How to Write a Business Plan: Funding Request
There are several reasons to write a business plan. A common reason is to help small business owners gain a better perspective of their business. However, small business owners often seek out a business plan for the sole purpose of obtaining funds from a bank or investor. If this is your purpose, then you definitely need a business plan funding request in your document. Further, in order to optimize your chances of obtaining funding, there are specific steps and strategies that should be followed for writing and placing your funding requests.
Make your funding request the last section of your business plan.
Your business plan will include a plethora of information about your business such as target market, company information, financials and products or services sold. Before requesting funding, make sure to educate the potential investor about your company in its totality. Because of this, the funding section should be the last piece of information they review. This will help the investor come to an educated decision based on all the information available.
Why funding is needed.
The first portion of your funding request should be to explain why the funds are needed. For some companies, funds are only needed for working capital, which is monies used to fund operations. For other firms, funding is needed to start operations. Regardless of the reason why you need the funds, make sure to explain, in detail, why funds are needed.
Total amount of funding needed.
The second piece of information that should be included in your business funding request is the total amount of funds needed. This should immediately follow why funding is needed. For this part, make sure to state funds needed in one lump sum. This prepares investor or reader for the total dollar amount needed.
Usage of funds.
In this section, make sure to break down were the funds will be spent on and when the funds will be needed. For example, if funds are needed for working capital, then make sure to say that funds will not be needed until business is ready to be started and then break down in various components how the funds will be spent, if possible.
Parameters of funding.
After the breakdown of how funds will be used, discuss parameters for accepting funding. These parameters may include an equity stake in the company or specific loan guidelines. An example of this would be: “Our firm will offer a 25% equity stake for interested investors”. Once this is stated, make sure to explain how funds will be repaid.
How funds will be repaid.
In this portion, investors will want to know how they are going to get paid for their investment. A popular method of repayment is through dividend payments. The structure may vary depending on situation. From this, and my experience, make sure to include some type of statement the terms may be negotiable. This allows for the investors to make counter offers in reference to your set parameters.
Possible future funding needs.
Once an investor takes an equity position in the company, they are not fond of surprises. A most unwelcoming surprise for an investor is for them to find out, after they invest, that additional debt may be needed or further equity investments are required. Avoid this unpleasant conversation upfront. Make sure to provide an outline as to possible situations where additional funding may be necessitated. In doing this, investors are prepared for either a dilution of their equity stake or understanding that additional funds may be required in certain circumstances.
Summarize funding request and include in executive summary.
The final step to fully utilizing your funding request is to summarize the section into three or four sentences and insert in your executive summary. By doing this, investors will know right from the beginning how much funds are being requested and possible terms offered by the company.
Example of a funding request.
Starting a retail bicycle store requires significant upfront funds and working capital to ensure brand building and adequate market penetration. From this, our firm is requesting $50,000. Funding will be used as follows:
- Buildout for retail store 15,000
- Construction Costs
- Store front design
- Computers and software
- Inventory 10,000
- 30 Men bikes
- 25 Women bikes
- 30 Kid bikes
- Safety gear
- Working Capital 25,000
Bikes and Accessories will offer potential investors a 15% equity stake in our firm. Funds will be repaid on a monthly basis through dividends based on net profits. In the event our firm identifies future opportunities in the marketplace, additional funding may be sought via equity or debt financing.
By: Paul Borosky, MBA., Doctoral Candidate.
Owner of Quality Business Plan.