, and other bulky items belong.

What factors will give you competitive advantages or disadvantages? Examples include level of quality or unique proprietary features. What are the pricing, fee, or leasing structures of your products or services?

 V. No matter how good your product and service, the venture cannot succeed without an effective marketing plan. And this begins with careful, systematic market research. It is very dangerous to assume that you already know about your intended market. You need to do market research to make sure you’re on track. Use the business planning process as your opportunity to uncover data and to question your marketing efforts. Your time will be well spent.

There are two kinds of market research: primary and secondary. Secondary research means using published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles. This type of information is available in public libraries, industry associations, chambers of commerce, from vendors who sell to your industry, and from government agencies. Start with your local library, and our favorite “librarian” Google. Your chamber of commerce has good information on the local area. Trade associations and trade publications often have excellent industry-specific data.

Primary research means gathering your own data. You could not do your own traffic count at a proposed location, use the yellow pages to identify competitors, and do surveys or focus-group interviews to learn about consumer preferences. Professional market research can be very costly, but there are many books that show small business owners how to do effective research themselves.

In your marketing plan, be as specific as possible, give statistics, numbers and sources. The marketing plan is the basis, later on, of all the all-important sales projection. You need to define the economics and facts about your industry as well. What is the total size of your market? What percent share of the market will you have? (This is important only if you think you will be a major factor in the market).

What is the current demand in your target market? What are the growth trends, trends in consumer preferences, and trends in product development? What’s the growth potential and opportunity for a business your size?

What are the barriers to entry that you face in entering the market? Typical barriers include high capital, production, and marketing costs, consumer acceptance and brand recognition, training and skills, unique technology and patents, unions, shipping costs, and tariff barriers and quotas. How will you overcome the barriers? How could change in technology, government regulations, economy, and industry affect your company?

VI. Explain the daily operation of the business, its location, equipment, people, processes, and surrounding environment. How and where are your products or services produced? Explain your methods of production techniques and costs, quality control, customer service, inventory control, and product development. What qualities do you need in a location? Describe the type of location you’ll have: your physical requirements such as amount of space, type of building, zoning, power, and other utilities.

Is it important that your location be convenient to transportation or to suppliers for access? Do you need easy walk-in access? What are your requirements for parking and proximity to freeway, airports, railroads, and shipping centers? Include a drawing or layout of your proposed facility if it is important, as it might be for a manufacturer.

VII. In your products and / or services section, you described your products and services as you see them. Now describe them from your customer’s point of view. List all of your major features and benefits. Describe the most important features. What is special about it? Describe the benefits. What will it do for the customer?

Your bottom line is your revenue, cost and expenses over the investment amount.

VIII. Who will manage the business on a day-to-day basis? What experience does that person bring to the business? What special or distinctive competencies do they have? Is there a plan for continuation of the business if this person is lost or incapacitated? If you’ll have more than 10 employees, create an organizational chart showing the management hierarchy and who is responsible for key functions. Include position descriptions for key employees. If you are seeking loans or investors, include resumes of owners and key employees.

List your professional and advisory support including Board of Directors, management advisory board, attorney, accountant, insurance agent, banker, consultants, and mentors or key advisors.

VIV. Include personal financial statements for each owner and major stockholder, showing assets and liabilities held outside the business and personal net worth. Owners will often draw on personal assets to finance the business, and these statements will show what is available. Bankers and investors usually want this information as well.

You will have many startup expenses before you even begin operating your business. It’s important to estimate these expenses accurately and then to plan where you will get sufficient capital. The more thorough your research efforts, the less chance that you will leave out important expenses or underestimate them.

Even with the best of research, however, opening a new business has a way of costing more than you anticipate. There are two ways to make allowances for surprise expenses. The first is to add a little “padding” to each item in the budget. The problem with this approach is that it destroys the accuracy of your carefully wrought plan. The second approach is to add a separate line item, called contingencies, to account for the unforeseeable. This is the approach we recommend.

Talk to others who have started similar businesses to get a good idea of how much to allow for contingencies. If you cannot get good information, we recommend a rule of thumb that contingencies should equal at least 20 percent of the total of all other startup expenses.

Explain your research and how you arrived at your forecasts of expenses. Give sources, amounts, and terms of proposed loans. Also explain in detail how much will be contributed by each investor and what percent ownership each will have.

Judging Business Plans

Most business plans would benefit from a more thoughtful and sophisticated approach to analyzing the company’s competition.  The issue is not, “Who are your competitors?”  Nor is it “What features do you have that your competitors don’t have?”  The important questions are:
  • What are the competitive dynamics in your industry?
  • What is the basis for competition?
  • Who are the dominant players, and how do they compete?
  • How do customers decide which product to buy?
  • How do you intend to position your company within this industry?
  • How do you know that your competitive position will be “enough” better to compel customers to buy?
  • What will you do to achieve your positioning?
  • What “alternative solutions” might compete with you, even though they are a different product?
  • What companies might enter the industry in the future?
If you want to write a really good section on “Competition” read the classic by Michael Porter:  Competitive Strategy, Free Press, New York, 1980.



Five Questions Money Seeking Businesses Must Answer

If you are among the entrepreneurs wishing to grow or start a business with the help of other people’s money (investors, banks, firms, or grants) you must be able to answer the five following questions briefly, concisely, clearly, and compellingly. These questions help your potential financier assess risk and potential reward.

  1. How do you, or will you, make money?Multiple revenue streams are better because variety allows the company to stay afloat even if some products or services fail or take longer to succeed or cost most to develop and deliver than anticipated.
  2. How much money do you wish to raise or borrow?Company founders often assume that business is intuitive and easy. Nothing could be farther from the truth. Startup businesses are so fragile that a single miscalculation can be fatal. Common errors are not raising enough capital, over spending, hiring and corporate structure errors.
  3. What will you do with the investment or loan amount? 

