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3 Ways Business Plans Get You Funding

Jan 11, 2012 • 3 min read
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      When most entrepreneurs need funding to start or grow their business, they quickly learn one key fact: they need a business plan.

      Like you need a resume to apply for a job, and a completed application to gain admittance to a university, business plans are required to apply for business financing.

      And like resumes and college applications, business plans are viewed as a necessary evil by most entrepreneurs.

      Yet, this shouldn’t be the case. Because unlike completing your resume or college application, the process of completing your business plan has been proven to improve your success — not only in gaining funding, but when executing on your business.

      With regards to getting you funding, here’s why business plans are so critical. To begin, funding sources are used to reviewing written company materials before investing. In the public markets, they review annual reports and other financial filings to determine the health and prospects of a company and whether or not they should invest.

      And the same holds true when assessing private companies like yours. You need to present a business plan that paints the right picture of your business: one that gets investors and lenders excited to work with you.

      Importantly, you should look at your business plan much like a public company’s annual report. If you look at an annual report, you’ll quickly notice that it’s much more of a marketing document than a research report. Annual reports include nice pictures and graphics, they highlight the company’s top accomplishments, and they paint a pretty picture of future prospects.

      That’s not to say that your business plan shouldn’t be more sober, and include information about worthy competitors. It should. But it shouldn’t be a massive data-dump; but rather should paint a positive picture regarding how and why your company will be successful in the future.

      3 keys to a business plan in regards to funding:

      1. Detail the market need or pain: All great companies solve a real customer need or pain. You must detail what this need is, how big it is, and whether it is growing or shrinking.

      2. Detail both your direct and indirect competition. If there is a real customer need or pain, customers must be trying to solve it already. In your plan, you must detail how they are solving the need currently. For example, when eBay first launched, it realized that the need for selling personal products was being met by yard or garage sales (indirect competition). This proved that there was a market need or pain.

      Importantly, don’t badmouth your competition. If they’re still in business, your competitors must be doing something right. So, explain both what your competition’s strengths and weaknesses are, and how you will exploit weaknesses.

      3. Create a credible financial model. Creating a financial model that shows that your company will take off like a rocket ship will do more harm than good. Investors and lenders know how a company might grow after they fund them. They know that growth takes time, even in a best case scenario.

      In developing your financial model, you should really think through the timing of your growth. How long will it take to hire and train the right employees? How long will it take to repeatedly get your marketing message in front of customers until they buy? Etc. These things generally take longer than you initially think. And during this time, you are often incurring expenses and generating less revenues than projected. Which often results in companies running out of money.

      So, be careful to consider slower growth scenarios so you don’t run out of cash.

      The right business plan will get investors and lenders excited to write you a check that allows you to dramatically grow your company. And the right plan will keep you and your team motivated and on track to achieve your long-term objectives. So, don’t treat your plan as a necessary evil. Rather, treat it as an investment that can give you a significant ROI.

      Dave Lavinsky

      Dave Lavinsky is president and co-founder of Growthink, a consulting and publishing firm that helps entrepreneurs successfully start, grow and exit their companies. To help entrepreneurs expertly complete their plans, Growthink offers business plan development services and a simple-to-complete business plan template.

      About the author
      Dan Bischoff

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