Thu Oct 20 21:57:36 SAST 2016

Driving device

By unknown | Feb 07, 2008 | COMMENTS [ 0 ]

Many entrepreneurs know that a business plan is the first docu- ment to draw up when starting a business.

Many entrepreneurs know that a business plan is the first docu- ment to draw up when starting a business.

But after getting the money from a bank or backing from an investor, the document often disappears.

A business plan is the manual to get your business where you intend it to go. It is the starting point of the business and also its life blood.

It is the point of reference when the goal becomes vague.

The document is equally critical for further growth, investment, expansion and joint ventures.

The saying "first impressions last" applies to business plans too because it is the first impression that potential investors get about whether to invest or not.

Even if you have a great product, team and customers, it won't help if you can't convey the message across.

You must paint a clear picture to investors about what you want to do with their money if they decide to further finance your business.

There are too many people who approach the same investors and it is imperative that you don't make a mistake if you don't want to be disappointed. Avoid coming up with unrealistic financial projections. Use your historical data to guide the process.

Your plan has to contain reasonable assumptions which are supported with research. It will work out best if your financial record speaks for itself.

By incorporating a detailed list of assumptions and how you arrived at the numbers, an investor can judge your analysis and decision-making process.

Financial data that is inconsistent with industry averages will alarm investors and you will have to explain every number.

In further investments, it will work to your advantage if the historical financial data is audited by a credible auditing firm.

Your financial projections should at least have income statements, profit and loss, balance sheets and cash flow statements. You must be able to at least give a three-year projection.

For most businesses, a three-year projection is sufficient, but if yours will be capital intensive and will take longer to show profitability, a five-year one is acceptable.

For any significant expense, there must be an accompanying appendix. This is the area where most people slip up because they do it themselves and greatly underestimate the costs.

Always mention competitors. Every business has competition and saying there is none tells the reviewer that you did not do enough market research or there is no market for your product.

Since you will be approaching investors a second time, it will help if you show the strengths your business has proven to its competitors and how it will be sustained while growth is taking place.

A business plan for a lender should be different from one aimed at an investor. Make it clear if you are looking for money or an investor. You might have to be prepared to be joined by someone on your board team to take a closer look at their investment or be prepared to let go of some shares to accommodate a new investor.

It is human nature to want to do things faster, but when trying to grow a business there will be some tasks that you have not anticipated and it is these tasks that might delay you achieving milestones. So avoid making unreasonable time lines to yourself and potential lenders.


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