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How can my business plan assist me in getting funding?

What you should know about the link between your business plan and getting the funding that you need.

Entrepreneur

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According to Sibongiseni Ngundze, Managing Executive of Nedbank Small Business Services, applicants looking for bank funding must demonstrate a good understanding of the business they wish to embark and importantly, their plan has to be realistic and achievable.

Applicants should use clear and simple language in their applications and business plans. Included therein should be a brief CV of the entrepreneur or applicant. The key factors that a bank would typically looks for in a successful plan includes: A comprehensive breakdown of what needs to be financed

The entrepreneur’s own contribution

Evidence that the applicant has conducted extensive homework on the business he wishes to start

  • Who and where the target market (clients) is and have they been accurately identified?
  • Who the competitors are and the applicant’s key differentiating factors
  • Suppliers and/or alternate suppliers.  Do they offer reasonable terms?
  • Are there substitute products?

A SWOT analysis

  • What are the entry barriers in the industry, if any? (e.g. regulation, high capital requirements, too specialised, etc)
  • Is business subject to seasonal fluctuations?
  • How is the business affected by the current or future state of the economy?
  • Location. Are the premises leased or owned and is there room for expansion?

Dealing with Investors

What do venture capitalists investors expect of business plans they receive?

Venture Capital companies typically seek out high growth potential early-phase companies and often place more importance on the management team, entrepreneurial concept and potential for aggressive growth than the quality of the physical business plan itself.

Great emphasis is placed on the entrepreneurs’ ability to clearly communicate a unique business concept and growth strategies in a polished pitch to give the funder confidence that they can easily sell this concept to their market.

That said, obviously a good quality business plan can greatly assist in communicating the relevant points in order to obtain successful funding.

Take note of the following advice offered by venture capital expert Keet van Zyl of HBD Venture Capital:

  1. Spend significant time on the business plan
  2. Business plan must be clear, well arranged and not too long. Supporting info can be presented in the appendix
  3. Write a good one-page executive summary. There is a good chance that the potential funder won’t even read any further if this is not compelling
  4. Ultimately view the business plan as a motivation for you to continue. You need to convince yourself that this will work and a business plan is one way to do this
  5. Write your business plan yourself. No-one knows your business better than you. There are various business plan templates available on the internet. However, the areas where you need help – make sure you get it. Use consultants and experts where necessary but don’t outsource the whole process
  6. Clearly identify your target market
  7. Clearly identify the need for this product/ service
  8. Use facts and figures where possible, specifically in the Industry Analysis
  9. Don’t over-emphasise the technical aspects of the current product or concept. Make it easy to understand and focus on the future growth strategies and implementation
  10. Polish your oral pitch to dovetail with your business plan
  11. Never make false claims or misrepresentations
  12. Do a ‘due diligence’ on your funder and tailor-make specific elements of your business plan to their needs. Go to their website; study their investment criteria; understand their investment process; look at their investment portfolio; read some press releases and articles; ask around if anyone you know has dealt with them before
  13. Contact the potential funder before just sending off a business plan to someone’s inbox. A personal referral is even better
  14. Update your business plan regularly as your thoughts, business activities and market insights evolve
  15. Have a clear ‘shopping list’ of what you want to do with the funding, and the timelines involved
  16. Let someone who you trust read through the business plan for feedback and advice

Regardless of the quality of the physical business plan it is only the first step in the process. The entrepreneur will have to pass a number investigative stages before an investment is made.

Non-disclosure documents

Confidentiality agreements, or non-disclosure documents as they are also known, protect sensitive technical or commercial information from disclosure to others.

If after a non-disclosure agreement has been signed, the information is revealed to another individual or company, the injured party has cause to claim a breach of contract. The type of information that can be included is virtually unlimited – data, know-how, prototypes, engineering drawings, computer software, test results, tools, systems, and specifications.

“The purpose of a confidentiality agreement is it to protect the idea so the entrepreneur can patent it later so the agreement should be catered towards that. Typical things to include in the confidentiality agreement would be the duration – in other words when it expires – also spell out what a breach of the agreement would be and then what the consequences are and don’t forget to define the parties carefully,” Fourie advises.

