Your business proposal for investors needs to be rooted in reality.
Yes, there may be huge potential, but you have to walk the fine line between showing full potential and staying closer to the side of being conservative.
You want to show the full picture, without creating lofty assumptions that can scare away your investor. Investors are notorious for judging an entire business pitch based on the projections alone, so consider these tips to ace your business proposal for investors. The 3 biggest points to remember:
- Avoid HUGE numbers that assume majority market share quickly
- Steer clear of flat-line financials that are almost the same year over year
- Do not have multiple years in declining revenue or profits
Staying in the sweet spot of showing a smart financial plan is one of the hardest parts of preparing a business proposal. Try to aim for hockey stick graphs – lower revenues in early years, higher revenues in later years. One year of negative cash flow is okay as long as the rest of the years are healthy and positive. A first year loss is common in a startup scenario especially.
More Tips to Ace Your Business Proposal for Investors
When you’re drafting your business plan and looking for startup funding, you want to be sure you’re packing in words, phrases, and data that make a solid initial impression. Including certain red flag phrases in your business plan can scare investors away. And since raising capital is key to growth, these are mistakes you don’t want to make. Read on to find out what really frightens investors. Consider these four tips you can take to the bank:
Tip 1: Researched Numbers Always Win
First, you have to know whether you have smart numbers. Beware of big numbers, while realizing that big numbers alone aren’t enough to scare investors. (After all, they’re used to seeing plenty of those.) Rather, the key is in backing up any and all numbers with proper research. You can have large goals for your business as long as they are logical, reasonable, and backed by data. Ideally, you should try to show an example of a growth curve another company experienced, and use that as your baseline. Showing that your coffee shop will mirror some elements of the 1st year the Starbucks model was operational as a franchise, for instance, can help your investor see where you are going with scale in your assumptions.
The lesson? Don’t skimp on the research.
Tip 2: Don’t Leave Out the Competition
Do not make the mistake of thinking you’ll get a leg up by pretending you have no competition. Discussing the competition shows you have done your homework, and are in tune with reality. If there doesn’t seem to be any competition, look for indirect competitors. If possible, find someone of similar size and starting point who is filling a need in a different way.
And bonus tip: Be careful to avoid bad-mouthing the competition. They’re doing something right if they are in business.
(Check out the download below to help you with additional shortcuts on this point. This step is super important to get RIGHT in your business plan.
And yet most people get it totally wrong.)
Tip 3: Hone in on Your Market
Even if your market is legitimately a trillion-dollar industry, narrow your scope. Proper research will help you to scale back an overly-large range by identifying your customer’s pain point, researching the number of potential customers with this pain point, and knowing what they might be willing to pay.
Use a bit of scientific method: Ask a question, form a hypothesis, look at the research to see if it backs your hypothesis, and then make adjustments as needed.
Tip 4: Watch Out for Radically High Extremes
Is your business poised to take a market by storm? Be careful about how you present this theory to potential investors. Instead, show that you have a level head and recognize that these things take time. Demonstrate you’re aware of how many expenses are involved in running a business and how long it takes to do things like build brand awareness and scale.
And one thing to remember: investors know how hard it is to attract customers. Be sure you’re not coming across as cocky, lazy, or ill-informed. Never imply that if you build your business, customers will automatically come. Always clarify a solid marketing strategy for your investor.
How about a little more help:
Tip #2 touches on your conversation about competition. To know how to correctly discuss competition in your business, consider this free bonus download.