Sourcing Investment in 2015: A Sound Business Plan is More Important Than Ever

The struggle continues for small businesses looking for credit lines and investment. Startups can maximise their chances of success by paying close attention to their business plan.

What does 2015 have in store for businesses looking for funding?

 

Whatever happened to the credit crunch? So far as access to credit from banks was concerned, the years following the 2008 banking crisis were dominated by tales of woe. As banks tightened their belts (and their eligibility criteria), it was small businesses that suffered. No longer does the phrase, ‘credit crunch’ dominate the headlines. In fact, with the latest data releases suggesting that the UK is in a healthier position than virtually all other major economies, entrepreneurs would be forgiven for thinking that Great Britain Plc. is the place to be to source institutional investment.

Not so, it seems. The Government may be quick to talk up its efforts to encourage lending to small businesses, but evidence suggests bank lending is in the doldrums. Private sector lending was down 2.2% in real terms in the year to August 2014, placing the UK well behind the G7 average. Whereas larger corporations tend to have other options such as corporate bonds to fill gaps in funding, SMEs are too often left frustrated in their efforts to source capital.

With an interest rate rise on the horizon at some point in 2015, the prospects of a major shift in the lending landscape seem slim. When it comes to approaching banks – and equally, equity investors, first impressions count. Businesses need to do all they can to present themselves in the best possible light, which means ensuring their business plan stacks up to scrutiny.

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Knowing when and where to ask for help

It’s possible to take a DIY approach to a business plan. With so much at stake however, is it really in your best interests to go it alone? Potential investors and credit providers are looking for very particular information about your product and business model, including credible, considered projections and a thorough understanding of the wider market. No matter how good a salesman you are and how impressive your power point presentation is, this cannot compensate for vague financials or gaps in key areas. The benefit of the doubt is unlikely to be given readily – and missing or inaccurate data could be viewed as an indicator of a worrying level of commercial naïveté.

Before drafting anything, it is worth making use of the free resources that are available.  The Government’s small business resources pages contain business plan templates and examples. For tips on what to include, the numerous online how-to guides vary in quality – but one of the most comprehensive is available on the National Enterprise Network’s Start Up Donut site.

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There is also a lot to be said for getting one-to-one professional help – even if this is just to cast an eye on the first draft once the legwork has been done. An accountant with specific expertise in advising small businesses should be particularly well placed to cast a critical eye over your work. He or she is likely to offer a valuable insight on the criteria used by banks and investors when assessing the merits of a business plan. You also get the added bonus of knowing that an accredited professional covered by professional indemnity insurance for accountants has gone through your figures and projections.

Understanding the wider picture

Getting the sums right and having inside-out knowledge of your product is not the whole story. An investor will expect you to have a thorough understanding of your market, including details of the competition. What is the niche for your product? How will extra capital help your business move into that niche? Remember that identifying a “gap in the market” in your business plan may not be enough; you will also need to satisfy your potential backers that there isn’t a very good reason why that gap has not yet been filled by competitors.

 

2015 may be earmarked as the year when you seek funding to take your business to the next level. If so, it’s worth making two New Year’s resolutions: firstly, swot up on the challenges your business – and your industry as a whole is likely to face this year (you’ll certainly need to cover these in your business plan). Secondly, consider drafting in extra help to make sure your plan is as watertight as possible before you unveil it to lenders. It could turn out to be the best investment you’ll make in 2015.

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