Imagine yourself squaring off against potential investors to your business, what are they really after? What sections of your business plan do they go to first and which sections will make them invest or walk away?
I began asking myself these same questions while preparing my own business plan. While there are some elements that all investors look for, certain sections are going to be more important to specific investors. Here are the sections that if written well will help to attract all of the operating capitol that I need.
1) Marketing Plan & Sales Strategy: I am launching an e-commerce website. It is not designed to compete with the industry giants but it is designed to earn substantial revenue. Investors will want to know how a company with no store front and zero name recognition is going to attract enough customers to repay their investment. How will the company earn the money? An investor needs to know that our marketing plan is excellent and will help to make the company profitable. If the marketing plan and sales strategy is poor then the investor will know that they have little chance of receiving their investment and profit back. Many people have great ideas but cannot earn a profit.
2) Operations: Can the company navigate, fulfill its commitments, keep cost reasonable, satisfy customers, and manage profits? If not this may be a red flag the company will fail. It may also indicate that the company will need additional funding in the future to fix a crisis or bring the company up to snuff. The operations section will show that there is a solid plan in place to deliver on what we say we will.
3) The Financials: This is probably the first section that 9.5-out-of-ten turn to first. This is ultimately what it is all about for an investor and provides many clues to the chances of success for a business. Many investors have rules on what they will invest in based on this section. Even if they see the company is solid and can earn a profit it does not guarantee they are going to invest. Many investors will only lend their money out if they see the potential to hit their minimum returns. This section will make them want to learn more about your business until the point where they decide to invest or will make them lose all interest. It is vital this section be accurate and easy to understand.
4) Company Description: Who are you, what do you do, and how can I earn money from it? Investors want to see you have a solid idea and the potential to be successful. This section will tell them if you can be competitive and if it is something they want to invest in. Some investors invest in anything that they believe will earn a profit but others invest only in certain fields or businesses that agree with their beliefs and values.
5) Industry Analysis and Trends: Have you done your homework? Do you know what you are doing or are you a pie-in-the-sky dreamer who fails to see the real picture? This section will notify them if your research is accurate and they may verify your analysis. Is this a market that is growing or shrinking? Does your data indicate that your company has a chance to earn market share and is it a good market to invest in?
I have decided to complete several detailed reviews of my plan before asking experts to offer their notes. When they have returned their notes I will review them and incorporate what is useful. I will then adjust it and review and ask the same experts for a final review. My goals are to make sure that my information is 100% accurate, concise, and easy to understand. I want my review committee to challenge me on everything because if I can successfully explain it to them and reach consensus then I can do the same with an investor. It is a great opportunity to ensure that I am explaining clearly before seeing a potential investor. I want to reach agreement with as many investors as I need as quickly as I can. It is too hard to regain interest after a failed presentation.
I am in the process of rewriting the company description and editing my financial section so that investors can easily understand the figures based on the data that I listed.
Thank you for reading!
http://www.rhondaonline.com/
http://bpexpertviews.blogspot.com/
http://www.entrepreneur.com/article/38308
http://books.google.com/books/about/The_Entrepreneur_and_Small_Business_Prob.html?id=xYRX0FAFM0YC
Sunday, January 29, 2012
Sunday, January 8, 2012
THE KEY ELEMENTS: EXPERT ADVICE IN CREATING A BUSINESS PLAN
In my time, as a business consultant, I rarely met a business owner who enjoyed writing a business plan. It isn't a fun process, the research can be tedious and it can create anxiety. Writing a business plan forces you to answer questions that you may not have the answers to. You may not even know where to find the answers. Would you be surprised to know that several times when working with a client I was met with a blank stare and a dropped jaw when I asked to review their business plan? They simply never did it, didn't view it as necessary, and several of them had long-standing and successful businesses. I am not indicating you do not need a business plan, I am tell you that you absolutely do. Had some of my clients had them and practiced them they may not have needed my services to fix the problems they hired me for. They had gone off course and/or failed to plan for events both positive & negative and then had no idea how to fix it. Create a quality business plan, take your time, make sure your information is accurate and make sure every key player in your business knows your plan intimately.
