Gen­er­at­ing fund­ing from busi­ness plans

Bray People - - OPINION -

Q. I have a new busi­ness idea and I would like to look for fund­ing to get it off the ground. I have a ba­sic busi­ness plan but have been ad­vised to ex­pand it be­fore us­ing it as part of fund­ing ap­pli­ca­tions. Can you give me any ad­vice on how to cre­ate a strong busi­ness plan that will help gen­er­ate funds?

A. The ad­vice you have re­ceived is good. A busi­ness plan is cru­cial to gain­ing fund­ing for a busi­ness idea. It shows fun­ders that you have thought through your idea in de­tail and that you are se­ri­ous about it, and also how and when you are likely to make a profit. It also gives an idea of your grasp of fi­nances and the fi­nan­cial tools needed to run the busi­ness.

Providers of all fund­ing, from grants, to equity shares and bank loans, will ex­am­ine the fi­nan­cial part of your busi­ness plan in great de­tail to de­ter­mine the level of risk in­volved in the in­vest­ment and the busi­ness po­ten­tial. It is well worth putting time and ef­fort into the plan at this stage, even if this means go­ing back a step and car­ry­ing out more ro­bust mar­ket re­search.

A good plan based on com­pre­hen­sive re­search should in­crease your chances of get­ting fund­ing and save you time fur­ther down the line, as well as help you with busi­ness growth by es­tab­lish­ing clear direc­tion. When ex­pand­ing your busi­ness plan, ask your­self the fol­low­ing ques­tions.

DO YOU HAVE THE RIGHT STRUC­TURE?

Gen­er­ally, a busi­ness plan should in­clude: an ex­ec­u­tive sum­mary, mar­ket re­search, an over­view of the aims of the busi­ness, de­tails of the prod­uct/ser­vice it pro­vides, an over­view of key per­son­nel, fi­nan­cial in­for­ma­tion and a mar­ket­ing plan.

HAVE YOU COV­ERED ALL THE ES­SEN­TIAL FI­NAN­CIALS?

For fund­ing pur­poses it is es­sen­tial to have com­pre­hen­sive fi­nan­cial in­for­ma­tion. This means in­clud­ing the fol­low­ing:

- In­come fore­cast - this is an es­ti­ma­tion of your sales. For a new busi­ness, the fore­cast can be based on in­dus­try av­er­age fig­ures from your mar­ket re­search.

- Cash­flow fore­cast - this is a month-by-month es­ti­mate of the money com­ing in and go­ing out of the busi­ness for the first two to three years. It should take into ac­count sea­sonal fluc­tu­a­tions or any­thing that is likely to lead to a cash short­age, as ex­tra funds will be re­quired to get through such times. This fore­cast is based on cash, rather than sales/in­come, and needs to take into ac­count likely pay­ment trends of cus­tomers and your credit terms and con­trol.

- Pro­jected bal­ance sheet - this lists the as­sets of the busi­ness (what it owns, e.g. stock, equip­ment, cash) and the li­a­bil­i­ties (what it owes, e.g. debts, tax) in or­der reach a net worth fig­ure.

- Break even anal­y­sis - once the above are com­plete, this anal­y­sis can be car­ried out by look­ing at the point at which to­tal rev­enue matches to­tal costs (breakeven) and the point when to­tal rev­enue ex­ceeds to­tal costs (profit). This is im­por­tant in­for­ma­tion for fun­ders, but also for you as it shows you the sales you need to achieve in or­der to make the busi­ness vi­able.

- In­vest­ment made - this high­lights any cap­i­tal pro­vided by you or other direc­tors and shows your com­mit­ment to and con­fi­dence in the busi­ness plan.

- Fi­nan­cial pro­cesses - this de­tails the fi­nan­cial con­trols and pro­cesses you will have in place to achieve your pro­jec­tions, for ex­am­ple how you are go­ing to man­age credit con­trol, stock plan­ning, etc.

- Re­pay­ment op­tions - this shows how you are go­ing to re­pay funds to the in­vestor.

HAVE YOU BEEN RE­AL­IS­TIC?

The fi­nan­cial in­for­ma­tion should be hon­est, in terms of show­ing the re­al­is­tic amount of fund­ing needed to get the busi­ness off the ground.

Many new busi­nesses start off un­der­cap­i­talised and this can be hard to ad­just fur­ther down the line. You will be more likely to suc­ceed if you have the cor­rect fund­ing from day one. Also, pro­jec­tions should be re­al­is­tic and based on mar­ket and com­peti­tor data. It might be pru­dent to state your pro­jec­tions, and then to dis­count them to en­sure they are re­al­is­tic and achiev­able.

CAN YOU TAI­LOR THE PLAN?

Dif­fer­ent in­vestors will look for dif­fer­ent things and it is ad­vis­able to tai­lor it ac­cord­ingly. For ex­am­ple, a bank may be pri­mar­ily in­ter­ested in how you in­tend to re­pay, while a share­holder may be in­ter­ested in what say they will have in the run­ning of the busi­ness. The ex­ec­u­tive sum­mary and fol­low­ing in­for­ma­tion should be ad­justed to give pri­or­ity to the in­for­ma­tion of most rel­e­vance to each in­vestor. Jim Doyle ACMA QFA is a part­ner in RDA Ac­coun­tants of­fer­ing full ac­coun­tancy, busi­ness ad­vi­sory, tax ad­vi­sory and fi­nan­cial ser­vices. RDA Ac­coun­tants | 5 Up­per Ge­orge Street, Wex­ford | Louisville House, Wa­ter­ford Road, Kilkenny | 053 91 70507 | www.rda.ie

RDA Wealth Ltd trad­ing as RDA Ac­coun­tants is reg­u­lated by the Cen­tral Bank of Ire­land

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