5 Keys To Unlock An Investable Business Plan

The business plan presents your business to a potential investor or financier. It also represents your best effort as the promoter of the business to clarify your plan for the business. The plan must therefore follow a format that will assist its readers to quickly scan and understand the vital data about your business. For these reasons, five elements are critical to the preparation of an investable business plan for starting or growing your business. Here is a guide to help you produce a business plan that will be investment-ready:

1. A Basic Structure: Your business plan must be easy to read. There are certain things that your reader, a financier or investor, is looking for. The basic format of your plan must include the Cover Letter, Title Page, Table of Contents and Executive Summary.

While the cover page explains why you have produced the plan and why the reader should be interested in it, the title page should disclose the name of the business, identify its promoters and brand/product images. The table of contents will help the reader move around the document to find what is where. This should be followed by its contents, which focus on such items like the target audience, products or services and current and projected financials.

2. Executive Summary As Investors’ Pitch:The primary objective of the plan is to attract investors’ interest or secure financing. And, because you, the promoter, is not likely to be present when the plan is being reviewed, its summary has to convey the essence of the document in very few words. It must be short, sharp and, more importantly, it must clearly pitch your proposal. By so doing, a busy investor or financier can get the gist of your story at a glance, with minimum effort.

Your reader will almost always start reading your plan from the executive summary and will only go beyond it when it engages attention and holds promise. It must have the glue that holds the reader, hence it must be presented as a pitch that lures the reader to want to learn more about the business. Because of its importance, it is advisable to leave the writing of the executive summary to the last, even though it comes early in arranging the content of the plan,

3. The Marketing Plan: This is a comprehensive outline of the overall marketing effort of the business. It is the marketing strategy of the business, the blueprint of how it will acquire customers and meet its sales targets. The marketing plan provides information on the product or service, pricing, promotion and estimated sales and revenues. It also includes branding and positioning of the business, target markets, segmentation of its customers, competition analysis, critical success factors and key performance indicators.

4. The Assumptions:These are the things that you consider true for the purpose of developing a strategy and making decisions about the business. These are informed disclosures of the uncertainties and risks that are associated with the enterprise.

Examples of the assumptions of your plan may include, but not limited to, the likely behaviour of your customers, regulations that could impact operations, changes in employee remuneration, number of days in your financial year and interest rates on borrowed capital.

Some assumptions might not be obvious in the plan. However, the ones stated in it must be based on well-researched findings, not the result of guesswork. Nevertheless, the value of your plan, relative to your assumptions, is to serve as a yardstick for determining their correctness or otherwise, by helping to understand and explain variances where they occur.

5. The Financials: The financial information in the plan foretell the trading activities of the business over a number of years. They begin with how the business will source the money it needs to start or continue to run, dovetail into how much it will spend on its various activities, and how much it will generate as income for the business and profits for its owners.

Without delving too deeply into financial analysis, the plan must aim to present figures that indicate a balance between being unduly pessimistic and overly optimistic. It must, however, layout the best case and worst case scenarios, including the framework that will manage the cash flow of the business.

These proven and tested recommendations will fine-tune the working draft of your business plan. As a final step, to get the finishing touch, get your associates or partners to review your final draft prior to submitting it to an investor or a lender.

* Do you need help in preparing a business plan for your start-up or new project? Fill out the questionnaire at https://smefinance.org/thesmelab.

** If you like to link up with aspiring and practising Small Business Owners on how to plan your business, join our official SME Finance Facebook Group at https://www.facebook.com/groups/smefinance/

6 Things You Can Do With A Business Plan

A Business Plan is the document that describes the nature of a business, its sales and marketing strategy, and its financial background. It contains the projected profit and loss statement of the business, and explains how the business intends to achieve its set goals.

What is the purpose of a business plan? There are the obvious reasons, like planning a start-up and/or raising funds for a new or existing business. However, every Small Business Owner will do well to know the less than obvious reasons for a business plan.

Here are six ways a Small Business Owner can use a business plan as a management tool for achieving the commercial goals of the enterprise:

1. Start A Business: The most popular use of a business plan is to outline the steps that are essential to starting a business. Concerns about financing the business begin with the cost of the start-up, and continue with growing the business and introducing new products or services.

Where external funding is required, the plan provides information for investors in deciding whether to invest. Investors want to see the plan for running the business, especially its expense and revenue projections. They need reasonable assurance that the plans for the future of the business are realistic and attainable. A business plan addresses these issues, by detailing what would be done, by who, at what times, the resources needed and the outcomes to be expected.

2. Grow Or Scale An Existing Business:A business plan helps to clarify the strategic priority of the business, and enables it to allocate its resources accordingly. By aligning the objectives of the business with the deliverables of its work force, a business plan helps to identify the strategies that are working, those that need to refined, and those that must be abandoned. More important, a business plan provides a potent tool for uniting the units of the business in pursuit of a common vision.

