Five Things Prospective Investors Look for in a Business Plan

Summary: Investors focus on key areas of your business plan when deciding whether to fund your business. Make sure your plan covers all the essential bases.

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Before writing a business plan, put yourself in the place of a potential investor. Consider what they might be looking for when reviewing your document.

Obviously, investors expect to see the details of the business, such as the type of business, location, business structure, and markets addressed. Beyond the basics, however, investors tend to focus on a handful of key areas. While the particulars may differ depending on the type of investor, the amount of the funding involved, and the nature of the business, any business plan should take pains to cover these five bases:

1. Background and experience: Investors want to see your background in the industry and business experience, as well as that of your management team. Many small businesses fail because of weaknesses in the management team. (See Create a Winning Management Team.)
2. Market potential: Not only do you need to show how your product or service is unique, but you also need to prove that there is a demonstrated need for your offerings and substantial market potential to make the investment worthwhile. Investors don't want to invest in "little" ideas -- you must show them the potential to be a big success.
3. Customer knowledge: No matter how unique your product or service may be, you must show that you know your demographics and can successfully reach your target market. Your pricing and sales strategy must be clearly defined and in line with industry norms.
4. Competitive edge: Investors want to know that you have acknowledged and researched your competition thoroughly. In addition, they want to see what your strategy is to contend with your competitors and distinguish yourself. What gives you the competitive edge? (See Creating the Competitive Analysis Section of a Business Plan for more information.)
5. Realistic financial projections and exit strategy: Investors expect to see a return on their investment. Therefore, they look for realistic financial projections that show how long it will take for the business to show a profit and for them to recoup their funding dollars. They may also want to see a clear exit strategy: a way to make a profit and move on to the next deal.

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Business Takeaways:

1. Investors want to see a strong management team with extensive business and specific industry experience.
2. You need to demonstrate intimate knowledge of your company's market potential, customers, and competitors and how you will approach each.
3. Investors expect thorough, realistic financial projections and an eventual way to cash out of their investment.

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