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5 Essential Sections Of A Proper Business Plan
A lot of businesses are conceptualized out from home. And often times when they were started, the owners had not even entertained the thought of looking to bring in investors for funding.
It is often only after a proof of concept when business owners, or entrepreneurs, are brave enough to seek financing from investors. How thick a skin would you have if you had no idea whether your business will succeed… and ask other people to fund it?
When a business starts to grow, it will eventually come to a tipping point where the key promoters have a tough decision to make.
It is whether to:
- Stay at current capacity, grow organically and be satisfied with what they have, or
- Scale it up by pumping more working capital into it
And when the second option is chosen, you will have to decide where to get that capital.
The most obvious option is to go to a bank for one of those small business loans. But the problem is that lenders often view companies that are less than 2-3 years old as high risk. So you might be ushered away from a bank as soon as you declare how many years your business has been in operation.
And if your company is old enough, you might want to include a business proposal to submit with your application to enhance your case.
Business plans could also be essential when you are seeking investors. Investors don’t always have time to meet you. But if your business plan somehow ends up on their desk, and they like what they see, you could be invited to a meeting.
The question now is what should your business proposal contain?
Firstly, don’t confuse it with a marketing plan. Marketing research and activities are just a segment of a business.
Different formats could suit different types of industries. But usually, every proposal should contain these 5 sections.
- Vision/mission statement
- Basic description of products or services
- Market analysis
- Market penetration strategies
- Financial projections
The key is to provide as good an overview as possible while being as brief as possible.
While lower level personnel are usually more interested in operations, higher management find the vision and mission of a company as absolutely critical. It sets the tone of how business is conducted in the company, it’s core values, goals, and purpose of being.
Don’t ever underestimate how important this segment is in your proposal.
Ideally, you should be able to wrap this up in a sentence or 2. So think deep and really go into the essence of what your company represents.
2) Basic description of products or services
You might be tempted to disclose every detail of your product line from it’s specifications to it’s features. That is actually going overboard.
Provide a brief description of the product line you are into. If there are many SKUs, then mention how many they are in each sub-category. You can then list down the individual items in an attached appendix.
You might find it cute and aesthetically pleasing to include images of products all over your proposal. After all, pictures speak a thousand words.
But if you do that, you are distracting the reader from the gist of the contents in your plan. Other than that, it takes the reader more effort to flip more pages. That’s something you want to avoid.
Don’t forget that your objective is to pique genuine investment interest.
3) Market analysis
It probably won’t surprise you that almost everyone thinks he is an expert in everything… This is especially so for investors who have been around the block.
By making a short introduction of what market your business is in, investors might already paint a mental picture of what you are up against.
It will then be critical for you to convince a prospect why you could be punching above your weight with market analysis.
Maybe you know something that only those in a niche market will know. Maybe you have insider knowledge of how the industry works giving you a competitive advantage. Maybe you have data the debunks everything people think they know about an industry.
Whatever it is, this is the section to show:
- How big the market is (size)
- Who is the target market
- Who the major players are (competitors)
- Demographic profile data and Segmentation
- Barriers to entry and regulations
A common theoretical concept used regularly is the SWOT analysis. It basically breaks down a competitive market by strengths, weaknesses, opportunities, and threats.
Take a look at that. It could help you write a nice proposal.
4) Market penetration strategies
Now that you have identified the market that you are after, it is time to display what you intend to do to tap into that segment.
Even though innovative and creative strategies can impress someone, there’s nothing wrong with following an old-fashioned approach.
Because most of the time, it’s not about what you do to attack the market. It’s about how well you execute a plan.
Since you are in this section, remember to make a mention for online marketing and social media targeting. These things are huge. And it will be unwise to approach in investor with a proposal that has little to no social media strategy. It’s no longer the 1990s if you haven’t noticed.
In fact, it is no secret that investors can feel compelled to invest in something just because of the big social following a business has. It’s an indication of proven concept and a line of repeat selling opportunities.
5) Financial projection
Last but not least, you need to show a financial projection of where the company is heading.
The key number here is revenue.
Business people know that as long as there is strong revenue, it is always possible for Directors to squeeze out every drop of profit from it.
If an investor has to choose between a company with 100% profit and one that is 25% profit but 10 times the revenue of the first company, the choice will be the latter. No doubts about it.
I’ve seen many proposals. And this is the section where business owners get the most creative. Somehow, because these projections are obviously estimates, startups especially, go overboard with the sales they expect to make.
So don’t be too ridiculous in your numbers.
People, especially the type of mentor investors you want on your side, can tell what is fair and what is hogwash.
Even though your instinct might be to reveal as much as possible so as to give potential investors enough information to make an investment decision, refrain yourself from doing that.
Because you never know where these business plans might end up. The objective of your business plan is to generate interest. Interested parties will reach out to you themselves if your plan is convincing.