Obtaining capital financing for your project or business requires a bankable business plan and creating a bankable business plan is not something you do with a template and then go shopping for funding. The bankable business plan is not a stand-alone activity – it is the culmination of a host of due diligence activities and documents that stand in back of the bankable business plan. If you don’t have these due diligence activities completed and the supporting due diligence documents, then chances are you are going to have an epic business plan failure as an outcome. More than 4 out of 5 companies fail to obtain third-party financing, so this is not something that must be well known or it is something that inexperienced and/or lazy wannabe entrepreneur routinely fails to deal with in an adequate manner. The key elements supporting your bankable business plan are the component due diligence documents that serve to provide arm’s-length credibility of your proposal (see an example bankable business plan). Without this third-party credibility we have to accept your word that the proposed business will be successful. There will not be many takers for that proposition. If you have already experienced multiple rejections it is almost certain this is your predicate cause of failure.
The old rule remains true: he who has the gold makes the rules. If you want their money then you have to produce a bankable business plan. Every business plan has to answer two basic questions:
- Does a market opportunity exist that would support the yield forecast?
- If the money was provided today can they pull it off or will the money be lost?
The first question speaks to the issue of whether or not it is likely the business has a legitimate market it can address. If the answer is “maybe” or “no”, then the second question has no bearing at all, the process stops, and the answer is a rejection. The second question speaks to the critical issue of execution risk and how the business promoter is demonstrating this most important risk is going to be managed. If there is no demonstrable evidence supporting execution risk management and loss event mitigation, then the answer is “maybe” or “no”, the process stops and the answer is a rejection.
Market Opportunity Validation
The first question speaks to the market opportunity. If you are serious about obtaining capital financing of more than $2,000,000 you have to have third-party evidence that validates the market opportunity. That evidence comes in the form of a feasibility study. If you don’t have one when you submit your proposal then be prepared to face rejection as the only outcome. The feasibility study has to include an independent market feasibility analysis and a financial feasibility analysis that serves to test and verify the key assumptions and findings of the market feasibility analysis. You must also provide valuation evidence for an existing business or real property development in the form a an intended-use valuation study, appraisal or both. Your business plan becomes more bankable if you list these documents as being part of the available due diligence documents supporting your proposal. Don’t leave them to guess whether or not you have these important due diligence documents. Furthermore, your plan must provide a limited discussion regarding their findings.
Demonstrating Execution Risk Management
There is a common misnomer that your experience, character, credit score, community support, awards or other subjective criteria will demonstrate you are a great person who will do the right thing to prevent investors and/or lenders from losing money. This is a false premise for both the lender and the promoter seeking the money. The underwriter has to look at your proposal from the worst-case position of what would happen if the promoter (or any other employee of the business) were to be removed. Would the replacement be able to immediately continue operations seamlessly or would there likely be losses suffered due to the business failing to manage its affairs? Your character, experience, credit score and other subjective measures cannot address this issue. Only a business plan of operations can answer this issue and that plan has to define the business activities down to the employee class level. The business plan of operations will also address management reporting, productivity measurement, communications, regulatory risk management, market penetration means and methods, component goal schedules and budgeting for all departments at a minimum. It has to be fully-supported by an Enterprise Risk Management Plan (ERM Plan) and be grounded on the findings of the feasibility study. This document needs to be cited in your business plan and also listed as being available (hyperlink it in the plan).
If you are serious about financing, then get serious about the due diligence it takes to get the financing. Talk to an INVIZEN representative today to get information on how to make your proposal a winner by calling 832.663.9634.