William A. Cohen "is a Professor of Marketing, former Department Chairman, and Director of the Small Business Institute at California State University, Los Angeles. He has held various positions in industry from marketing manager for a $3 billion firm through company president and operator of his own small business." His more then 19 books have been translated into seven languages.
In his book "The Entrepreneur & Small Business Problem Solver", Mr Cohen talks about using your own money, a loan against your savings account, your life insurance, capitol equipment loans, borrowing from family and friends and many others. You must complete the Small Business Administration (SBA) Business Plan and Qualifications Resume to obtain an SBA loan. It is impossible to gain investors without a business plan. Many business owners only create a business plan after they have attempted to gain investors without one.
A summary of Cohen's writing on what investors are looking for is:
1) Describe in detail the type of business (business plan).
2) Experience and management capabilities.
3) A estimate of how much you and others have to invest in the business ("Skin in the game") and how much you will need to borrow.
4) Current financial statement balance sheet listing all personal assets and all liabilities.
5) A detailed projection of earnings for the business.
6) "List collateral to be offered as security for the loan, indicating your estimate of the present market value of each item."
7) What are you willing to pay (interest, assets, shares in business) for the loan?
8) How and when will you pay the loan back?
9) "Special Assets": Is your concept valuable and do you have any designs, copyright, intellectual property, patent rights manufacturing and processing techniques? What is the value of each?
10) How will you use the funds given to you?
11) Plan of action.
Investors want to know that your business is sound, is being operated well, has a wise plan for the money borrowed, you have the ability and plan to pay the loan back, and you are making good use of the money.
www.go4funding.com offers advice on borrowing from Angel Investors. What is an Angel Investor? The Wall Street Journal reports "An angel is a wealthy individual willing to invest in a company at its earlier stages in exchange for an ownership stake, often in the form of
preferred stock or convertible debt. Angels are considered one of the
oldest sources of capital for start-up entrepreneurs; the term itself,
by most accounts, comes from the affluent patrons who used to finance
Broadway plays in the early twentieth century. In 2007, angels invested
$26 billion in 57,120 ventures, which breaks down to about $450,000 a
deal, according to the Center for Venture Research at the University of
New Hampshire in Durham. That makes angels a potentially powerful
resource for newbie entrepreneurs with promising young companies."
go4funding.com says that, "Often times, entrepreneurs are rejected for needed capital because their venture does not match the investor’s criteria, standards, or investment preferences. Some important fundamentals to consider when selecting an investor is the type of industry involved, the company’s stage of development, the amount of capital that needs to be raised, and the geographic location of the enterprise. Business owners can save ample time and frustration from investor rejection simply by conducting a substantial amount of research on potential investors and making sure that their company complements their investors’ requirements."
To prepare to seek angel investment consider the following:
Geography
"Most angels prefer to invest locally for a variety of reasons. First, the convenience of proximity will allow them to frequently visit the companies they have invested in, so they can regularly convene with the management team and be present to witness their investment progress. Second, being closer to their investment enables them to “source” deals through referrals whom they know and trust. In order to accomplish this, they rely greatly on other locally situated angels, accountants, attorneys, business associates, etc."
Size of the investment
"Angels are interested in building small start-up companies into moderately-sized businesses or large valuable corporations with a high ROI. These types of start-ups may require capital of tens of thousands of dollars minimum to launch, with subsequent rounds of investments throughout the company’s development."
Management team
"The management team appointed by the company’s founders must be solid, balanced, and experienced. Some businesses have management teams located in different cities and come together solely through telecommunications or videoconferencing. This kind of “scheduled” organization puts the whole team at a disadvantage because they are not physically working together or know how to properly collaborate in the business.
