Do you want your business plan to be considered favourably by funders?
You will need to demonstrate the following in your business plan.
Show that you have the right management team
A bakery must have someone who excels in making confectionery. Without this somebody, it may be difficult to make products that are any different from what is already in the market. And, it may be difficult to produce products that are consistently good.
This goes for any industry, you need to have someone with good technical skills, someone who will lead the production effort.
Selling is also a must-have skill in any business. You may have the best product in the world, but if you cannot sell, it will never fly.
If you don’t have these skills in the business, build a team that does. The team could be a co-founder who has the required skill. It could be people you employ in your business.
Show that you have the right management team in your executive summary.
Show relevant industry knowledge and experience
Someone wanting to start a bakery needs to know the baking industry. You need to know how big it is, the value chains and distribution channels used.
You need to know what is trending in the industry, for example changing preferences for ‘green’ confectionery, if there is anything like that, the increasing use of technology to improve customer service. This will help you to see where opportunities are.
Funders want to see if you know what you need to have in place to improve your chances of success, what they call key success factors. If you wanted to open a gas station, you would have to put it up next to a busy road. Location is a key success factor for the fuel station. In the bakery example, you need to have someone with very good confectionery making skills to build a successful confectionery shop. It is a key success factor for any business that wants to be successful in that industry.
Weave evidence of this knowledge into your business plan and summarise this knowledge in your executive summary. If funders go through your executive summary and do not see this information, they may decide to stop reading the rest of the business plan.
Show meaningful traction for your product
The last time I checked my dictionary for the meaning of traction, it told me traction has the same meaning as grip. In everyday use, we could say ‘my car tyres have no grip on wet roads, I need to replace them’. In business it also means more or less the same thing. It specifically means the amount of grip a product has on customers. A product that has traction or grip on its customers will fly off store shelves, customers cannot do without it. And funders love products that have traction. I am sure it’s clear why.
Before raising capital, use the resources that you have to make a sample or prototype of your product. Pool your savings together with your co-founders, borrow from friends and relatives, sell your idea to business people you know, get a second mortgage on your home, get a personal loan.
Start testing your product with your customers by selling it. If and when customers buy your product again and again, you have got traction. If they don’t, listen to what they are saying, go back and work on the product until people begin to love it.
Capture all sales, preferably through a bank account. Bank all receipts from your sales. Over a 6 to 12 month period, your bank statement should tell a good story of a business that is showing growth.
In cases where you are not able to make a sample or prototype of your product because it is expensive, at least do talk to potential customers and get letters of intent to buy the product from you.
Ability to repay the loan
You need to provide proof that your business will generate sufficient cash flows to cover its costs and to repay the loan.
There is no greater turnoff to funders than having nothing to invest in your business. At the minimum, be prepared to contribute at least 10% of the total funding that you need. Sometimes this requirement falls off if you have invested money in your business. For startups, however, you will need to make provision for that. After all, if you as the business owner are not willing to invest in your own business, why should anyone else.
A good credit history
A clean credit history is important. If you don’t pay your accounts, what comfort does a lender have that you will repay them this time around? If your credit profile is poor, repair it. Talk to your creditors, make arrangements to pay off outstanding debt, and have that arrangement in black and white.
Providing security for business loans is a challenge for entrepreneurs. Funders prefer property as security.
You can also get someone to stand as surety for your loan.
Investments and policies with a surrender value can also be used as security.
Development funders like the IDC and the NEF are less stringent than banks on security requirements.
Compliance with regulatory requirements
Register your business with CIPC, the Companies and Intellectual Property Commission. If you do it yourself, it will cost you less than R200.
Open a business account with a bank of your choice.
Apply for a tax clearance from SARS. It’s free.
You can also get your BBBEE certificate for nothing, you simply feel an affidavit that you sign before a Commissioner of Oaths.
Have you applied for funding before? Do any of these tips resonate with you? Share with us your experiences with funders in the comments box below. I will personally respond to each comment.