3. Focus Managers And Staff On Specific Goals: A business plan is the roadmap for the business. It shows where the business is going, and how it intends to get there. It helps the managers of the business to be strategic in managing it, by helping them to establish what is expected to happen. It follows that the search for excellence in management must begin and end with setting specific objectives for managers, and tracking and following up on them.

A business plan, by establishing a vision for the business, must be used to develop a performance management programme. This ensures that the managers of the business, and their direct reports, down to the lowest staff cadre, are working towards the shared goals of the business, and embrace the same core values.

By so doing, the plan will state exactly what must be achieved, how it will be achieved, who should achieve it and when it should be achieved. Heads of departments and individuals will have set goals, with agreed work plans that reflect the priority objectives. The goals must be clearly defined, and specific and measurable targets must be clear to those expected to achieve them.

4. Share Business Objectives With New Employees: A growing business must add employees to its team, to help it move in the right direction. A new executive is expected to boost the revenue base of the business. However, before that happens, a new hire is a fixed cost that increases the expenses of the business. Hence it is important to figure out how such employee can help the business grow and prosper, to know what he or she is supposed to do for the business.

While the business plan rationalises the hiring of the new employee, it is important to make excerpts of the plan a component of the training of new employees, as they relate to their functions and responsibilities. This will equip fresh executive talent in buying into the vision of the business, and determining how to make meaningful contributions towards achieving its goals.

5. Sale Of The Business:The business plan is an important document in the sale of the business. As a means of valuation, it can help to establish the value of the business. It will help potential buyers to understand the condition of the business, what it is worth and why buyers should want to own it. The plan tells what the business is doing, how much it costs and how much it produces.

6. Support Of Business Loan Application.In the same way that investors want to see the business plan, lenders also want to see it. They expect the plan to cover the key elements, particularly the income and expense sides that point to cash flow of the business and its capacity to repay the loan. This is why lenders almost always request a business plan, sometimes called feasibility study, as part of a loan application package.

In essence, a thoroughly-considered and clearly-written business plan is a necessary vehicle, in pursuing a start-up, growing an existing business or seeking external help to scale a going concern.

Contact Us or drop us a line at ted.iwere@smefinance.org if you need help in preparing a business plan to start, grow or scale your small business.

Financing Your Small Business: Debt Vs Equity

Finance Your Small Business

As an aspiring or practising Small Business Owner, you will need money to start or grow your small business. In realising this objective, one question you must continually wrestle with is whether you should get a loan or get an investor.

There are many unspoken concerns that lie beneath this question, which seeks to tilt the balance between debt financing and equity financing. At the centre of this tussle are how quickly the business can access money, the process through which a loan may be obtained, the bureaucratic and legal paperwork that may be required, the cost of using the money, and the risks to be borne by the business, the lender and/or the investor.

For a new business, debt finance offers a viable option of raising cash. It entails getting credit in the name of the business. While it remains a challenge for a start-up to get a loan advance, there is a good chance of success because the process is fairly straightforward. The starting point is for the business to present its financial statements in the form of a bankable business plan, preferably prepared with the assistance or approval of an experienced financial adviser.

The catch here is that it could take weeks or months to obtain approval for a business loan. The lender may also require the business or its promoters to have a skin in the game, by requiring either or both of them to stake some of their own money or provide an acceptable collateral to secure the loan. There may also be the need for owners of the business to co-sign the loan through personal guarantees.

In return for the loan granted to it, the business is obliged to repay the principal loan amount, plus interest at an agreed rate. The percentage rate depends on such factors as the lender, history of the business, its credit rating and that of its owners, especially if it is a new business.

For the business, the risk is that if it fails to service the credit, the lender will be forced to call in the loan, and possibly force the business into bankruptcy. For the owners of the business, the lender may be constrained to lean on their personal guarantees where the assets of the business are not sufficient to liquidate the debt.

In spite of the obstacles and risks of obtaining debt finance, it might still be easier (or advisable) to get a business loan, instead of funding from investors.

The lender has near zero control of the business and may simply require regular and periodic financial statements to ensure that the business is performing according to projections. This leaves the Small Business Owner with control of the day-to-day running of the business.

Not so when the Small Business Owner takes in investors. In receiving money from iinvestors, whether from family, friends or venture capitalists, the Small Business Owner must enter into agreement with the investor(s), and spell out what to expect from each and every party. In addition to that, with equity funding, the Small Business Owner must give up full control of the operations of the business. The other shareholders will be given seats on the board of directors and will be watching over the business to protect their investments and be sure that it succeeds.

While it is easier to get family and friends as investors, it is not that easy to get venture capitalists to sign on. However, they all understand that, unlike a lender, they will not get their money back if the business fails to turn a profit, or closes shop.

