Generating funding from business plans
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
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