How To Use Your Business Plan to Get Funding

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One reason for developing a business plan is to get outside parties interested in providing capital for a new venture. A good business plan tells an interesting and comprehensive story that an outside party cause to evaluate the viability of a new business concept. So much has been written about what should and should not go into a business plan that the person preparing the plan can easily become overwhelmed and confused.

To provide specific and practical guidelines about what to put in a business plan that will inspire confidence in investors, weasked five people who regularly evaluate new venture opportunities totell us what they want to see in a business plan. Graham Geldenhuys of Step Strategic Venturing, Christo Botes of Business Partners, Martin Feinstein of Enablis, Julia Fourie of HBD Venture Capital and ChrisNthite of Old Mutual Masisizane fund all told us what they expect tosee in a good business plan. Here’s what they had to say.

Make a strong first impression

A business plan is a reflection of the people behind the business.Formatting, spelling and visual appeal contribute to the impressionthat investors form about the venture team.

Graham Geldenhuys of StepStrategic Venturing says: “If you can’t take the time to put together aworthy business plan, I wonder if you’ll take the time to get to gripswith the million other less important details it takes to build abusiness case. I cannot begin to engage with content that has spellingand formatting errors.”

Martin Feinstein of Enablis suggests:  “Keep it simple. White A4 paper,a simple 12-point font like Arial and numbered pages. Make it as shortas possible. I have seen fantastic business plans that are all of fivepages in length and terrible plans that are 50 pages long. Includeinformation in your business plan on a ‘need to know’ basis.”

Provide a succinct overview

Many investors rely heavily on an executive summary to make an initialevaluation of the business plan. For this reason, Christo Botes of Business Partners advises entrepreneurs to provide “a short, succinctand to the point business overview giving the investor a profile of thebusiness as well as a description of the product service offering.”

Julia Fourie of HBD supports this idea, suggesting that entrepreneurs“write a good one-page executive summary. There is a good chance thatthe potential funder won’t even read any further if this is notcompelling.”

Make it coherent and complete

The different pieces of the business plan must link together in acoherent way and all the relevant issues need to be addressed. Thecontent of each section of the plan must correlate effectively to theinformation in the other sections.

Geldenhuys says that a good business plan needs to be “well thought outand coherent… there are a bunch of templates to help in this regard.”

The order in which each section is presented is not that critical butall the important sections must be addressed. Old Mutual’s Chris Nthitesays: “Don’t cut corners. Do the research as it helps you think throughall the issues necessary for your business to be successful.” To make abusiness plan coherent and complete, Fourie advises entrepreneurs to write their business plans themselves. “No one knows your businessbetter than you. Use consultants and experts where necessary but don’t outsource the whole process.”

Focus on financials

Investors are especially interested in the financial prospects of abusiness. One investor says: “It’s only about the money.” They pay agreat deal of attention to the financial forecast in the business plan,suggesting that financial projections should be realistic and understandable. The assumptions underlying the projections should be clearly outlined and justified. Botes makes the point that of all the financial projections, “cash flow is the most critical”.

Be specific about the business DNA

“Every business has a different DNA – a different business model,” Geldenhuys says. Different factors account for success across different kinds of businesses. “In the business plan the entrepreneur mustdemonstrate that they understand what is unique about their businessand that they get the thing they need to nail.”

To demonstrate their deep understanding of the proposed businessconcept, Feinstein suggests that they be very specific when it comes to describing a typical customer, the product and exactly how it is goingto be marketed. “Too many business plans glibly talk about ‘mass media advertising’ without having the faintest idea about the costs,” he notes.

Promote the People

All investors made the point loud and clear: “It’s all about thepeople. The business case must reflect a winning team.” Be specific about who is involved in the business, what role they will play andwhat skills and experience they have to make them effective in thatrole.

Match with mandate

Early stage venture investors operate under different mandates, meaningthat they look to invest in opportunities that meet specific criteria.For example, HBD Venture Capital has a mandate for investing inhigh-growth, technology orientated businesses; Old Mutual’s Masisizanefund focuses on businesses that contribute to black economic empowerment and Business Partners has a broader mandate focusing on awide range of industries and venture types.

Fourie suggests that entrepreneurs do a ‘due diligence’ on the funderand tailor-make specific elements of the business plan to their needs.“Go to their website; study their investment criteria; understand theirinvestment process; look at their investment portfolio; read some pressreleases and articles; ask around if anyone you know has dealt with them before.”

She also suggests that entrepreneurs contact the potential funderbefore just sending off a business plan to someone’s inbox. A personalreferral is even better.

Getting external people to invest in a new venture is never easy. Thereare many hoops that an entrepreneur needs to jump through to convince afinancier that they have a worthy new venture.

If you know what investors are looking for before you start writing abusiness plan you will be in a much stronger position to produce adocument that inspires confidence and even excitement.

About the Author

Greg Fisher CA(SA), MBA, is an associate faculty member at the Gordon Institute of Business Science (GIBS). He is currently researching Technology Entrepreneurship at the University of Washington in Seattle.