The bottom line is that, as a Small Business Owner searching for money to start or grow your business, you must appreciate the likely trade-off in the choice between debt financing and equity finance. Would you rather take the expensive route of getting a loan, paying interest rate, staking some of your own money, risking foreclosure and keeping control of the business? Or take the cheaper option, in the short run, of getting investors to share your risk of failure (and loss of their money), sharing control of the business and, in case of success, perpetually receiving a piece of pie from the business in the form of dividend payments?

If you are thinking of starting or growing your business, you must decide whether to get a business loan or get investor equity. The former might just be your better bet for raising investable cash.

Contact Us Now if you are pondering about borrowing money to invest in a business opportunity. Or drop me a note at ted.iwere@smefinance.org, so we can share ideas on when to, and when not to, borrow to invest.

Five Steps To Making Your Business Bankable

Making Your Business bankable

In the course of advising budding entrepreneurs, one hears one recurring request:  ‘‘Help me get a loan to start my business.”

Truth be told. This request almost always falls on deaf ears. You will have great difficulty in get a taker. It is near impossible to find a bank that will advance credit to a start-up. The average banker will remind you of the high failure rate among start-ups, and rub this in with the fact that start-ups don’t have the revenue stream or assets to secure loans.

What the banker is saying in not too many words is that the start-up is not bankable; that a start-up lacks collateral, cash flow and good probability of success.

It’s hard to argue with that. Which is why typical start-ups look to other sources of finance, especially angel investors. Which is not to foreclose the chance of a start-up, or scale-up, to obtain loan finance.

For a founder seeking to overcome this seemingly insurmountable obstacle, or a Small Business Owner searching for scale, here are five ‘must do’ rules that can tilt the scales towards success in accessing a bank loan or line of credit:

  1. Prepare A Credible Business Plan. A business plan is the written document that describes the nature of the business, its sales and marketing strategy, its financial background, and its projected profit and loss statement. It is the road map that provides direction of the future of the business

A credible business plan is a prime requirement in applying for, and obtaining, a bank loan or similar kind of financing. You are sure to get a negative response if you ask a bank or experienced lender for money to fund your business, without accompanying your request with a business plan. That will convey the impression that you have not thought through your business idea or proposal and, therefore, not prepared for the challenge of succeeding at it.

As you are starting out in business, or have liitle experience in starting or running a business, it is advisable to seek the assistance of a business consultant with accounting skills to help you prepare a presentable business plan.

  1. Have A Skin In The Game. To have a skin in the game is to have incurred some risk, monetary or otherwise, by being involved in achieving the goal of the business. This requires that you show a significant personal investment in the business.

A lender or investor will want to see that you, the founder, has an invested interest in the success of the business before helping you. The reasoning here is simple: If you, the founder, is relying entirely on other people’s money and will not suffer a financial loss if the business fails, you will have nothing at risk and your commitment to its success will be questionable.

The rule of thumb is that your investment in the business should not be less than 20 percent of the loan amount you are seeking.

  1. Show Your Revenue Stream Before You Show Your Collateral. Your bank is more interested in the cash flow that will be generated by your business than the size of the collateral with which you plan to secure the loan. The bank wants your business to demonstrate an ability to repay the loan from its revenues, not the proceeds that will accrue from monetising your collateral.

The bank is likely to demand your equipment or property as collateral for the loan. But this is simply a back up as the bank is not interested in possessing your equipment or property. The bank prefers that your business has, or will have, a strong and consistent revenue stream that capable of repaying the loan. A conservative projection will be two years of positive cash flow.

  1. Leverage Your Personal Credentials. Don’t be deceived into thinking that your banker is only interested in your proposal. Your banker is equally interested in you, as a person and as the prime mover of the business. Your banker needs to be convinced that you have the qualification and experience to start and/or run the kind of business for which you are looking for money.

Besides being assured of your qualification and experience to deliver on your idea or proposal, your banker is also funding you, the aspiring entrepreneur or Small Business Owner. Your banker wants assurance that you are a person of character, that you can be trusted, that your word is your bond and, barring the unforeseen, you can be counted on to repay the loan as and when due.

  1. Pay Yourself Last. Popular advice in personal finance literature tells you to pay yourself first. Not so with business finance.

In business finance, your best advice is pay yourself last, if at all, especially when the money is coming from a bank loan. You will be raising a red flag if your salary features in the use of funds section of your business plan. While your bank will eagerly lend you money to buy raw materials to fulfill orders from customers or buy equipment to enable production, it will be most reluctant to give you money to pay yourself a salary.

As the founder of a start-up or a Small Business Owner planning to scale, you should count on not taking a salary for the first one or two years. This will have the doubly positive effect of strengthening your credibility with your banker and counting as part of your skin in the game.

The loan option could work for your business if you can produce a bankable proposal. It is a vital and viable alternative to searching for angel and venture capital investors because, in the long run, the cost of servicing a loan will be much cheaper than that of ceding a big share of equity and control in your business.

