A Guide For StartUps: The Value of Business Plans Vs. Financial Models in Seeking Investment Capital

October 11, 2016
Posted by avidamiri

Every year, I generally receive a number of proposals and ideas from entrepreneurs seeking funding for their new business ideas, enterprises or businesses.

While historically a business plan has been a core area of focus for investors, in my case, I will ask for the just basic qualitative summary points associated with the business. With the number of business plans available for review and limitations on my time, I think this is far more helpful to me. More importantly, I am interested in reviewing a financial projection.

The financial spreadsheet will give me a good understanding of well thought out the business really is.  Starting with revenues I will gain a sense of what type of sales the founders expect to generate and can rapidly determine how realistic or unrealistic these assumptions are.

This might include issues like the specific of the proposed pricing model, ability to obtain market share, etc.  These are all thing I would like to see. On the cost side, are the net operating margins in alignment with general industry standards, have the founders thought through the real costs of marketing, production, manufacturing, etc. to bring their product or service to market.

What I would encourage entrepreneurs to do is to create a well composed financial spreadsheet and then to model two or three scenarios along with a modest pro-forma as well as a more aggressive pro-forma.  If an investor is looking at your plan he is seeking information not only for the best case outcome but also for more modest growth or even worst case scenarios.

More importantly, this kind of financial modeling will demonstrate to your investor that you have performed the research, understand reasonable ratios for your market, and have really thought through your proposed business.  I would make this plan a detailed monthly plan for the first 24 months of your business and I would make this as detailed as possible.

Here in Utah, there are a number of venture capital and investor groups and I know competition can be fierce for funding.  Give yourself the best chance for securing investment by providing the detail on sales and costs and by creating reasonable assumptions.  Include a 20 page PowerPoint with the conceptual and qualitative aspects of your business.

The actively seek out face time with investors, asking not for funding but for 5 minutes of their time.  When you have the 5 minutes you can ask for the hour needed to make a full presentation, state your case, and then request funding.  I would also suggest a solid internet strategy outline for sales and/or marketing.

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