How to Attract Investors with Your Business Plan
Securing investment is about more than having a good business idea. Investors need to see a credible opportunity: a business with a clear market, the potential to grow and a management team capable of delivering its plans.
Your business plan has an important role to play in demonstrating this.
If you are wondering how to attract investors with a business plan, the key is to look at your business from the investor’s perspective. Why should they invest in this particular opportunity? What could their money help the business achieve? And what evidence is there that your plans are realistic?
Show investors the opportunity
Your business plan should make the investment opportunity clear from the outset.
An investor should quickly be able to understand what your business does, the problem it solves and why there is an opportunity to build a successful company around it.
Try to avoid spending too much of the opening section explaining the history of the business or providing detailed descriptions of your products and services.
Instead, focus on what makes the opportunity interesting.
For example, are you addressing an underserved market? Have you developed a new product or technology? Are customer behaviours changing in a way that creates an opportunity? Have you already demonstrated demand and now need investment to expand?
The stronger the opportunity, and the more clearly you can communicate it, the easier it is for an investor to understand why the business deserves further consideration.
Provide evidence that customers want what you sell
Investors will usually want more than an assertion that there is demand.
Where possible, use evidence.
For an established business, this could include sales growth, customer numbers, repeat purchases, contracts, subscriptions, orders or other measures of traction.
For an earlier-stage business, you might have evidence from market testing, trials, pre-orders, letters of intent, customer interviews or an initial launch.
The type of evidence will depend on the business and its stage of development.
Market research can also help demonstrate demand, but make sure it is relevant to your particular opportunity. Stating that you operate in a market worth billions of pounds does not necessarily demonstrate that customers will buy from you.
Investors need to understand the market you can realistically address and how you intend to reach those customers.
Demonstrate what makes your business different
Most businesses have competitors, including indirect alternatives to their product or service.
A good investor business plan should demonstrate that you understand this competitive environment.
Identify the businesses your customers are likely to consider and explain how your proposition differs. Your advantage might come from your technology, pricing, intellectual property, customer experience, distribution model, specialist expertise or another factor that is difficult for competitors to replicate.
Avoid simply stating that your product is “better” or that there is “no competition”.
A balanced assessment of the competitive landscape is generally more convincing because it shows that you understand the market in which you operate.
Demonstrate the potential for growth
For many investors, the ability of the business to grow is central to the investment proposition.
Your plan therefore needs to explain not just how the business operates today, but what it could become.
Think about what will drive future growth.
This might include entering new geographical markets, increasing production, recruiting a sales team, launching additional products, developing new technology, building recurring revenues or expanding into additional customer segments.
The growth strategy should be specific enough for an investor to understand how it will work.
For example, rather than saying:
“Investment will enable us to significantly increase sales.”
Explain what will actually happen:
“The investment will fund two additional sales appointments, increase digital marketing activity and enable the business to target customers across the UK rather than its existing regional market.”
The second explanation gives the investor something tangible to assess.
Show that the business can scale
Growth and scalability are related, but they are not necessarily the same thing.
A business may be able to increase sales but require its costs to rise at a similar rate. Another business may be able to grow revenues significantly without increasing its cost base to the same extent.
If your business has the potential to scale, explain why.
This might be because you have developed technology that can serve significantly more users, because additional locations can replicate an established model, or because your production capacity can increase without costs rising proportionately.
Be realistic, though. Not every business needs to be a technology company capable of exponential growth.
The important thing is to demonstrate how the business can become larger and more valuable and what resources will be required to achieve that growth.
Explain how you make money
Investors need to understand the commercial model behind the opportunity.
Your business plan should explain who pays you, what they buy, how much they pay and how frequently they are likely to purchase.
You should also consider the costs involved in generating those revenues.
Depending on your business model, useful measures might include gross margin, average customer value, recurring revenue, customer acquisition cost or the length of customer contracts.
The information you provide should help an investor understand why increasing sales should ultimately create a profitable and valuable business.
Make your financial forecasts believable
Financial forecasts are inevitably based on assumptions about the future, and investors understand this.
What matters is whether those assumptions appear reasonable.
If your forecasts show turnover increasing from £500,000 to £5 million, for example, your business plan needs to explain what will cause that growth.