Click here if you have a bankable business idea or proposal and are worrying about how to finance it.

10 Items For Estimating The Cost Of Starting Your Business

Cost Of Starting a Business

If you are thinking of starting a business, you must also be silently asking yourself: How much will it cost to start?

The cost of starting some businesses can be high while that of starting others can be far less expensive. It depends on what you’re starting, a micro, small or medium-size business. Even within these categories, start-up costs depend on the type of business.

If you are aiming to be a freshly-minted Small Business Owner, and this is your first business, calculating the cost of starting your business will be as comfortable as venturing into an unfamiliar territory.

This is why you will need a business plan to help you estimate the cost of starting your business, and the financial projections section is a key component of your business plan.

Your financial projections, from your first year through three to five years, will estimate your revenue and profit. More importantly, as a start-up, they will also project your expenses. With these, you can forecast the financing you will need to meet your initial expenses.

In this way, you will know how much capital you will need when you start shaking the financial bushes. Whereas some of your expenses will be recurring (like payroll, rent) and you will keep paying them every month or every year, others will be one-off, like cost of incorporation, furniture.

In estimating your start-up costs, it is advisable to provide for your first six months to one year, without counting on revenue within that period.

With the foregoing at the back of your mind, whatever the type and size of business you want to start, here are 10 items you must consider as you plan the cost of launching your business.

  1. Incorporation and Licensing Expenses: One decision to be made in the start-up process is the choice of a business entity.

If you choose to incorporate your business as a limited liability company, thereby making it a legal entity separate and different from you, you will need to file a memorandum and articles of association.

Depending on the nature of the business, you may also need to secure a licence from a Federal or State Agency.

While the Corporate Affairs Commission is responsible for incorporation of companies, a Federal, State or Local Government Agency will be responsible for licencing your business.

You must find out what your business requires to take off, whether incorporation or licensing, and factor these into your pre-operational costs.

  1. Office Rent: Unless you plan to work from home, in which case you will have to go to your clients all the time and your clients will have no need to come to you, you must consider the overhead cost of an office space.

Even if you choose the less costly option of a shared, co-working space, renting an office will constitute a major element of your fixed cost.

So, you must put a cost on your rent of office space.

  1. Furniture and Supplies: A modern office requires each staff to have a desk, a chair, a computer, and access to a phone.

Add cabinets, file shelves, printer, ink, paper, etc. and the cost goes up.

Just be sure to keep the score and know the cost.

  1. Utilities: After providing for payment of rent for office space, consider the cost of utilities: Electricity, internet, phone bills.

Assign costs to each and all of them.

  1. Equipment: These are tangible property, other than land or buildings, needed for the operation of your business; like machines, vehicles, tools and devices.

Equipment will vary by business. For examples, beside other equipment, a hair salon will need styling chairs while a restaurant will need ovens and cooking utensils.

A new business will need to cost and finance the acquisition of equipment before it opens for business.

  1. Inventory: Are you planning a service business? If yes, your start-up costs will not include inventory. You will, however, need inventory if your business will be in such sectors as manufacturing, distribution, wholesale or retail.

How much inventory to carry, for how long, will depend on your business. Whatever you decide will be a necessary addition to an estimate of the cost of starting your business.

  1. Marketing: Marketing expenses range from banners through business cards to advertising campaigns.

While there is a wide variety of options, from low budget to expensive, what is important is for the Small Business Owner to put a figure on how much the business plans to invest in marketing its products and services.

  1. Salaries and Wages. The payroll of the business includes all forms of benefits and compensation. Employees, yourself included, must be paid at the end of each month, not minding if the business has not started making money.

Project the wages and salaries for the business for multiple years and varying staffing levels.

  1. Consultants: At the start-up stage, you must resist both the temptation to do everything yourself or employing too many staff.

You must consider the option of engaging consultants to fill in the gaps in your expertise and experience, and outsourcing to them the assignments that will bloat the payroll if you use full-time staff. Outsource bookkeeping, accounting and legal work to consultants.

When you plan to engage consultants, count the cost in your start-up budget.

  1. Taxes: It is difficult to know how much to provide for tax for your new business, because that will depend on the revenue of the business, which is equally difficult to predict.

Nevertheless, when planning your costs, it is important to assign an amount to allocate to business tax, after deductible expenses.

It is advisable to work with professionals with experience in tax matters. They will help you figure what your business can deduct, so that it will pay as little as possible.

The bottom line is that estimating the cost of starting your business, by identifying elements of this cost, is a stressful but vitally important step into entrepreneurship. This essential effort helps to determine how much money the Small Business Owner will need to raise as equity and/or debt, and signposts how fast and far the business is likely to travel.

Click here if you need help in estimating your business start-up costs or finding financing for your start-up.

