Writing a business plan is an important first step for any startup. Although you’re not legally required to have one, a good business plan is the blueprint that maps out your goals and can help keep you on track.
If your business will require significant capital to start properly, you may be searching for investors. This is when a good business plan is essential. Investors know that a company with a solid business plan is less likely to make mistakes and better able to handle things like unexpected costs. In fact, 29% of failed startups attributed closing their doors to lack of funding — with exactly 8% attributing their failure to a lack of investor interest.
When it comes to securing funding for your small business from people like angel investors or venture capitalists, a business plan is vital. Before investors sink money into your company, they want to make sure it can make money. In this guide, we’ll go over how to create a business plan investors will love.
What’s Included in a Business Plan?
Although business plans can vary greatly, there are a few essential elements. Here are eight sections that a business plan should include:
- Executive Summary: This is an overview of the rest of your business plan. It will summarize things like your mission statement, plans, goals, structure, and financial needs. Keep this section short.
- Company Description: This section will identify the key parts of your business model, like its owners, location, and clientele. It also introduces products, states company goals, and mentions timelines for growth.
- Market Research: This section identifies the problem that your service will solve for your customers. It shows how your product will meet market needs and the overall market size. It should be backed up by solid research and statistics.
- Product or Service Description: This section describes your new product. It includes pricing, marketing strategy material, and future plans. It also defines the process of delivering products.
- Marketing and Customer Acquisition Strategy: This section shows where you’ll find new customers and how you’ll market to them (e.g., social media).
- Business and Team Structure: This section charts out the roles the members of your business will play. It also includes your team’s qualifications.
- Company Financials: This section estimates your company’s worth and financial forecast. It notes an income statement for your own business, projects financial milestones, and describes how cash flow will work.
- Request for Funding: This section shows the amount of money your company needs and outlines the way the money will be used.
Check out our guide to writing a business plan for even more resources on what each of these steps looks like in action.
What Do Investors Want to See in a Business Plan?
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At the end of the day, investors are looking for a business with profitability potential. They’re different from bank lenders, who are primarily worried about credit history. They want you to convince them that your company will make them money. That’s why your business plan should be easy to understand, well-thought out, and plausible.
A good business plan will walk an investor through your company’s road to success. Investors are risk-takers, but they want to take calculated risks. You need to show them that your business is their best bet through four key areas:
- Clear direction
- Competence within the team
- Competitive advantage
- Financials that add up
One of the first things an investor will want to know is where your business is headed and how it will get there. A clear direction guides all your business decisions to make sure they bring you closer to your goals. That’s why it’s important that your executive summary is straightforward and concise.
This section is where you’ll want to grab the investor’s attention. Be direct, and be succinct. You may be tempted to describe your business opportunity in depth, but you want to keep the investor’s attention. Instead, try to describe your business opportunity in two sentences.
If an investor can’t understand your executive summary, they may not even read the rest of your business plan. That’s why it can be a good idea to write your summary last; you’ll have a better idea of what a clear summary entails after you’ve finished the rest of your business plan.
Competence Within the Team
If an investor is putting money in your business, they’ll want to know that it’s run by capable and devoted people. Your management team is just as important as the service you’re selling. In your business and team structure section, go over your team members’ qualifications and the reason they’re involved. Show why they’re the best at what they do.
You can mention each member’s position (e.g., CEO, CFO, manager), past experience, accomplishments, or advanced degrees and certifications. Add a quote or blurb on why each person is passionate about the industry. Even if you have a sole proprietorship, you’ll still want to highlight your qualifications and strengths.
Be sure to clarify anything an investor might not be familiar with. For example, they might not know that, as a master electrician, you’ve received the highest certification in your industry (and have at least 4,000 hours of experience).
Be professional. Backers aren’t keen on fun facts or personal details. All they want to know is that everyone has the skills to get the job done. Save details like “favorite ice cream flavor” for your PR material, when you’re trying to relate to your target market.
ZenBusiness has helpful templates for things that can help you plan the foundation of your company, like business plan templates.
Investors need to know that your new company can compete in your field. When you’re presenting your market analysis, be sure to show what problem your service is designed to solve. You’ll also need to describe the obstacles that might keep other companies from taking some of your market share.
Let’s say you’re starting a business as a freelance digital marketing consultant. Here’s how you might lay out your company’s competitive analysis:
- Problem your business solves: Companies without a strong online presence aren’t able to reach broad demographics and market segments like those that can market online efficiently.
- Barriers to entry for competitors: You have an advanced OMCP (Online Marketing Certified Professional) certification that requires 5,000 hours of experience and additional training. Your competitors don’t have the experience or qualifications that you have.
Back up any claims you make with actual research. For the above example, you could explain that landing pages are underutilized in most digital marketing plans. While they have the highest conversion rate, companies use them less than other types of registration forms, like pop-ups. With your skill set, you can help companies use landing pages to increase conversions.
There might be many other obstacles that could lock out competitors. You might reference things like high material costs, intellectual property your company owns, or a unique geographical area you service.
Financials That Add Up
The ultimate goal of an investor is to make money. They want to know how much profit they can expect for the amount of ownership they buy. The more specific you can be, the better. Project how much revenue you’ll expect to generate in the next five years, and break it down further than that if you can (e.g., monthly income).
There are a lot of factors that influence the revenue your company will make. When you’re projecting your company’s future earnings, take into account things like your expenses, your price points, and how often you think your target customers will buy from you. Compensate for the future costs of growing your new business. If you’re an artist, for example, you might plan to move into a larger studio after two years. You can’t predict the future, so you’ll adjust your financial projections as your business runs.
Before you can sell part of your company to an investor, you’ll need to estimate what your company is worth. There are several methods for evaluating your business’ worth. One way is to research the amount that similar businesses have sold for recently. Still, accurately valuing your company can be complicated. It might be best to seek the help of a qualified business appraiser. Potential investors will need to agree on your valuation.
Investors want to see finances that make sense. If you tell an investor that they can expect to make $500,000 in five years by purchasing 15% of your company, you’d better have the numbers on your financial statement to back it up.
Attracting Investor Attention
To make the most of their money, investors look for businesses with smart leadership, clear goals, solid financial plans and records, and a competitive edge. If you want backing, you need to communicate that your business idea has all four components. Drafting a great business plan is the first step toward getting an investor’s attention.
That doesn’t mean it’s the only way to get on an investor’s radar. Methods like networking are still important and can help you build the right connections to get your business funded. In fact, venture capital firms rarely let business owners they don’t have mutual connections with to the pitch deck. Use every strategy you can.
You love running your small business, but it seems like the work is never-ending. ZenBusiness has great resources that will make taking on your administration much easier. This is your dream; don’t let extra paperwork take the fun out of it.
Investor-Ready Business Plan FAQs
How do you write a business plan for an investor?
Clearly lay out the amount an investor can expect to make, the direction your company is headed, how your services will be successful, and the qualifications of your team. These elements will help inspire the confidence of an investor.
What does the business plan show to your investors?
A good business plan shows investors that you’re for real. You’ve taken the time to meticulously plan out your future successful business and you’ll be more likely to make them a profit.
What is a business plan?
A business plan is a roadmap for every aspect of your business. It introduces your company, staff, and product. It also analyzes your market research and explains the company’s financial situation.