Where to get a confidentiality agreement?

Gaffney’s specialises in providing bundles of ready-to-use legal documents for business, including confidentiality agreements. Costs range from approximately R225 per bundle to R2 125 for a complete set of 269 business documents in a loose leaf binder or on CD. Visit www.gaffney.co.za or call +27 11 268 5804

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

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Funding

What do I need to do in order to get a successful crowd funding campaign?

Advice on getting the gold you need for your crowd funding campaign.

Ambassador Tal Edgars

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I recently read through crowd funding and though this might be of benefit to me. What do I need to do in order to get a successful crowd funding campaign?

70 percent of most crowd funding campaigns never reach their funding laid out plan. If you only reach a portion of your desired pledge amount all donated funds are then returned to investors once your campaign date is up. Do your homework and make your campaign count.

To get the best out of your campaign, I would strongly advise you do the following:

  1. Lay out your plan way in advance
  2. Keep a proper and well-articulated business plan
  3. Create a compelling story.
  4. Use the social media and start a social media campaign
  5. Frequently promote your fundraiser, connect and interact
  6. Dish out rewards and incentives
  7. To go viral, go for educative, informative and entertaining videos
  8. Be more than unique and creative as more exposure will translate to more potential pledges
  9. Choose the right crowd funding site for you.
  10. Know and understand your end target audience

 

 

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Funding

Where can I turn when banks are not helping?

Getting bank finance for my restaurant is almost impossible.

David Lewis

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Getting bank finance for my restaurant is almost impossible.  How else can I access the funding that I need?

Most small businesses will experience a cash flow challenge at some point during the next 12 months and raising capital from traditional banks is becoming a real challenge. Conservative lending policies and onerous application processes mean that finance applications can take up to twelve weeks or longer.

Banks require significant securities, which many business owners are unable to meet. In short, banks are making it very tough for small businesses.

The business cash advance

For businesses that accept credit or debit cards as a form of payment for their goods and services (termed merchants), the business cash advance is now available as alternative source of funding.

In simple terms, a business cash advance offers the merchant an upfront advance to buy a discounted amount of future business turnover.  For example, you may be advanced R80,000 for R100,000 of future turnover, so the fees can be easily calculated as R20,000.

The payback is an agreed percentage of your turnover, paid daily until the full amount is paid across.  Payback increases and drops with your business turnover and the smaller daily payments are often easier than monthly fixed instalments.

Quicker turn-around and more accessible

Comparing it to a bank loan, the business cash advance is more accessible, operates over a shorter term and requires no personal security.  It is also much faster, typically available within two weeks.

The advance amount is based on historical credit and debit card sales and pay overs are daily.   The costs are fully transparent and there are no penalties for late payments or extended payback.    However, accessibility, flexibility and convenience come at higher cost than traditional bank lending products.

As with any financial product, it is important that the benefits gained from using the money are more than the costs, so it is important to have a good purpose for the funding and carefully consider the available options.

Over the last three years, the business cash advance has becoming more main-stream and this funding is used by business with a relatively high card turnover, such as restaurants, retailers, beauty salons, supermarkets, convenience stores etc.

What to use the advance for

The advance is typically used for a business opportunity, such as expansion, new stock, new equipment, marketing etc.  Alternatively, it also offers through a difficult trading period or to cover an unexpected expense such as equipment failure when the money is needed quickly.

Small businesses are a vital part of the South African economy, contributing over 65% of South Africa’s employment and over 50% of GDP – accessing funding is imperative for these businesses to survive and grow.

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Funding

Am I stupid to turn down a VC investor?

Bootstrapping your business initially will pay dividends down the line.

Michelle Goodman

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I’ve started my own business two years ago and I’ve recently been approached by venture capitalist investors. While I could really use the funding, I’m reluctant to give away a large portion of my business at this early stage. What should I do? 

While it’s exciting to be approached by investors at any stage in your business, in the early years it might be better for the business to keep it small, keep your overheads low and bootstrap your venture as much as you can. This not only allows you to build a viable business and product offering at your own speed, it means you can to do without creating a huge amount of debt.

By building a sound and profitable business model from the outset, you will attract more attractive funding offers down the line.

Read the full article here.

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