If you are looking to raise investment for your business, a well-prepared business plan can help you explain the opportunity to potential investors and demonstrate that you have thought carefully about how the business will grow.
However, a business plan written for investors needs a slightly different emphasis from one prepared for a bank, grant application or simply for your own internal use.
An investor is not just interested in whether the business can survive and pay its bills. They will want to understand its potential to grow, what makes the opportunity attractive, how their investment will be used and, ultimately, how they could generate a return.
So, how do you create a business plan for investors?
Start by thinking about the investor
One of the most common mistakes when writing a business plan is to concentrate on describing the business rather than considering what the reader needs to know.
Before you start writing, think about the questions a potential investor is likely to ask.
What problem does the business solve? Is there a genuine market for the product or service? Why will customers choose this business rather than its competitors? What evidence is there that the business can grow? Who is going to deliver the plan? How much investment is required and what will it be spent on?
Your business plan should make it easy for an investor to find the answers.
Explain the investment opportunity clearly
An investor should be able to understand your business relatively quickly.
Start with a straightforward explanation of what the business does, who its customers are and how it makes money. Avoid assuming that the reader has the same level of technical or industry knowledge as you.
You should also explain what makes the opportunity particularly attractive. This could be an innovative product, a gap in the market, established customer demand, intellectual property, a strong management team or a business model that has the potential to scale.
Where the business is already trading, include evidence of the progress made so far. Sales, customer numbers, repeat business, contracts, partnerships, successful trials and other measurable achievements can all help demonstrate that there is genuine demand.
Demonstrate that there is a market
A large market figure on its own is rarely enough to demonstrate that a business has a strong opportunity.
Your market analysis should identify the customers you are actually targeting and explain why they are likely to buy your product or service.
Consider including:
the size and characteristics of your target market;
relevant trends affecting demand;
your target customer groups;
evidence of customer demand;
the main competitors and alternatives available to customers; and
your competitive positioning.
Try to support important claims with credible research rather than relying on broad statements such as “the market is growing rapidly”.
Most importantly, connect the research back to your own business. An investor needs to understand not simply that a market exists, but how your business intends to capture a realistic share of it.
Explain your business model
A good idea does not automatically make a good investment.
Your plan needs to show how the business will generate revenue and, over time, profit.
Explain what customers will buy, how much they will pay, how frequently they are expected to purchase and the main costs associated with delivering the product or service.
Depending on the business, investors may also want to understand areas such as gross margins, recurring revenues, customer acquisition costs, capacity and the economics of expanding the business.
The important point is that the commercial model should be clear and consistent with your financial forecasts.
Set out your marketing and growth strategy
Your business plan should explain how you intend to turn the market opportunity into sales.
Rather than simply listing marketing activities such as social media, advertising and networking, explain how you expect to reach your target customers and why those channels are appropriate.
If investment is intended to accelerate growth, show what will change as a result.
For example, investment might allow you to recruit a sales team, increase production capacity, launch in new geographical markets, develop new technology or undertake a larger marketing campaign.
This helps an investor understand the connection between the money being raised and the future growth of the business.
Introduce the management team
Investors are investing in the people responsible for delivering the plan as well as the business itself.
Include relevant information about the founders and senior management team, focusing particularly on experience that supports your ability to build and grow the business.
You do not need to reproduce everyone's full CV. Concentrate on relevant achievements, sector knowledge, technical expertise, commercial experience and previous experience of building businesses or managing growth.
It is also perfectly reasonable to identify gaps in the current team, particularly if part of the investment will be used to recruit people with additional skills.
Prepare credible financial forecasts
The financial forecast is one of the most important parts of an investment business plan because it translates your strategy into numbers.
Typically, you should consider including forecasts for:
sales;
cost of sales and gross profit;
overheads;
staffing;
profit and loss;
cash flow; and
the balance sheet.
Depending on the nature and stage of the business, you may also need to show break-even, margins, customer numbers, unit economics or other relevant performance measures.
The assumptions behind the figures are just as important as the numbers themselves.
For example, if sales are forecast to increase substantially, the plan should explain what is driving that growth. If additional staff, premises or equipment will be required, those costs should also appear in the forecasts.
Overly optimistic figures can undermine an otherwise strong business plan. Your forecasts should be ambitious enough to demonstrate the potential of the opportunity while remaining supported by reasonable assumptions.
Be clear about how much investment you need
Do not leave the investor to work out how much money you are trying to raise.
State the amount clearly and explain what it will enable the business to achieve.
A useful funding section might show how the investment will be allocated between areas such as product development, recruitment, equipment, marketing and working capital.
Where possible, link the funding to specific milestones.
Instead of simply stating that £500,000 is required to grow the business, for example, explain what the £500,000 will fund and where you expect the business to be once that money has been deployed.
This gives the investor a much clearer picture of what their capital is intended to achieve.
Consider the investor's return
If you are seeking equity investment, your plan should recognise that the investor will eventually expect to realise a return.
The level of detail required will depend on the business and the stage of investment, but you should be prepared to discuss the potential future value of the company and possible routes through which an investor could eventually exit.
These might include a future sale of the business, acquisition by a larger company, further investment rounds or, for some larger businesses, an eventual flotation.
There is no need to promise a particular outcome. The purpose is to demonstrate that you understand investment from the investor's perspective as well as your own.
Address the risks
Every business has risks, and investors know this.
Trying to suggest that there are none is unlikely to make your business appear more attractive.
Instead, identify the most important risks and explain how you intend to manage them. These could relate to competition, technology, regulation, recruitment, suppliers, customer concentration or the ability to achieve forecast sales.
A considered risk analysis can demonstrate that you understand the challenges involved in delivering your plans.
Keep the business plan focused
There is no single correct length for a business plan for investors.
The complexity and stage of the business will affect the amount of information required. However, more pages do not necessarily make a stronger plan.
Aim to make every section useful to the reader. Detailed research, technical information and supporting calculations can be placed in appendices where appropriate.
Your main document should tell a clear story: where the business is today, what the opportunity is, where you intend to take it, how you will get there and what investment is required to make that happen.
Business plan or pitch deck?
You may need both.
A pitch deck provides a concise and visual introduction to the investment opportunity and is often used during initial conversations with potential investors.
A business plan allows you to provide substantially more detail about the market, strategy, operations and financial forecasts behind the proposition.
The two documents should complement one another. The figures, strategy and investment requirement should be consistent across both.
Creating a business plan for investors
Ultimately, a strong investor business plan should allow someone outside the business to understand both the opportunity and the evidence supporting it.
Before sending yours to potential investors, ask yourself whether the plan clearly explains:
what the business does and why customers will buy;
the scale of the market opportunity;
what differentiates the business;
how it will attract customers and grow;
why the management team can deliver the strategy;
how the financial forecasts have been calculated;
how much investment is required and how it will be used; and
how an investor could potentially generate a return.
If those questions are answered clearly and consistently, you will have a much stronger foundation for conversations with potential investors.
Need help preparing your business plan for investment?
Business Plan Writers works with businesses seeking investment to develop professionally researched business plans, detailed financial forecasts and supporting pitch materials.
If you are preparing to approach investors, find out more about our Investor Business Plan service and how we can help you present your business and investment opportunity clearly and professionally.