To access the funding market your client will need to develop a Business Plan.
Whether the client is approaching Business Angels, venture capitalists, trade investors, or its bankers, the client needs a Business Plan tailored to meet that specific requirement.
Crucial to the investor/ banker in assessing an investment/lending opportunity are:
- How great is the market opportunity for the product/service?
- How successful and complete is the management team?The initial approach to the potential source of funding is vitally important, a good introduction from a third party, and a well-prepared short form Business Plan as described in the next paragraph is an excellent start. The venture capitalist often reviews as many as 50/60 proposals for every investment that he makes. The preliminary screening of 10/15 minutes is make or break for the vast majority of proposals, break for many because they have been ill prepared. This document really should not be attempted until the main Business Plan document has been prepared.
The short form Business Plan combines in one concise document all the “unique selling points” of the proposal. This document should be two to five pages long and should be used to summarise the main business plan suitably referenced. It should not just be a summary of the longer plan as it represents the one chance to enthuse the potential funder/investor and should be written in that vein.
The main Business Plan should evidence the strength of the proposal. It should answer all the questions an investor might conceivably ask and should not hide deficiencies. It should identify them and indicate how they will be dealt with. Management should seek in the Business Plan to demonstrate its ability to manage.
The headings of the main Business Plan document we would anticipate seeing are as follows:
- Summary of opportunity discussed above.
- The business its history and current status.
- Management with full CVs (in an Appendix) and an organisation plan. This section should identify the logic of the management structure in the context of the business process:-
- The role of each senior manager should be described and his/her suitability for the role illustrated by their past experience, relevant skills and successes.
- Are all the relevant business functions adequately controlled? There are invariably functions where a small business will have weaknesses, which would inhibit growth. These need to be identified and their solution proposed.
- Is the management team prepared for the “cultural shock” of an outside investor? Can it demonstrate it is adequately resourced to control the business growth it is planning?
- The product/service– its competitive advantage and place in the market and the basis on which the business contracts.
- An analysis of where the product(s)/service fit(s) into the existing industry structure, the market and its various segments together with a detailed marketing strategy prepared in the light of that analysis. Our experience is that this is often not given the attention it needs, and the cost of marketing is invariably under provided.
- Production and operations-requirements, policies (for example in respect of supply) service standards, and procedures.
- Staff requirements and industrial relations. This would include an analysis of the specific skills needed, their availability, cost, loyalty, etc.
- Potential risks and pitfalls and planned responses. This is an opportunity for management to demonstrate their ability to identify weaknesses and how they plan to mitigate them.
- Financial statements (including audited accounts) and projections for at least three years. The pack should include both a detailed profit and loss and cash flow forecast, month by month for 2 years and quarterly thereafter. Balance Sheet projections should be provided on an annual basis. It is absolutely vital that such projections are backed up with a complete list of stated assumptions cross referenced to the main body of the plan. We would hope to see the cash flow forecast indicating a significant positive cash flow trend before the end of year 2 of the forecast period, as without this the return from investment is unlikely to meet investors’ requirements. It is the cash flow document, which is going to demonstrate the quantum of the funding requirement.
- Sensitivity analyses to identify key assumptions and break-even levels to prove that the business can withstand reasonable fluctuations.
For assistance creating a Business Plan, we would recommend AMB Associates Limited. They have a 30 year proven track record of successfully experience in delivering strategic solutions to a broad breath of company and market sector.
Their website is at http://www.amb-associates.com.