How many customers will you need? What will they spend? How quickly can you acquire them? Will you need additional employees? Is there sufficient production or operational capacity?
The written business plan and the financial forecast should support one another.
If your strategy involves opening three additional sites, the costs and additional revenues associated with those sites should appear in the forecast. If you plan to recruit ten people, the associated salaries and employment costs need to be included.
Investors are likely to question the assumptions behind your numbers, so make sure you can explain how they have been calculated.
Be specific about how much investment you need
One of the most important questions your business plan needs to answer is also one of the simplest:
How much money are you looking for?
State the investment requirement clearly.
The amount should be based on what the business actually needs to deliver its next stage of development rather than simply being an attractive round number.
You should then explain how the investment will be used.
For example, a £500,000 investment might be allocated between:
£180,000 for recruitment;
£120,000 for product development;
£80,000 for marketing;
£70,000 for equipment; and
£50,000 for working capital.
Your own figures may be very different, but the principle is the same.
Investors should be able to see where their money is going.
Explain what the investment will achieve
Knowing where the money will be spent is only part of the picture.
Investors will also want to understand what that expenditure is expected to achieve.
Try to connect the investment requirement to measurable milestones.
For example, funding might allow the business to complete product development, launch commercially, recruit a management team, achieve a particular level of production capacity, enter a new market or reach a specific number of customers.
This helps turn the investment request from “we need £500,000” into a proposition explaining what £500,000 could enable the business to become.
Demonstrate that you have the right team
A strong opportunity still needs people capable of delivering it.
Your business plan should therefore demonstrate why the founders and management team are well placed to execute the strategy.
Focus on experience that is relevant to the business.
This could include previous experience within the industry, technical knowledge, commercial expertise, successful business launches, management experience or an established network within the target market.
You should also recognise any important gaps in the team.
If investment will enable you to recruit a finance director, technical specialist or experienced sales manager, say so. Recognising where additional expertise is required can be more credible than suggesting the existing team can do everything.
Don't ignore the risks
It can be tempting to make an investment proposition as positive as possible.
However, investors know that businesses involve risk.
A plan that identifies the major risks and explains how they will be managed can be more convincing than one that ignores them altogether.
Consider the factors that could prevent the business from achieving its forecasts.
These might include a new competitor, dependence on a major customer or supplier, regulatory changes, recruitment difficulties, technological challenges or slower-than-expected customer adoption.
You don't need to list every possible thing that could go wrong. Concentrate on the risks that genuinely matter and explain how you intend to mitigate them.
Think about the potential return
An investor is ultimately looking for a return on their capital.
Your business plan therefore needs to tell a bigger story than simply demonstrating that the company can become profitable.
What could the business look like in three, five or ten years? What would make it significantly more valuable than it is today?
Depending on the type of business and investor, you may also need to consider potential exit routes. These might include acquisition by a larger company, a management buyout, further investment rounds or, in some cases, a future stock market listing.
You cannot guarantee what will happen in the future, and you shouldn't try to.
What you can do is demonstrate that you understand why an investor might invest and how growing the business could potentially create value for shareholders.
Make your business plan easy to believe
Ultimately, attracting investors with your business plan is not about using impressive language or making the biggest possible claims.
It is about building a convincing case.
The opportunity, market research, growth strategy, management team, investment requirement and financial forecasts should all support the same story.
Before approaching investors, ask yourself:
Is the opportunity immediately clear?
Have we demonstrated genuine customer demand?
Can we explain why customers will choose us?
Is there a credible route to significant growth?
Do our financial forecasts support the strategy?
Have we explained exactly how much investment we need?
Is it clear what the investment will enable us to achieve?
Have we demonstrated why our team can deliver the plan?
Can an investor understand how the business could become more valuable?
If the answers are clear from your business plan, you will be giving potential investors the information they need to assess whether they want to take the conversation further.
Preparing your business for investment
A strong investment proposition needs to combine an attractive opportunity with credible research, a clear growth strategy and financial forecasts that stand up to scrutiny.
Business Plan Writers helps companies prepare professional business plans and financial forecasts for investment, giving potential investors a clear picture of the business, its growth strategy and the opportunity being presented.
Find out more about our Investor Business Plan service and how we can help you prepare your business for approaching investors.