Last year, we wrote to you about how you can position your startup for funding. We noted that most startups fail. Failure is more frequent than success in that startup life. It is difficult to run a startup, but it is also rewarding. We therefore offered a guide that detailed how to position yourself for funding. We began with creating a detailed business plan. Today, we will expatiate.
Why is a business plan important?
Typically, a business plan will help you get funding or bring on new partners. Investors want to see your business plan so that they are confident about returns on their investments. In this regard, a business plan should convince people that working with you or investing in your company is a smart choice. However, a business plan can also guide you through each stage of starting and managing your business. It should remind you of the key elements of your venture, and serves as a roadmap for how to structure, run and grow your business.
What are the important considerations for your business plan? What are the points that serious investors will objectively consider?
First, your management. Investors want to know how much experience the manager/management possesses, their educational background and track record. Second, what problems are you trying to solve? What is your unique, sustainable solution? Uniqueness is important because it determines how competitive your market will be.
Importantly, ROI. How much return on investments are you promising and how long will it take before you become profitable? Also, can your business scale up? Can your business expand? Can it cater for a larger pool of customers? Can your process be replicated? Is your structure entirely fixed on you?
Finally, what is the exit plan? Private equity investors, especially, do not want to get stuck. They want to provide capital and support for your company, then sell out to other investors. This is why your business must be attractive to other potential investors.
Forms of business plan
Most business plans are either traditional or lean. Traditional business plans are more common – they use a standard structure and encourage going into details. Traditional business plans require more work and can be dozens of pages long. While lean startup business plans still use a standard structure, they summarize only the most important points and are typically one page.
Parts of a business plan
When you write a business plan, you are not expected to stick to an exact outline. Instead, use the sections that make the most sense for your business, your business and your needs. Most business plans, however, contain the following, necessary parts.
- The executive summary
In the executive summary, briefly tell your reader what your business is and why it exists. You should include your mission statement, product or service, and basic information about your leadership, staff and location. If you plan to ask for funding, you may also include financial information.
- Company description
Here, you may go into details about your company – the problems your business solves. List out the consumers, organization or business your company plans to serve. You may thereafter explain the competitive advantages that will make your business a success. Use your company description to boast about your strengths.
- Market analysis
You would need to show a good understanding of your industry and target market. What are other businesses doing, what are their strengths and weaknesses? What are the trends, themes, best practices? What can you do better? Now is the time to answer these questions.
- Organization and management
Describe the legal structure of your business. You should state whether it has been registered as a legal entity and the form it was registered as. You should also include an organizational chart to portray the organizational structure – who is in charge, who else is involved and how everyone’s unique experience will contribute to the success of your business. You may also include resumes of key members of your team.
- Service or product line
Explain the product you sell or the service you provide. Explain how it benefits your customers and what your product lifecycle looks like.
- Marketing and sales
In this section, describe how you will attract and retain customers. What is your marketing strategy and how does it fit your unique needs? How exact will a sale happen?
- Funding request
If you are asking for funding, you would need to outline your funding requirements. Here, your objective would be to clearly explain how much funding you would need over a specific period and what you would use it for. Would you buy equipment or materials, pay salaries or cover other running costs? Specify whether you want debt or equity, the length of time and the terms of the investments.
- Financial projections
Your most important goal is to convince your reader that your business will be a financial success. You would therefore need to accompany your funding request with financial projections. If your business already exists, include income statements, balance sheets and cash flow statements for the last three to five years.
Provide a prospective financial outlook for the next five years. Include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. Endeavor to explain your projections and match them to your funding requests. You may employ the use of graphs and charts to tell an intriguing story.
- Appendix
Finally, use an appendix to provide supporting documents or other materials that were requested.
This is all we can take for now. If you are growing African business looking to expand through venture funding, we’d love to hear from you. Simply fill our contact form. Thank you.