Purpose Can Make Your Business Plan Bankable

Bankable Business plan

Are you starting a business, growing a going concern or acquiring an existing enterprise? Whichever you are embarking on, you need to create a strong and bankable business plan.

A bankable business plan is a loan or investment proposal that earns approval and attracts financing for your venture. It is a document that addresses the needs of bankers and/or investors. It also aims to accomplish your goal as a Small Business Owner.

Before embarking on creating a business plan that is bankable, it is imperative for the Small Business Owner to determine the purpose of the idea. Failing which the effort will produce paperwork that does not cater to the specific and critical needs of potential lenders, investors or partners.

However, for it to be bankable, a business plan must clarify the added value and revenue model of the idea. It must convince its reviewers that the business is sound enough to justify a loan or an investment. Specifically, it must satisfy most, if not all, of the following purposes:

  • Test that the business idea is feasible.
  • Determine how best to access the financial resources that the business needs: Bankers, investors, partners or a mix.
  • Outline how to secure lines of credit or payment terms, if needed.
  • Identify key employees, partners or consultants that the business will get on the team.
  • Relationships with customers, suppliers or consultants.
  • Create a template for the successful management of the business.
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The importance of purpose

How can you as a Small Business Owner, discover and express the purpose of your business plan and make it bankable? By searching for the purpose of your plan, you will be able to create a unique and convincing description of your proposed venture. Here are some key pointers:

  1. Be Original

    Firstly, don’t follow a formula. Do the thinking that will bring your business concept to life, which will make your plan compelling, and encourage others to support it. If you merely follow a boiler-plate template, you will produce a canned and lifeless plan that an experienced investor or lender will quickly spot as a formula plan and tossed into the wastebasket of rejections.

  2. Think Business

    Similarly, creating an effective business plan requires good business thinking, which is the heart of a bankable business plan. Its creation must follow the process of creating a business, which moves from conception to implementation. It should take you through the complete cycle, from conceiving your initial idea, through testing it and researching the market, to developing strategies and executing an action plan.

The resulting plan will be the product of the steps you have taken in creating the business in your mind, which will make it original and different from any other business plan.

  1. Passion And Perseverance

    Likewise, a bankable business plan is not expected to be a technical document, full of esoterica, and only accessible to the initiated. It should be a document for people of all skill levels.

Consequently, your goal as the prime mover of a bankable business plan is to create a unique document, infused with your expertise in, and enthusiasm for, your venture, and your readiness to learn about the business and industry. The real skill you need to produce a bankable business plan is the passion and perseverance you are prepared to leverage towards building your business.

  1. Focus On Financials

    A bankable business plan is a document about an enterprise that will be created, or exists, to make money. Since the endgame of the lender or investor reading the plan is to decide whether to lend to or invest in the business, the plan must contain credible financial projections that identify and satisfy the specific matters that concern them.

  2. You, Personified

    You will not be present, in-person when investors or lenders are reviewing your plan. A key purpose of your plan is for it to be able to speak for you. Your plan is an extension of your person. It is you, personified, and must project who you are and be able to speak in your absence.

Also, beyond stating your background and qualifications, the plan must be complete, organised, easy to read and persuasive. It is one way of telling the reader that you can make the proposed business a success.

  1. You, A Team Player

    Business is a team sport, and you must be a player. Therefore, a Small Business Owner must not limit himself to a venture which he would do solely. He/she must not be confined to his or her own muscles, brain power and limited resources. Even a small business requires the contributions of others with different backgrounds and skills.

Furthermore, a bankable business plan must demonstrate the willingness of its promoter to engage and manage human and financial resources towards the creation and/or growth of a successful venture.

Finally, finding and articulating the purpose of your idea is an essential ingredient in making it bankable. It is an expression of your confidence in your concept. Hence, it can help to attract the support you need for your business.

Should you need guidance and advice in finding the purpose of your business plan, visit the SME Clinic at https://smefinance.org/sme-clinic/.

Three Things Small Business Owners Need To Raise Start-Up Capital

How to raise start-up capital

The Small Business Owner trying to raise cash for the next business idea readily comes to terms with the many reasons investors can give for turning down a proposal.

Reasons like: The business plan is not complete. The projections are overly optimistic. The market is not big enough. The product or service needs further development. The deal being offered is not favourable. And the list can go on.

That’s the bad news!

The good news is that there are people and institutions with money, looking for business proposals with the potential for creating products and services that will make money.

Just consider the following:

  • Nigerian start-ups raised $17.6m in Q1 2019, 8.5% higher than 2018.
  • Agencies of Federal and State Governments now give grants or soft loans in millions of Naira, for start-ups, often including training programmes.
  • Tony Elumelu Entrepreneurship Programme, yearly, gives Five Thousand Dollars to thousands of applicants with successful business proposals.
  • Business hubs now provide accelerator and incubator services, and offer financial support and guidance for Small Business Owners to turn their ideas into viable start-ups.

