How to create a business plan for investors
A solid business plan is your key to attract the attention of the investors you want to work with, which can have a massive impact on the future of your firm.
The best investors, especially in the early stages of a new or small business, are more likely to get closely involved with the day-to-day running of the business and share their insight and expertise.
If you have a good innovation or business idea, but you don't have much experience of running a new company, the extra insight an experienced investor can give to you can make a world of difference and give you the competitive advantage you need.
Even if you don't know much about running a commercial organization, it's a good idea to learn how to write a startup business plan for investors, who might take the form of angel investors, venture capitalists, or venture capital firms.
By writing a compelling business plan, you can reach out to the brightest minds in your industry or local area and have the best chance to bring them on board with your venture.
On top of this, a clear business model combined with a fair financial plan can help to make sure you don't give away more equity than necessary in your seed investment round.
As a result, you hold on to more of your business, which you can later offer as equity in Series A, B and C financing, or just retain ownership and enjoy more of your company's profits.
What do investors want to see in a business plan?
When you write a business plan for investors, it's essential to keep in mind what they will be hoping to read.
Knowing what investors look for in a business plan is the first step towards compiling a route map for your company's future that will also help you to attract higher levels of investment.
This sits at the heart of your business plan investment proposal and helps to show potential investors that you have been rigorous in your research and planning for success.
Think about the reason why you are writing a business plan. It's not just to inform investors about your company; it is also to persuade them to support you.
As such, be positive, ambitious but realistic, and make sure throughout your business plan that you answer any obvious questions such as how and why you want to bring your innovation to market.
Remember that investors are just people too. They want to know where their money is going and feel confident that they can make a good return on their investment.
In many cases, your business plan is the most physical evidence potential investors have to help them decide whether or not they want to back your venture.
Make sure it includes the information they need to see to make that decision, in a structure and format that is easy to digest, and you maximize your chance to generate interest from the kind of investor you most want to secure.
What goes in a business plan?
There are several elements of a business plan that you should include in any proposal. One of the most important is the Executive Summary section of your business plan.
Any long business document typically has an Executive Summary. As the name suggests, it summarizes the main points from the report as a whole.
A modern business plan is usually less than 20 pages long, unless you need to discuss certain aspects of your company in more detail.
The Executive Summary provides an at-a-glance reference to some of the most crucial facts and financial projections, putting the most valuable information at investors' fingertips.
Your business plan should also detail all of the significant aspects of your venture, including market size analysis, how you will generate revenues and any milestones you are hoping to meet.
Remember to stick to the facts as much as possible. One page of rigorously researched statistics will mean more to most investors than five pages of ambitious mission statements with no supporting evidence.
How to write a business plan for investors
Think of your business plan as being like a resume for your company. Just as your own resume sets out your skills, experience and ambitions, your business plan should do similar for your organization.
Be logical and follow a sensible structure throughout the document and within each section. Try to find examples of business plans from similar companies in your industry from the recent past.
You might be able to get advice from local business incubators and accelerator funds, as well as startup business advisors who specialize in coaching individuals who are newcomers to the entrepreneurial world.
At all times, keep your potential investors in mind when deciding what to include in your business plan, and try to anticipate any reasonable questions they might have.
For instance, they might ask about whether you have conducted a competitive analysis, whether you have a feasible marketing plan, and how you intend to overcome and cash flow issues that you might have.
These could include what market research you have conducted, whether you have a marketing strategy, and whether there could be any intellectual property or copyright issues.
You can make changes to your business plan before you show it to any investors. So begin by compiling a first draft that includes all the relevant information, and then think about how to edit it if it's too long or you don't like the way it's structured.
If you know anyone who has already been successful in business, ask them to give you an honest opinion about your business plan once you think it is ready.
Networking is crucial, especially for entrepreneurs, so be prepared to hear what investors look for in a new business from the leaders and investors around you.
Consider a lean business plan
A lean business plan is worth considering. This is a concise business plan - often as short as a single page of normal-sized text - and it's a good way to hone down your document to just the most central data.
Writing a lean business plan is very similar to writing your Executive Summary, and it's usually easier to do this after completing your full business plan, not before.
