Purpose of Investor-Ready Business Plans
Investors typically won’t even consider providing funding to you if you don’t have a solid business plan. Whether you’re applying for traditional bank lending, gap lending, grants, angel investors, or other funding opportunities, having a solid business plan can be the difference between a “yes” or a “no.” Your business plan has the potential to open doors that would not be otherwise available.
When it comes to investors, one of the most important aspects of the business plan are the financial projections. Yes, your idea is important and all the other details that go into the business plan. However, let’s really look at the word “investor.” According to the Cambridge dictionary, investor means “a person or group of people that puts its money into a business or other organization in order to make a profit.” Your financial projections give them an idea of if your business is going to be profitable to them. Keep in mind, profitable isn’t always about how much money your company will make for the investor, but it could be. Depending on the type of funding you seek, the profits can be in supporting a community, job development, or some other element that supports the missions of a speciality group.
The importance of a SOLID Business Plan
If you’ve ever gone on a road trip to an unfamiliar destination, you know how important navigation is. You likely use a map, GPS, voice navigation, a buddy who’s familiar with the location, or some other method. The point is, you probably have guidance to reach your destination. When it comes to your company, your business plan is like a roadmap. Your vision for your company is the destination. Trying to build a successful company without a vision or business plan is equivalent to starting a long journey to some place grand but not knowing what that place is our how to get there. Basically, it amounts to crossing your fingers and hoping you happen upon an amazing place by coincidence. That serendipity will grace your and your business.
Here’s the flip side. Companies with business plans are twice as likely to succeed. Considering the challenges of starting, running, and growing a profitable business, you want to have a business plan that’ll double your chances of developing a healthy business. Doesn’t the time, effort, money, and resources you put into your company deserve a return on investment? Well, you increase your odds with a business plan.
3-Year vs 5-Year Projections
You may notice that many companies offer business plans with 3-year projections. Here at Backbone America, we provide 5-year financial projections. We do this for several reason. First, no one has more invested in your business than you. It’s the bulk of your time, energy, reputation, resources, and money that’s on the line. We provide 5-year projections to help you budget, give you a bit of peace of mind, and prepare for the future of your business.
Next, investors not only appreciate 5-year projections, sometimes investors require 5-year financials. Investing in a business is a long-term strategy. Investors realize it takes time for new businesses to gain momentum and pay off debt. Therefore, it’s important to investors to see your business has the potential to survive the long haul.
Though there are other reasons for using 5- vs 3-year financial projections. This final one mentioned has to do with taxes. 5-year financial projects are practical on an IRS level. In most cases, your business will need to show profitability 3 of the last 5 years to meet the IRS guidelines that you’re running a business, not a hobby. Your 5-year projections will give you an idea of the cash flow needed to satisfy the IRS 3 out of 5 year rule.