| Everyone's favorite part of the business plan is the | | | | sheet or income statement. You have revenues |
| financial section. Okay, not true. Really the only people | | | | misclassified as investment (ie counted twice). The |
| who enjoy creating financials are quaint jocks. But it is | | | | cash at the bottom of your cash flow does not match |
| the favorite section of the venture capitalist who | | | | your balance sheet. |
| wants to know if he can get a return on his | | | | How to at least get past that first hurdle |
| investment and the loan officer who wants to be | | | | Develop a realistic revenue model that you can |
| assured that the lent funds are going to be paid back. | | | | support through your operations and sales plan. If you |
| When I review a business plan for funding, I always | | | | have to build a manufacturing facility or even |
| look at the financial statements first. It's very easy to | | | | outsource manufacturing, it may take some time |
| see if the person has no clue as to what they are | | | | before your products are ready for sale. If you are |
| doing by looking at the statements. The corollary is not | | | | selling into someone else's manufactured product, |
| true... meaning just because the financial statements | | | | understand how they buy. You may have to wait an |
| are complete and rational the person doesn't | | | | entire cycle before you are able to sell them one |
| necessarily know what he or she is doing. That's why | | | | product - that could be 18 months. |
| the plan is longer than just three pages. | | | | Develop a realistic set of expenses. Look at public |
| How to show that you have no clue as to what you | | | | companies that are doing similar things, your expenses |
| are doing | | | | should fall within a reasonable range of theirs. If ten |
| Revenue grows at a 45 degree upward angle from | | | | companies in your industry spend 15% of revenue on |
| day 1... and ends at $50 million in year five. (The rumor | | | | marketing, you will have to have a good explanation |
| is that VCs expect $50M by year 5. Don't be fooled, | | | | for why your marketing costs are only 5%. Additionally, |
| VCs expect that you have a good business plan, can | | | | in the earliest stages, your G&A expenses are |
| execute well, and have a large market). | | | | likely to be higher. |
| Your expenses could not support any business, much | | | | Understand the payment patterns in your industry. If it |
| less a high growth business. Have a good | | | | is standard for customers to pay 60 days after |
| understanding of what your expenses will be. | | | | receiving an invoice, it is unlikely that you will be able to |
| Recognize that if you hire people, you don't just have | | | | convince your customers to pay upfront. |
| to pay salaries, but taxes, health insurance and other | | | | Make sure your financial statements are put together |
| benefits, workman's comp, and each of these people | | | | correctly - balance sheet balances, cash flow ties in |
| will need some square footage, a desk, a chair, a | | | | with the balance sheet and the income statement. This |
| computer, a telephone, an internet hook up, etc. You | | | | is a skill just like fixing your car. If you don't know how |
| will need to hire lawyers, accountants, and possibly | | | | to do it, do bluff - hire someone to build the statements |
| other professionals. You will need to market your | | | | for you. This does not have to be an expensive |
| product in some way. | | | | accountant or consultant. You can probably find a local |
| Your balance sheet is a mess. It doesn't balance. You | | | | MBA finance student who can do it for you as long as |
| have no accounts receivable. You don't take into | | | | you provide the appropriate numbers. |
| account accumulated depreciation into your PPE | | | | Having a clean, realistic set of financials is a lot like |
| purchases. (That's plant, property and equipment.) | | | | wearing a business suit. It won't get you a loan or an |
| You neglect to have a cash flow statement. Your | | | | investment, but it makes sure you don't get kicked out |
| cash flow statement doesn't tie into your balance | | | | the door before you even get the chance to pitch. |