    Do you need the investment for marketing, manufacturing, legal expenses, or operational expenses (overhead items like office, staff, equipment).

  4. How will you pay back the money and when, or how will the investor earn a return?This is really the most important question and should be the focus of your presentation and numbers.
  5. What experience do you and your management team have in this industry and with prior investor’s money or loans?Most entrepreneurs are not able to think like investors and avoid the common errors. Position your team as experts, specialists, and the company’s sales team as well as leadership.

Give compelling answers to the questions above and greatly increase your chances for funding! Questions? Email Mike Will Downey.


Nine Steps to a Successful Business Plan Presentation Outline

Follow the outline below as closely as possible — not necessarily the sequence, but cover all the topics. Answer the most meaningful questions in the outline–not necessarily every one.

Add information you feel is important even if it is not in the outline. Try to allocate about the same amount of time to each topic in the outline.

Don’t get bogged down trying to describe products or technologies–if the risk exists, just talk about what the technology is used for. Try to answer the questions in the outline crisply and directly.  No time for long explanations.  You can elaborate later.

Don’t exaggerate.Be as factual as possible.  Be prepared to defend any claims you make if possible. Quantify claims whenever possible.  (Don’t say, “we’re going to make the best widget in the industry.”  Say, “our widget will have 200% more performance than existing widgets and it will cost 30% less.”)

If you don’t know the answer to an important question, don’t be afraid to say so.  No one expects you to have all the answers at this stage.  (“One of the reasons we need some money is so we can answer that question.”)

Don’t use busy charts.  It takes too long to explain them.  You have a little over one minute for each major topic.  A good format would be to have nine charts with simple reminder phrases for each of the important topics to be addressed on each.

Use graphics, pictures, charts, graphs, etc. if they will dramatize a point.  But make sure they are simple and easy to understand.  Explain the graphics carefully if necessary.

Keep asking yourself, “Would I invest in this business?  Why?”  The audience is interested in the investment promise of your business–not the technology.

Don’t try to say everything in your presentation.  It is just an “attention getter”.  You can explain the details later, assuming you succeed in creating some interest. 

1. Opportunity 

Summarize why you think there is an opportunity to build a new, successful company.  Why is this an exciting opportunity?  Why is it an exciting investment opportunity?  What kind of value might the company have in the future?  If you aren’t sure how to value the company in the future, use 1 x annual sales in the fifth year and 15 or 20 x net profits in the fifth year as reasonable estimates. Describe any other factors that make this an exciting opportunity.

2. History and Background

What is your background and previous experience.  Where did the idea for the company come from?  How did you get involved with the company.  When did the company begin operations?  What exactly does the company do? What is your long term vision for the company?  How has it been funded to date?  Where does it stand today?

3. Products and / or Technology

What, specifically, are the company’s products and what, if any, proprietary technologies are used to make them?  What do the products do?  What makes the products unique or special?  In general, how are they better than other products or alternative methods of solving the problem?  Why would the customer buy these products?  How much better are they than other solutions?  Can we demonstrate that they are cost effective?  Are there patents?  If so, what, specifically, to they protect?  Why will they be of value to the company?

4. Markets

What specific problem do the products solve?  For whom?  That is, who, specifically is the customer?  Why is the problem important?  Why will the customer buy our product?  How do we know the customer will buy?  How do we know the price the customer will pay for our product?  How large is the specific (narrowly defined) market for our product?  What growth is expected in this market?  How do you know the market exists?  How do you know customers will pay your price?

5. Competition

How else can the customer solve the problem our products solve?  What are the alternatives?  How do we compare to each?  Why are we better?  In what ways are we worse?  Who are the vendors of these other solutions?  How do they compete with each other?  Where will we fit into the industry?  Why will we be able to compete effectively against them for the next ten years?  Why are we confident that no new entrant will come along with a better solution and blow us away?  Why do you think you can dominate your market niche?

6. Management

Who is presently involved in managing the company?  What are their credentials?  Why are their backgrounds relevant to building this business?  Why will they be able to build a successful company?  If not all management spots are filled, what is the plan for filling them?  What kind of people are you seeking?  To fill what roles?  If you do not expect to be the CEO that builds the business to $10 or 20 million, what kind of person would you bring in?  When?  Who is on your board of directors?  How does the board function?

7. Business Strategy

What are the important strategies for building the business?  What kind of business will it be?  (manufacturing, service, distribution, software, combination?)  What is the business model?  (i.e. what will produce the company’s revenue?  What kind of gross margins will the company have?  What expense levels are required to run the business?  What level of operating profit can the business generate?)  Do you have any corporate partnerships in place?  Do you plan to put any in place?  What channels of distribution will you use to deliver your products to your customers?  How will these channels be established?  By whom?  When?  What are the significant risks to your business?

8. Manufacturing

What special issues relate to manufacturing the product(s)?  Any special materials or processes?  Any proprietary process?  What special equipment or facilities are required?  What investment is required to set up manufacturing?  For what capacity?  How do you know you can manufacture the product at a cost that will yield acceptable gross margins?

9. Finances

What kind of revenues can the business produce, on an annual basis, over the next five years?  Profits?  What investment is required to carry the company to the next major level of valuation?  What specific tasks need to be accomplished to do that?  How long will it take? (Try to identify a “next level” that can be achieved in less than 18 months.)  What investment will be required beyond that?  To the extent possible, explain key assumptions behind your forecast.  And make sure the forecast relates in a logical way to the market forecasts you described previously.  How will the investor get his money back?  Through an IPO?  Acquisition?  When?