Why do you need a business plan?

Most businesses write a business plan either because they think or have been told they should, or because they need one to raise money.

If you’re putting together a business plan to raise funding, the plan becomes even more critical in determining the success or failure of your business.

“It is the initial selling document and it will either get you in the door or not,” said Paul Murray of Europe’s largest venture capital firm 3i.

Think about who your audience will be and the information they will need before committing funds. Make sure that the plan is prepared to a high standard, is verifiable and void of jargon or general position statements.

A bank manager, business angel or venture capitalist will all be poring over your business plan in great detail before they risk putting their money into it.

If you are looking to raise a bank loan, a bank manager will be looking for how likely it is that the business can repay the money. That is more likely to come from a steady business with a gradual growth plan and a steady cashflow capable of supporting the repayments.

An equity investor – whether it is a business angel or a venture capitalist – is likely to want to see good growth prospects. Unlike a loan, equity investments are not repaid and these investors will only make money by taking a percentage of your business and selling it for a higher sum in the future. See our raising finance section for more on debt and equity.

Because these investors only get a return when they sell their stake in the business, they will also want to see an exit route which will allow them to cash in their investment

A bank manager, business angel or venture capitalist will all be poring over your business plan in great detail before they risk putting their money into it.

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