On the other hand, if all the individuals of a management team are situated in one location, the individuals have the opportunity to work with each other and learn from each others’ strengths and weaknesses. Even if a team has never worked with each other in the past, when they come together during the start of a company, they should demonstrate the “ability to execute,” that is, work together in harmony with a proven track record and show their company is establishing revenue and a quick ROI."
Market/industry influence
"Angel investors usually invest in industries they have experience in. In addition, they always evaluate the market’s needs for different products or services. "
Improving technology
"Technology products and services have always demonstrated popularity among consumers. Since many technologies exist, the entrepreneur should convince the angel investor that their particular technologies are not only one-of-a-kind, but that they address any flaws that their competitor’s products may have and as a result consumers will purchase their products and services."
Competitive advantage
"Every investor determines a company’s worth by trying to identify the reasons behind why customers are inclined to use their products or services. Young business owners should convey the extraordinary, distinctive qualities of their company to their investors and why their enterprise possesses a competitive edge."
Potential rate of return
"When compared to venture capitalists, monetary gain tends to be a secondary motive for most angel investors. While many angels invest for reasons that are not purely financial, their overall goal is still profitability. They recognize that start-up companies are high-risk investments and will want to justify that risk by seeking commensurate (very high) rate of returns.
For example, some angels require a 25% rate of return each year, while others may desire much more, such as ten times their investment in a specific time frame. This given period of time may span from a couple of years to several years. Many of these angel investors do not expect a rate of return for at least 5-7 years. Their average return on investments expected is about 34%."
Exit strategies
"This is a company’s approach for providing investors with a liquidity event, an occasion or time during the company’s development at which the investor can obtain their rate of return. The exit strategy is often included in the entrepreneur’s presentation, which should provide the best estimate of time for exit and liquidity for all potential investors. Acquisition of a company or a company merger is the most probable exit strategy made unless the company revenues and market sector strongly suggests an IPO opportunity."
Maverick Investor (pun intended) came up with an idea for investing his money. He created a site where people can post their ideas in an open forum. If he likes it he will invest in it. I would not post my concept there because I do not want it stolen. His criteria basically breaks down what our other sources indicate. I wanted to share it to show you how a potential investor may speak to you and if any of you were interested in attempting to attract Mark's interest and money.
"I will invest money in businesses presented here on this blog. No minimum, no maximum, but a very specific set of rules. Here they are:
1. It can be an existing business or a start up.
2. It can not be a business that generates any revenue from advertising. Why ? Because I want this to be a business where you sell something and get paid for it. Thats the only way to get and stay profitable in such a short period of time.
3. It MUST BE CASH FLOW BREAK EVEN within 60 days
4. It must be profitable within 90 days.
5. Funding will be on a monthly basis. If you don't make your numbers, the funding stops
6. You must demonstrate as part of your plan that you sell your product or service for more than what it costs you to produce, fully encumbered
7. Everyone must work. The organization is completely flat. There are no employees reporting to managers. There is the founder/owners and everyone else
8. You must post your business plan here, or you can post it on slideshare.com , scribd.com or google docs, all completely public for anyone to see and/or download
9. I make no promises that if your business is profitable, that I will invest more money. Once you get the initial funding you are on your own
10. I will make no promises that I will be available to offer help. If I want to, I will. If not, I won't.
11. If you do get money, it goes into a bank that I specify, and I have the ability to watch the funds flow and the opportunity to require that I cosign any outflows.
12. In your business plan , make sure to specify how much equity I will receive or how I will get a return on my money.
13. No multi-level marketing programs (added 2/10/09 1pm)
I'm sure I will come up with more rules as I see what comes along, if anything."
