Some companies need cash to get off the ground; others need external funds to grow and thrive. Either way convincing investors can be a daunting prospect. Delano spoke with Guylaine Bouquet-Hanus at the House of Entrepreneurship to get some advice for founders seeking to secure financing.
Aaron Grunwald: What information do entrepreneurs need to include in their business plans?
Guylaine Bouquet-Hanus: There is actually no right or wrong way to write a business plan as long as you (and your potential business partner) are comfortable with the format. You might prefer a traditional business plan format if you are very detail-oriented or a comprehensive business plan if you foresee requesting financing from traditional sources like a banking institution. You will have to outline your funding requirements over the next years under a specific section. It is crucial to specify whether you are seeking debt or equity funding and the terms of funding you are looking for (duration, conditions, covenants, etc.).
Giving a detailed description of how you will use your funds (e.g., buy equipment or materials, pay salaries or cover working capital needs) is also compulsory. Furthermore, you have to complete your funding request with financial projections (in general over the next three to five years). Your goal is to provide information [to demonstrate] that your business will be growing and become a success story. If your business is already established, you can include income statements, balance sheets and cash flow statements for the last three to five years.
If you are starting out, then include forecast income statements, cash flow statements and working capital projections. This is a great place to use graphs, diagrams and charts to tell the financial story of your business.
AG: Is there a big difference between securing finance for a startup versus a more established company that needs to grow?
GB-H: At the beginning, the only collateral a new entrepreneur can provide for securing their financing requirements are [their] personal reputation, professional expertise and the quality of their business plan. Financing will likely come from non-traditional sources... As a business matures, however, its track record and viability become clearer and further traditional financing options can be unlocked.
AG: What other advice do you have for entrepreneurs looking to finance their firm?
GB-H: Even if you are not a “financial person”, as a business owner and leader, you must keep an eye on your expenses and learn how to thoroughly understand financial statements and budgeting.
Many new businesses have failed because the entrepreneur was not able to adjust spending to avoid running out of cash. Establishing a detailed, month-by-month budget is important, and this budget must be regularly reviewed and updated. Understanding your financial statements, or getting a partner to help you get the big picture on metrics, will also help you answer typical questions from prospective investors such as “What are the company’s three-year projections? What are the key assumptions underlying your projections? What future equity or debt financing will be necessary? What are the factors that limit faster growth? What are the key metrics that the management team focuses on?”