What this means is that we may well be in the golden age of the Small Business Owner.

Which is why you must properly position yourself and your business as you shake the financial bushes. To do this, you must address three things that make a huge difference, between Small Business Owners who succeed in finding capital, and those who don’t: The first is Information. The second is Access. The third is Expertise.

Information: When Small Business Owners think of funding a start-up, the options that easily occur to them are personal savings, family and friends. While these low-hanging fruits come in handy in the founding days, they often run dry long before the business builds a revenue stream to sustain it.

At the formative stage of the business, the Small Business Owner, without a proven business model or an acceptable collateral for a loan, will need information about a wider portfolio of funding sources. Like start-up grants, angel investors, venture capital, crowdfunding and instant loans.

With different investors and lenders now active in the small business ecosystem, Small Business Owners must be well informed about their existence, the requirements and guidelines of the businesses that interest them, and deliver proposals and pitches that address their needs, and result in great deals and good returns for promoters and investors.

Access: Investors need good businesses in which to invest their money. They need start-ups that hold promise, and going concerns that can scale. You will be solving a problem for investors if your start-up has potential.

It is, however, not always easy to access or gain the confidence of private and institutional investors. Investors are more comfortable working with people they know, people they like, and people they trust.

If you do not know the investors yourself, it will help to get an introduction through someone who knows them. Most investors only look at investment proposals that someone they know and trust brings, or recommends, to them. It is when you already know the investor(s) or you are introduced by someone who knows the investor(s) that you will get a chance to pitch your business.

This is where your personal contacts and the quality of your business connections can help you access the investors that you need.

With a great product or service, with a strong business plan, a warm instead of a cold introduction to the right investor(s) can make the difference between success and failure in getting investors to sign their cheques to invest in your business.

Expertise: The Small Business Owner in search of capital starts with a great idea for a product or service. By focusing on what must be done to get the product or service to market, he or she struggles with the challenges of limited time, knowledge and resources. But the process of seeking outside investors forces the Small Business Owner to examine the nuts and bolts of the business, and think strategically about the fundamentals of the enterprise.

By so doing, he or she will become an expert in the business rather than just someone with a great product or service, without a considered plan for a profitable and sustainable business.

It, therefore, helps for the Small Business Owner to sweeten the financing deal to include investors’ representation on the Board of Directors or Advisory Board. Beyond strengthening the confidence of the investor in the business, a seat on the Board also adds business expertise to that of the Small Business Owner, demonstrates his or her understanding of corporate governance, and a readiness to build a winning team. Thus, in addition to bringing capital that the Small Business Owner cannot raise otherwise, outside investors serve as links to other industry professionals who have expertise that the Small Business Owner may need.

The Small Business Owner, versed on available funding sources, with access to investors and demonstrable expertise in the proposed line of business, stands a good chance of raising money.

If you need help to find and connect with sources of capital, if you need guidance to pitch and close the deal to get the money you need, visit the SME Clinic at https://smefinance.org/sme-clinic/.

10 Questions Your Start-Up Pitch Must Answer

Questions your startup pitch must answer

As the competition for investment capital continues to grow, and your search for funding intensifies, you are faced with the need to put together a strong and compelling pitch that will convince investors to fund your start-up.

To improve your chance of winning investors for your start-up, here are 10 questions, each tailored to your idea that your pitch must answer:

  1. What Is Your Vision Of The Business? Tell your target investors why you are passionate about the business you plan to start. Tell them why the business matters, and why they should be part of it.

Help your investors to envision the outcome you wish to create. Give them a sense of what the business will be when it succeeds. The alignment of your investors with your vision will greatly influence the decision to dream your dream with you.

  1. What Problem Is Your Start-Up Planning To Solve? Identify the problem that your start-up will address. The presence of a pain point, among a known audience, is needed to create a customer base, and sustain your business.

Validate the existence of this pain and this audience. Explain how this pain has been addressed in the past. If it is currently being addressed, point to existing solutions or a demand that is not being met, and sign-post how you plan to compete in this market.

  1. What Is Your Unique Solution? Having demonstrated the existence of a problem and a gap in the market, present a solution that your potential customers will adjudge to be compelling and worthy of their consideration against other options.

The presentation of your solution should show how it will resolve the concerns of potential customers. It should also point out how your solution will be an improvement on current solutions, and thereby create a unique offering that is not available in today’s market.

  1. Do You See A Market Opportunity? Present a clear description of your target customer. Show that there are others like him/her who form a sizeable market that will be willing and able to buy your product or service. Estimate the total market size, and the share of the under-served market that you aspire to serve.

Indicate how ripe and accessible the market is for your product or service by addressing the channels you will use to reach your customers.

  1. Who Are Your Competitors, And How Will You Outmanoeuvre Them? Explain how the target market has evolved over the years. Recap the stories of players who have entered and exited the market. Explain why they failed.