No matter what type of investor you seek, they are all basically looking for the same key factors in your business plan. Make sure they can easily find these key factors in your plan and dramatically increase your odds of attracting financing. There are many great ideas and businesses that go unfunded because the owners have no idea how to properly entice an investor. You may never get a meeting if they do not find the information they seek in your plan.
http://books.google.com/books/about/The_Entrepreneur_and_Small_Business_Prob.html?id=xYRX0FAFM0YC
http://www.go4funding.com/Articles/Angel-Investors/The-Essential-Components-That-Appeal-To-Angel-Investors.aspx
http://online.wsj.com/article/SB10001424052702303491304575188420191459904.html
Angel Investor Photo@ Getty Images
http://blogmaverick.com/2009/02/09/the-mark-cuban-stimulus-plan-open-source-funding/
Mark Cuban Photo@ Pulse2.com
Money Tree @ Madamenoire.com
William A. Cohen "is a Professor of Marketing, former Department Chairman, and Director of the Small Business Institute at California State University, Los Angeles. He has held various positions in industry from marketing manager for a $3 billion firm through company president and operator of his own small business." His more then 19 books have been translated into seven languages.
In his book "The Entrepreneur & Small Business Problem Solver", Mr Cohen talks about using your own money, a loan against your savings account, your life insurance, capitol equipment loans, borrowing from family and friends and many others. You must complete the Small Business Administration (SBA) Business Plan and Qualifications Resume to obtain an SBA loan. It is impossible to gain investors without a business plan. Many business owners only create a business plan after they have attempted to gain investors without one.
A summary of Cohen's writing on what investors are looking for is:
1) Describe in detail the type of business (business plan).
2) Experience and management capabilities.
3) A estimate of how much you and others have to invest in the business ("Skin in the game") and how much you will need to borrow.
4) Current financial statement balance sheet listing all personal assets and all liabilities.
5) A detailed projection of earnings for the business.
6) "List collateral to be offered as security for the loan, indicating your estimate of the present market value of each item."
7) What are you willing to pay (interest, assets, shares in business) for the loan?
8) How and when will you pay the loan back?
9) "Special Assets": Is your concept valuable and do you have any designs, copyright, intellectual property, patent rights manufacturing and processing techniques? What is the value of each?
10) How will you use the funds given to you?
11) Plan of action.
Investors want to know that your business is sound, is being operated well, has a wise plan for the money borrowed, you have the ability and plan to pay the loan back, and you are making good use of the money.
go4funding.com says that, "Often times, entrepreneurs are rejected for needed capital because their venture does not match the investor’s criteria, standards, or investment preferences. Some important fundamentals to consider when selecting an investor is the type of industry involved, the company’s stage of development, the amount of capital that needs to be raised, and the geographic location of the enterprise. Business owners can save ample time and frustration from investor rejection simply by conducting a substantial amount of research on potential investors and making sure that their company complements their investors’ requirements."
To prepare to seek angel investment consider the following:
Geography
"Most angels prefer to invest locally for a variety of reasons. First, the convenience of proximity will allow them to frequently visit the companies they have invested in, so they can regularly convene with the management team and be present to witness their investment progress. Second, being closer to their investment enables them to “source” deals through referrals whom they know and trust. In order to accomplish this, they rely greatly on other locally situated angels, accountants, attorneys, business associates, etc."
Size of the investment
"Angels are interested in building small start-up companies into moderately-sized businesses or large valuable corporations with a high ROI. These types of start-ups may require capital of tens of thousands of dollars minimum to launch, with subsequent rounds of investments throughout the company’s development."
Management team
"The management team appointed by the company’s founders must be solid, balanced, and experienced. Some businesses have management teams located in different cities and come together solely through telecommunications or videoconferencing. This kind of “scheduled” organization puts the whole team at a disadvantage because they are not physically working together or know how to properly collaborate in the business.
On the other hand, if all the individuals of a management team are situated in one location, the individuals have the opportunity to work with each other and learn from each others’ strengths and weaknesses. Even if a team has never worked with each other in the past, when they come together during the start of a company, they should demonstrate the “ability to execute,” that is, work together in harmony with a proven track record and show their company is establishing revenue and a quick ROI."
