Before writing a business plan, put yourself in the investor’s place and consider what he or she 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, there are key areas on which investors focus. While the particulars may differ depending on the type of investor, the amount of the funding required, and the nature of the business, there are five main things investors look for.
1. 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 Presenting the Management and ownership Section of a Business Plan for more information.
2. Not only do you need to show how your product or service is unique, you need to prove that there is a demonstrated need for your offernings and a 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. No matter how unique your product or service may be, you must show that you know your demographics and can reach your target market in a continual manner. Your pricing and sales strategy must be clearly defined and in line with industry norms.
4. Investors want to know that you have acknowledged and researched your competition thoroughly. In addition, they want to see your stategy 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. Investors expect to see a return on their investment. Therefore, they want to see 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 also want to see a clear exit strategy: a way to make a profit and move on to the next deal.