But if you find it daunting writing a 15-page business plan, you could instead start with just the basics to create a lean business plan that you can then refer to when writing your full-length document.
Don't worry about the design too much from the start. You can adjust things like font size and line spacing later.
Instead, make the content your priority. Write down the core information that covers your product or service, your management team, your target market and the finance you need to raise, and go from there.
Who are your investors?
Think about who your investors are, their experience and expertise, and whether or not they have technical knowledge about your industry.
In some cases, your potential investors might have considerable experience of working in your target niche, in which case your business plan can be quite detailed and technical.
But if you are reaching out to would-be investors who have investments across a broad range of different industries, be aware that they might not have the same level of technical knowledge that you have.
It can be better to write your business plan in relatively simple words, avoiding jargon and acronyms that are not common outside of your sector.
Alternatively, if you want a document that is versatile for backers with different levels of specialist knowledge, you could define technical terms in the text, in footnotes or in a glossary on the final page.
In any case, it is better to make sure your business plan will be understood by as many people as possible when they read it. You're unlikely to offend technical readers by defining specialist terms, but you avoid excluding the more general investors at the same time.
Business plans are not static
Writing a business plan does not commit you to follow it to the letter. Although it's an important document to give investors - and yourself - a reference guide to the immediate future of your company, circumstances can and do change all the time.
If you recognize a change in the direction your business is going, for example, because you notice an untapped niche opportunity in your market, it's better to revise your business plan than to ignore that opportunity for growth.
Like a resume, your business plan should describe the current state of your company, but it shouldn't dictate it. Edit when necessary and keep your key investors engaged in the process, so they know if you decide on a change of direction.
Career investors will know that it's worthwhile to respond to changing market forces, especially where they create the chance for faster growth.
By updating your business plan over time, you can demonstrate to your investors that you are alert to the current market dynamics and ready to capitalize on new growth opportunities as they arise.
This puts forward a positive image to your current and prospective future investors, as well as putting you in the best position to grow your company as quickly and substantially as you can.
How to make a business plan investment proposal
When it comes to putting together a business plan investment proposal to raise finance, be honest about where your company could do better.
For example, if you lack expertise in a key senior role, you could make this a feature of your investment proposal. Startup companies often use investors' funds to recruit personnel, and this could help you to round out your executive team.
Don't neglect key areas, and consider some of the following questions:
- What are your revenue targets for the coming financial year?
- Is there anything missing from your balance sheet?
- How do you plan to grow the business and gain market share?
- What sets your product or service apart from the existing market?
- Have you conducted any long-term market analysis?
- Who is your target market and how do you know there is a market need?
- Where will you be in one year, three years and five years from now?
Your business plan should be mainly fact-based, supported by statistics and reasonable forecasts where possible.
But your investment proposal can be more forward-looking, and is your chance to share your ambition and optimism with your potential investors.
This is especially important when approaching angel investors who might be keen to support you as an entrepreneur across multiple ventures, and not just the current business opportunity.
Beyond your business plan
If you are using your business plan to raise seed funding or other early-stage finance, make sure that you consider what will happen during the longer term too.
A five-year business plan might still not see your company reach full maturity and if you need funds to expand further, you're likely to look to a Series A or Series B finance stage to help with this.
Make sure you factor this into your business plan. Any investors who take an equity stake in your company will want to know if you will give more equity away in later phases of fundraising.
By being honest with them from the outset, you can make sure all parties know what to expect, and you might find this helps you to attract a higher caliber of investor as a result.
An exit plan for investors
Finally, let investors know their options to exit your company at some point in the future. Many will be looking to make a good return on investment within just a few years at most.
To get their investment back, your supporters need to be able to sell it. That can mean selling your entire company at a profit, launching an initial public offering (IPO) to individual shareholders, or buying back investors' equity using profits from within your business.
If you disagree about how to proceed - for example, if a major investor in your business wants to sell the whole company but you would rather buy back their equity stake - this can put a real strain on professional relationships.
To prevent this from happening, make sure you think about exit strategy from the beginning.
When you're writing your initial business plan, exits and succession planning can feel like a long way away, but this just makes it even more important to plan ahead for those eventualities.