Outline why you think the time is right for your start-up to enter the market, and why you think it will beat the competition. Share your knowledge of your potential competitors, their strengths, and weaknesses. Say how you will battle entrenched competition or outpace other start-ups.

Tell how your unique solution will offer benefit(s) that the competition is not providing and, by so doing, differentiate your start-up in the marketplace.

  1. What Will Your Product Or Service Add To The Market, And How Will It Grow?
    Articulate the value and features of your product or service, including how you plan to grow the start-up.

Layout your plan to create opportunities for growth, by following up your initial offer with similar or different products or services, with a view to creating new revenue streams and extending your brand.

  1. What Is Your Business Model? Illustrate the economics of the business. Will the start-up you are pitching be a thriving and profitable business?

Show how the start-up will achieve an operating profit. Share your assumptions on costs and prices as they are projected to impact your economic value chain.

These are projections at this point. Fluency of the numbers and their sensitivity to key assumptions are critical to inspiring confidence in your pitch.

Every investor wants to know how much spend will be required in order to expect to make how much money!

  1. Who Is On The Team, And Who Is Leading The Charge? List and introduce the founders and senior managers. Include board members and advisers, if applicable.

Investors want to know if the start-up has, or can assemble, a team to make the enterprise a success. They also want to know the corporate governance structure of the company, and who will head the team.

  1. What Is The Financial Plan? Projected Profit and Loss Statement, Balance Sheet, and Cash Flow Analysis.

Provide historical and forward-looking projections, complete with sources and uses of capital, future capital requirements, and future financing plans.

Forecast for at least three years.

The financial plan is the foundation of your pitch. It tells how you think about your start-up, and signals whether investors should have confidence in you and your business.

  1. Is This An Investment Opportunity? Outline the funding history of the start-up: Investors, amounts invested, percentage ownership, present valuations, current capitalisation and proposed structure of the deal.

The bottom line of your pitch is to convince your potential investor that the business is likely to succeed, and he or she is going to make money. Get your potential investor to pull out his or her cheque book, and buy into your dream.

Are you preparing to pitch for your start-up? Do you need help to prepare for it? Let’s work with you. Visit the SME Clinic at https://smefinance.org/sme-clinic/

Seven Mistakes To Avoid In Financing Your Business

Avoiding  business financing mistakes is a key component in business survival. If you commit these business financing mistakes too often, you will greatly reduce any chance you have for long term business success. The key is to understand the causes and significance of each so that you are in a position to make better decisions.

  1. No Monthly Bookkeeping: While everything has a cost, bookkeeping services are dirt cheap compared to most other costs a business will incur. And once a bookkeeping process gets established, the cost usually goes down or becomes more cost effective as there is no wasted effort in recording all the business activity.

Regardless of the size of your business, inaccurate record keeping creates all sorts of issues relating to cash flow, planning, and business decision making. By itself, this one mistake tends to lead to all the others in one way or another and should be avoided at all costs.

  1. No Projected Cash Flow: No meaningful bookkeeping creates a lack of knowing where you have been. No projected cash flow creates a lack of knowing where you are going.

Without keeping score, businesses tend to stray further and further away from their targets and wait for a crisis that forces a change in monthly spending habits.

Even if you have a projected cash flow, it needs to be realistic. A certain level of conservatism needs to be present, or it will become meaningless in very short order.

  1. Inadequate Working Capital: No amount of record keeping will help you if you don’t have enough working capital to properly operate the business.

That’s why it is important to accurately create a cash flow forecast before you even start up, acquire, or expand a business.

Too often the working capital component is completely ignored with the primary focus going towards capital asset investments. When this happens, the cash flow crunch is usually felt quickly as there is insufficient funds to properly manage through the normal sales cycle.

  1. Poor Payment Management: Unless you have meaningful working capital, forecasting, and bookkeeping in place, you are likely going to have cash management problems.

The result is the need to stretch out and defer payments that have come due. This can be the very edge of the slippery slope. If you don’t find out what is causing the cash flow problem in the first place, stretching out payments may only help you dig a deeper hole.

The primary targets are payroll, remittances to regulators, trade payables, and sundry  payments.

  1. Poor Credit Management: There can be severe credit consequences to deferring payments for both short periods of time and indefinite periods of time.

First, late settlement of payables, like supplier credit, is probably the most common way a business can destroy its financing plan.

Second, if you put off a payment for too long, a creditor could file a judgment against your company, which further damages its credit.

If your business gets into situations where it is short of cash for a finite period of time, make sure you proactively discuss the situation with your creditors and negotiate re-payment arrangements that the business and its creditors can live with and that won’t jeopardise new credit.

  1. No Recorded Profitability: For startups, the most important thing your business can do from a financing point of view is to get profitable as fast as possible.

Most lenders must see at least one year of profitable financial statements before they will consider lending funds based on the strength of the business. Before short term profitability is demonstrated, business financing is likely to be based primary on personal credit and net worth.

