Businesses seeking financial investment often have a number of options to explore. Backing from friends and family, community-based funding, business angels, and even venture capital firms are just a few of the possible routes available. These methods of investment differ in many ways, but they also have one very important thing in common. In order to secure that all-important support, a business owner must be able to convince the potential investor that they are making a sound decision in providing that backing.
Where to start
For professional investors such as angel syndicates, a potential recipient of funding generally needs to meet certain fixed criteria. Without the right documents (especially a business plan) backed up by figures, even a promising up-and-coming business is going to struggle to get noticed. Even if you are attempting to get people you know on board, those individuals will still want to see a carefully researched business plan and a clear indication of how the investment will be put to work before they commit.
Putting yourself in their shoes
To maximise the chances of securing support, it’s worth looking at your business from the perspective of an investor. What exactly are they looking for? From your business plan and beyond, here are the elements to focus on. As well as how to present the information to showcase your business in the best possible light.
Why your business plan is important for attracting investors
Whatever stage you are at with your fledgeling business, the business plan is your blueprint for the future. In it, you set out what you want your business to achieve and how you are going to achieve it. If you are yet to prepare yours, further help can be found in our guide: How to write a business plan.
How different business plan sections can impress investors
Each of the essential elements of a typical business plan can help you to convince investors that you are worthy of support.
- In the marketing section of the plan, you will set out how you intend to get your product or service in front of potential customers. This is along with evidence showing demand for what it is you’re offering. This helps to show investors there’s a market for your business.
- In a similar way, through the financial forecast section of your plan, you can set out clearly what your business has achieved so far in terms of revenue and profit. You can then use this information as a starting point to make reasonable assumptions about how you expect your business to grow in the future.
When you approach investors, some may ask you to submit a copy of your business plan. More typically, you are likely to be asked to complete a detailed application. The questions asked usually relate directly to the contents of a standard business plan. This means that if you have prepared your plan in advance, it can make the application process much easier.
Tailor your business plan to the priorities of the investor
Your aim is to make your business stand out. This is why, when you are using your business plan to attract investors, you should pay particular attention to the executive summary section. This usually comes at the beginning of the plan and summarises the main points. It is the main information the investors will take away.
How to get noticed
It’s worth finding out what’s important to that particular investor. You can then tailor the information you provide accordingly. Here are some examples:
- If you know that the investor tends to favour companies who produce niche, tech products, be sure to stress the innovative nature of your particular offering.
- If you know that the investor is keen to foster local economic development, stress how your growth plans might contribute to this, in relation to your future plans for taking on new staff from the local community, for instance.
Of course, you must never lie, but you should be aligning yourself with investors who have similar goals and morals to you. That way you can be sure they will already be somewhat interested. You just need to clearly point it out to them.
Backing up your claims with evidence
This is important for all aspects of your application for investment funding. It’s easy to make assertions about where you think your business is heading. However, for those claims to be taken seriously, an investor needs to have a good reason to believe you.
Credible financial forecasts
Credible financial forecasts are especially important, for example. It’s usual for an investor to request details of revenue and expenditure for the previous three to five years; or however long the business has been in existence. The investor will refer to this evidence of past performance when assessing your predictions for future growth.
So, let’s say your business has grown at a rate of 20% each year since its inception. You want to secure funding to invest in extra equipment and staff so you can increase your customer base (and your profits). The evidence to present in support of this should include detailed pricing. It should explain how and when the additional funds will be spent. It might also include calculations showing how this new capital will convert into increased production capacity. For a corporate catering business, for instance, this might involve highlighting how new kitchen equipment and an extra assistant could give you the capacity to double the number of events you take on.
Crucially, you should also refer to evidence to show how the investment will convert into actual profits. In the example given above, this includes research in identifying your competitors and explaining how you will cater for a gap in the market. You should also include evidence of market demand. In practical terms this might include recommendations from big customers you cater for already, confirming their interest in extending their custom if you were to expand your range.
With a clear plan of how the investment funds will be used, and growth projections backed by evidence, you are well on the way to making a convincing case for financial backing. For further tips on how to secure funding, from preparing accurate accounts to pitching with confidence, head over to our help centre.