Many businesses in Kenya and Africa at large have closed despite the business idea being brilliant and proof of demand for their products and services. Most businesses need capital injections to scale and break even but we all know how hard it is to access capital in this part of the world. Here are some tips for you to prepare your business for funding
Most potential investors will want to see a business plan before they consider funding your business. Although many businesses are tempted to use their business plans solely for this purpose, a good plan should set the course of a business over its lifespan.
A business plan plays a key role in allocating resources throughout a business. It is a tool that can help you attract new funds or that you can use as a strategy document. A good business plan reveals how you would use the bank loan or investment you are asking for. Ongoing business planning means that you can monitor whether you are achieving your business objectives. A business plan can be used as a tool to identify where you are now and in which direction you wish your business to grow. A business plan will also ensure that you meet certain key targets and manage business priorities.
You can maximize your chances of success by adopting a continuous and regular business planning cycle that keeps the plan up-to-date. This should include regular business planning meetings which involve key people from the business. In order to get business funding you need a business plan, right? While having one in place can be an enormous advantage in securing investment, successful businesses aren’t always started on paper. How you get your business planning ready for the funding stage isn’t necessarily a uniform process, but the final definitely stage is.
Why You Don’t Need A Business Plan To Start-Up
When the Harvard Business Review conducted research for their book Heart, Smarts, Guts, and Luck, they interviewed hundreds of successful entrepreneurs and small business owners about what it takes to build a successful business, they found a number of recurring themes. One of them was that over 70% of them did not start with a business plan at all.
The key element of why many don’t start with a business plan is that most are started with limited funds and an idea. In order to make that idea a successful one, they need to build, test, and perfect it and while having a business plan might well put all the ideas, plans, and potential actualities into a neat framework, it doesn’t overcome the task of doing the hard graft.
What is key, their findings found, was having an idea (a business vision) for the business having a bigger goal at the end of it. They broke this entrepreneurial theory into five parts and they highlight a clear method of how a business start-up can develop at a quicker rate without the formalities of it being constrained by a formal ‘business plan’:
- Formulate and clearly articulate the ‘core idea’ of the business
- Develop a team filled with people who share that idea
- Every big idea starts small, so scale your idea to start traction
- Focus on a niche area of your market and be the best at it
- Understand how you are going to monetize your business idea.
When a business starts out, attempting to put the business into a framework that will align to the short, medium and long term outlook for the business can be both limiting and unrealistic. More important by a long way is ‘uncovering the soul of the business and demonstrating whether people will connect with it‘.
Business planning is just as much about ‘doing’; refining your business offering and ensuring that it is financially viable. This is where the ‘heart’ and the ‘guts’ of the business are to be found – the ‘smarts’ are getting it right and the luck is making good use of every opportunity your hard work presents along the way.
Why You Need A Business Plan
The previous section might have been slightly misleading in not needing a business plan, but the point itself is a powerful one; without having the drive and determination to get the business up and running, usually scaled due to restricted funds, a business plan remains just a business on paper.
Research has also been conducted into whether a business is more successful – because of drafting up a formal business plan at the start – or less successful. Indications seem inconclusive, with those starting with a formal plan and those that did not, not having any noticeable difference in success/failure rates.
A business plan becomes important during two stages of a business’s development: firstly when the scale of it reaches a certain size and requires defined roles or defined services, and secondly; when investment is needed to accelerate or maintain growth.
Business Planning For Investment
It is at this point that a business plan is an essential tool for any business looking to raise money to help their business grow. There are few (if any) financial providers willing to look at investing in your company without seeing a clearly defined and achievable business plan.
By now your business should have already have a well-defined business (whether you started with a business plan or not) and looked at what is needed in order to become even bigger and more profitable. You will have looked at your role within the company and the business roles of your key staff, as well as having a keen understanding of how investment and technology can expand the existing operations of your business.
Now is the time to start looking for external investors and a formal business plan is your best method of doing so. Before we can discuss what needs to be included in order to make your business plan ready for investment, you need to have a business plan.
How To Write Business Plan
1. Executive Summary
The executive summary should summarise and highlight everything contained in each section of your business plan. It should be the last thing your write and be condensed into a single page.
2. The Business Overview
This isn’t a detailed review of your business, it should summarise the purpose of the business and its current operations and market position.
- History of the business
- The purpose of the business
- Products and services offered
- The market in which it operates
- A brief financial overview
- The core model of your business.
3. Social and Environmental Impact
Whether you have a social or environmental strategy or not, you should be explaining how your business affects its stakeholders (what it means to your employees, management, customers, suppliers and wider community). How is it different it your competitors?
4. Market Position
Why and how does your business manage to operate in the market.
- Target market
- Size of market
- Market trends and projections
- Competitors
- Current market share
- Opportunities for partnership or collaboration.
5. Growth Strategy
How achievable are your growth strategies, from a market perspective as well as a financial position?
- Analyze short, medium, and long-term growth capacity
- Develop a clear, achievable timeline to do it
- Demonstrate an understanding of what is needed in order to facilitate growth
6. Your Customer
You should have an understanding of your customers, including who they are, where they are, and what their motivations are. You should also demonstrate an understanding of the financial implications of the different contract size your customers present and how that affects revenue streams and profitability.
7. Management Team
Your organization will have a structure, and that structure will look a lot like a wheel, all focused on the central goal of the business. It might have a few spokes or lots of spokes, but it will clearly show who is responsible for what and how they interact.
- Analysis of management positions and responsibilities
- Details of key personnel i.e., experience and strengths/weaknesses
- Ownership structure.
8. Business Operations
Highlight the operational details of your business including sites, locations, legal structure, insurance considerations, technology levels, and other relevant company policies.
9. Financial Report
Your financial statements should hold the final key to convince any investor to offer finance. Be honest and accurate in providing financial statements and revenue forecasts.
- Past financial performance
- Balance sheets
- Current trading figures
- Profit and loss statements
- Cash flow
- Financial risks.
10. Raising Capital
If you are raising money, then you need to explain exactly where and how you are going to be using it and how this will increase the bottom line of your company’s sales. This is where you need to be clear on exactly how much you are going to need. It is beneficial to include how you see your investor working with you and what kind of investment terms you are seeking.
Supercharging Your Business Plan For Investment Funding
With a business plan ready you can now start looking at exactly how your business planning will attract potential investors. Some business owners see their business plan as only suitable for presenting to investors. But it does more than that:
- It helps to convince potential investors that a business owner has clearly thought through their business idea
- It offers potential investors a ready benchmark with which to hold business owners accountable for their financial plans and business strategy.
A business plan helps a business start looking for potential financial investment, but a good plan has an even greater chance of securing investment. Here are some tips from a venture funding company that will help supercharge your business planning to help achieve the funding you need:
- Investors like to companies that are making money. Your investment proposal must be geared to making your business sound like a convincing, money-making enterprise.
- Make your plan as simple to follow as possible; reduce jargon and make each section understandable in its own right. Overcomplicating can turn anyone away from your business investment proposal.
- Be clear on what business sector you are in and exactly how you are going to bring in revenue.
- Never be shy when asking for money, but be honest and accurate. If you need £250,000 then ask for it, just make sure you know exactly where each pound of that funding is going.
- Be clear on how important your skills and knowledge are to the business, as well as include any relevant skills your key employees have. What is the impact of your/their leaving the business?
- Scalability is important. Does your business have a wide appeal?