For an existing business, historical results need to show profitability to acquire additional capital. The measurement of this ability to repay is based on the net income recorded for the business by a third party accredited Accountant.

In many cases, businesses work with their Accountants to reduce business tax as much as possible but also destroy or restrict their ability to borrow in the process when the business net income is insufficient to service any additional debt.

  1. No Financing Strategy: A proper financing strategy must have the following elements:

(a) The financing required to support the present and future cash flows of the business.

(b) The credit repayment schedule that the cash flow can service.

(c) The contingency funding needed to address unplanned or unique business needs.

This sounds good in principle, but does not tend to be well practiced. Why? Because financing is largely an unplanned and after the fact event. It seems that once everything else is figured out, then a business will try to locate financing.

There are many reasons for this.  For examples, entrepreneurs are more marketing oriented. People believe financing is easy to secure when they need it. The short term impact of putting off financial issues are not as immediate as other things.

Regardless of the reason, the lack of a workable financing strategy is indeed a mistake. Sadly, a meaningful financing strategy is not likely to exist if one or more of the other six mistakes are present.

This reinforces the point that the seven mistakes listed here are intertwined. A business that fails to avoid these mistakes in inadvertently compromising its chances of success.


How To Write Your Business Plan

How to write your business plan

What is a business plan? A business plan is a planning document which summarises the operational and financial objectives of a business. It contains detailed plans and budgets showing how the business will pursue and realise its set goals.

Why do you need a business plan for your business? A business plan is a vital first step for anyone starting a business. It is the due diligence needed to prevent you from wasting time and money on a business idea that might not work. If you have a business idea, you need a business plan to determine if it will make money, since you would not want to start a business when you are not sure that it has a good chance of being profitable.

Your business plan will help you to secure the buy-in of the people who will work with you in the business, particularly members of your senior management. Also, your business plan will help you to convince potential investors that your business is likely to succeed. A business plan will show the capacity of your business if you need to borrow money from a lending institution.

Your business plan is your tool for thinking through the key elements of your business and serves as the roadmap for starting, growing and scaling your business. It guides you through every stage of your business. It is the foundation for your business.

How do you write your business plan? Here is a step by step outline you can use to write your business plan, with a listing of the key sections and essential components of the plan:

  1. Executive Summary: This section comes first, but it is the last one you write. It is the summary of the key elements of the business plan and it gives a bird’s eye view of the plan. It goes without saying that this make or break section is critical in the sense that this is where the reader will decide whether to continue reading, not to speak of considering the substance of, the plan.
  2. Industry Overview: This requires a general overview of the industry that your business is venturing into. It should include trends, major players and aggregate sales estimates. It should also indicate how your business plans to place its stake and position itself within the industry.
  3. Market Analysis: Examine your primary target market. Focus on your geographic location, the demographics of the market, and how your product or service will meet the needs of its consumers. This is where to show your knowledge of the people who are likely to patronise your product or service. It should contain informed estimates about the volume and value of products or services you may be able to sell to your target market.
  4. Competitive Analysis: Investigate your direct and indirect competitors. Assess their competitive advantage. Analyse how your product or service will enter your target market. State the unique selling proposition of your product or service, if any. Articulate how your business will distinguish itself and compete successfully in the marketplace. Explain your strategy for gaining a share of the market.
  5. Sales and Marketing Plan: Outline your sales strategy. Talk about your pricing plan. Discuss your proposed advertising and promotion activities. Showcase the benefits of your product or service. Present what is unique about your business and your product or service. Describe how you will get your product or service to your target market, and how you will persuade people to buy them.
  6. Ownership and Management: State the legal structure of the business, including its management and staff requirements. Name the key players in the senior management team. Indicate the internal and external resources available to the business.
  7. Operating Plan: Disclose the physical location of the business, including its facilities and equipment. List inventory and supply requirements, and employees needed to run the business. Include such operating details as manufacturing process, if applicable.
  8. Financial Plan: Describe your funding needs. Provide detailed financial statements. Analyse your financial statement. Present your three main financial documents: Balance Sheet, Income Statement and Cash Flow Statement. For a start-up, the third document will be your Cash Flow Projection.
  9. Appendices and Exhibits: These include any document to support the foregoing sections. The essence is to provide additional information to give credibility to the business plan. Examples include, but are not limited to, market studies, photos of your product, contracts, etc. that are relevant to your business.
  10. Title Page and Table of Contents: After completing all sections of the plan, create a title page and insert it at the beginning of the plan. Create a table of contents, which assigns a page number to the start of each section, and insert it immediately after the title page.

By the time you work through this process, you will have a complete and well thought out business plan, a living document that will guide you in starting, growing and scaling your business.

If you need help in writing your business plan, You can, however, contact us at the SME Clinic. https://smefinance.org/sme-clinic/