Market/industry influence
"Angel investors usually invest in industries they have experience in. In addition, they always evaluate the market’s needs for different products or services. "
Improving technology
"Technology products and services have always demonstrated popularity among consumers. Since many technologies exist, the entrepreneur should convince the angel investor that their particular technologies are not only one-of-a-kind, but that they address any flaws that their competitor’s products may have and as a result consumers will purchase their products and services."
Competitive advantage
"Every investor determines a company’s worth by trying to identify the reasons behind why customers are inclined to use their products or services. Young business owners should convey the extraordinary, distinctive qualities of their company to their investors and why their enterprise possesses a competitive edge."
Potential rate of return
"When compared to venture capitalists, monetary gain tends to be a secondary motive for most angel investors. While many angels invest for reasons that are not purely financial, their overall goal is still profitability. They recognize that start-up companies are high-risk investments and will want to justify that risk by seeking commensurate (very high) rate of returns.
For example, some angels require a 25% rate of return each year, while others may desire much more, such as ten times their investment in a specific time frame. This given period of time may span from a couple of years to several years. Many of these angel investors do not expect a rate of return for at least 5-7 years. Their average return on investments expected is about 34%."
Exit strategies
"This is a company’s approach for providing investors with a liquidity event, an occasion or time during the company’s development at which the investor can obtain their rate of return. The exit strategy is often included in the entrepreneur’s presentation, which should provide the best estimate of time for exit and liquidity for all potential investors. Acquisition of a company or a company merger is the most probable exit strategy made unless the company revenues and market sector strongly suggests an IPO opportunity."
"I will invest money in businesses presented here on this blog. No minimum, no maximum, but a very specific set of rules. Here they are:
1. It can be an existing business or a start up.
2. It can not be a business that generates any revenue from advertising. Why ? Because I want this to be a business where you sell something and get paid for it. Thats the only way to get and stay profitable in such a short period of time.
3. It MUST BE CASH FLOW BREAK EVEN within 60 days
4. It must be profitable within 90 days.
5. Funding will be on a monthly basis. If you don't make your numbers, the funding stops
6. You must demonstrate as part of your plan that you sell your product or service for more than what it costs you to produce, fully encumbered
7. Everyone must work. The organization is completely flat. There are no employees reporting to managers. There is the founder/owners and everyone else
8. You must post your business plan here, or you can post it on slideshare.com , scribd.com or google docs, all completely public for anyone to see and/or download
9. I make no promises that if your business is profitable, that I will invest more money. Once you get the initial funding you are on your own
10. I will make no promises that I will be available to offer help. If I want to, I will. If not, I won't.
11. If you do get money, it goes into a bank that I specify, and I have the ability to watch the funds flow and the opportunity to require that I cosign any outflows.
12. In your business plan , make sure to specify how much equity I will receive or how I will get a return on my money.
13. No multi-level marketing programs (added 2/10/09 1pm)
I'm sure I will come up with more rules as I see what comes along, if anything."
No matter what type of investor you seek, they are all basically looking for the same key factors in your business plan. Make sure they can easily find these key factors in your plan and dramatically increase your odds of attracting financing. There are many great ideas and businesses that go unfunded because the owners have no idea how to properly entice an investor. You may never get a meeting if they do not find the information they seek in your plan.
http://books.google.com/books/about/The_Entrepreneur_and_Small_Business_Prob.html?id=xYRX0FAFM0YC
http://www.go4funding.com/Articles/Angel-Investors/The-Essential-Components-That-Appeal-To-Angel-Investors.aspx
http://online.wsj.com/article/SB10001424052702303491304575188420191459904.html
Angel Investor Photo@ Getty Images
http://blogmaverick.com/2009/02/09/the-mark-cuban-stimulus-plan-open-source-funding/
Mark Cuban Photo@ Pulse2.com
Money Tree @ Madamenoire.com
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