Commercial real estate developers need business plans for bank financing and obtaining equity capital financing for new construction projects at the pre-development and pre-construction stages. The business plan for an equity financing is not a stand-alone activity and neither is the bank financing business plan. The rules have now changed. The SEC and FINRA are tired of the complaints of investment fraud from the investing-public and the Basel III accord is now making commercial bank financing for CRE projects even more difficult to obtain. Creating business plans for bank financing or equity syndication now requires a host of due diligence activities and documents that stand in back of the deal and demonstrate both the opportunity and the ability to manage execution risk as the price of underwriting consideration. Failure to complete these due diligence activities and provide the supporting due diligence documents, invites an epic business plan failure as being the only outcome and the statistics show it. More than 4 out of 5 companies seeking capital financing fail to obtain it.
The key elements supporting your bankable business plan (see an example bankable business plan) are the basis for demonstrating the all important benefit of credibility. Credibility only comes from third-party sources. Bear in mind the promoter is viewed as having very little credibility because of their inherent conflict-of-interest (i.e.: being viewed as potentially saying or doing anything to get the funding at the potential expense of everyone else). Credibility is the key to getting serious consideration for underwriting and credibility comes from having independent evidence that answers 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 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, and the answer is a rejection. This requires independent valuation and a feasibility study that includes both the market analysis and the financial feasibility analysis. Nothing less will do.
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 answer is a rejection.
If you are serious about obtaining equity capital financing of more than $1 million and/or a debt financing of more than $5 million, then you have to have third-party evidence that validates the market opportunity on an independent basis and the potential to manage execution risk baked into the plan.
The entirety of the INVIZEN IT Real-Time Business (RTB) Plan System is designed to give you enhanced credibility that will help propel your proposal to the top of the stack because the entirety of the business plan is based upon our review of your proposal and what our findings are and not just what your claims are regarding the proposal. Do you see the difference? Do you begin to see the importance of risk management and how important it is to demonstrate it in your proposal?
A comprehensive business plan of operations can answer this issue if 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.
Talk to an INVIZEN representative today to get information on how to make your proposal maximize the odds of a successful funding outcome by calling 832.663.9634.