To write a fundable business plan, one which does its part to convince investors or lenders to put money into your business, you must think like funders. Consider these top questions which funders will ask themselves as they consider business plans to get into their mindset.
How Can I Tell If the Market Exists?
A funder cares deeply whether a market (and a large enough one) exists for the proposed product or service. They look to see if competitors and substitutes already exist, which proves to some extent that the business opportunity exists. Without this, they will look to research on customer needs, demographics and the industry to prove that there is room for a new product or service here. The more support an entrepreneur can provide in their business plan, the easier they make it for funders to do this leg work.
How Can I Tell If the Strategy Will Work?
Next, funders will wonder whether the chosen strategy for the business will work. If it seems to be incorrect or not carefully thought out, it is not necessarily the end of the road for the entrepreneur. If the funder is relatively hands on and trusts the core ability of the entrepreneur, he or she may help to craft a better strategy. They will look to the marketing and operations plans in the business plan to see that the tactics described fit the resources of the company and the market situation in order to evaluate whether the chosen strategy is good.
How Can I Tell If the Entrepreneur Can Execute?
Funders rely on past records of success and experience to know if the entrepreneur will be able to execute on the plans he or she has laid out. This should include experience with entrepreneurship or entrepreneurial activities in some form, experience leading others, and experience in the business sector in question. The management team must pull together individuals that cover these skill sets and assign roles to each that put their skills to use.
Is The Return Enough For Me?
Finally, funders examine whether they believe that the return represented by the plan’s financial projections is realistic and appropriate for the risk of the investment. Lenders generally require lower returns than investors, as they protect themselves from downside risk by requiring some type of collateral. Investors require higher returns because of their greater risk of losing the entire investment. Be sure that the return can be deduced from the financial projections without a great amount of legwork. For investors, however, you may choose to not set how many shares you intend to give away for their cash, but rather leave this open to negotiation.