When you’re seeking investment for your business, 9 times out of 10 you will be asked for a detailed business plan. Whether you are approaching banks, private investors, or venture capital firms to fund your business, the financial section of your business plan is the most important piece.
Your financial section has to be rock solid.
Upon first read-through, most bank loan agents and private investors with read your Executive Summary, skim your Products and Services, and then turn to the Financial Section of your business plan. So, of course the numbers have to be well researched in order to develop realistic financial projections. But also, you need to explain your numbers and how you will pay back your loan and/or make the investors money.
So, how do your explain your numbers in the Financial Section of your business plan?
Usually the first section of your main Financial Section will be titled the Financial Overview. This is where you essentially write out in paragraph form what your numbers show within your Profit and Loss Statements.
There are two sentences that you should add to the beginning of your Financial Overview. These sentences start the description of your numbers off right, and keep your potential investors reading.
The two sentences are:
These profit and loss statements show that cash flows can be maintained, and [debt obligations] can be paid back at a very manageable rate. Based on these conservative profit and loss projections, the Company projects that we will have the necessary cash on hand to repay our debt in its entirety by the end of [insert year].
Let me break down these sentences and show you why they get readers interested in your financial projections.
Within the first sentence you are telling a bank or investor that, 'we will have cash flow.' The within the Profit and Loss Statements you’re about to see, we will have ample cash flow... enough cash flow to pay back any debt obligations.
Note: The words ‘debt obligations’ can be changed to make more sense for a private investor. Perhaps use, "dividends" or "profits".
Now, in the second sentence there is a very key word that I use – conservative. I think it’s imperative to always be very conservative and realistic when developing the Financial Section of your business plan. And, you should tell your potential investor that you did so. “Based on these conservative profit and loss projections…” tells your potential investor that these numbers aren’t grandiose dreams, but rather, well-researched and detailed financial projections.
There is no ultimate conclusion to formulate here because every business is unique. Every funding situation is unique as well.
I cannot ever promise that a bank or investor will give you money to grow or start your business… that completely depends on your business.
However, I can say that your business plan plays a huge role in whether or not you get the funding you need. And, the Financial Section is the most important section. So making the Financial Section of your business plan as ‘reader-friendly’ as possible is a big piece to the puzzle.
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