a Business Plan for Business finance

For any entrepreneur, whether you are starting or growing your business, creating o a business plan is a key process, helping you to outline what will be done with which resources and ideally a justification of the demand, not to forget understanding the competition.

For many business owners, the business plan has the key purpose is to ensure finance for the business. Both business angels, venture capital firms and banks of course will be very keen to see a business plan before they consider whether to get to know you a bit better and if all goes well, start the negotiations regarding he terms of your way forward.

This guide explains what you should include in your business plan and how you should present it to potential investors, shareholders and your bank.

The essential elements of a business plan
Potential investors and lenders will examine your business plan closely to determine whether to risk their money.

There is no standard format but most plans include:
• An executive summary highlighting the main points - to catch people's attention.

• Details of key personnel with an organisational chart showing individual responsibilities.

• Market research - details of competitors and how your product or service fits into the market - eg who your potential customers are and why you think they will buy your product or service.

• Your marketing plan - how you are going to get your product or service in front of potential customers, together with any assumptions made when setting your targets.

• Financial information - eg key ratios. These can be used to compare your business' performance against industry benchmarks. It's also a good idea to give details of any major expenditure you have made on long-term assets and explain the reasons behind any changes in working capital items, such as stock, debtors and creditors. Remember to include balance sheet and profit and loss account details. Many lenders ask for three years' financial information. If this is not available, supply details about trading to date.

When seeking funding, include:
• A cashflow forecast indicating the amount of funding you need and why. For a start-up, include estimates of how much finance you will need for two to three years or until you start to make a profit. Indicate contingency funds that might be needed for rough patches. This is usually between 10 and 20 per cent of the total funding requirement.

• Financial forecasts for a three- to five-year period. Try to present this information in the same way as historical financial information, so that straightforward comparisons can be made.

• How a loan will be repaid, how investors can get their money back, and when.


Tailor your business plan to the target audience
A business plan serves a number of purposes and you may have to modify information depending on your target audience.

Your bank will be interested in:
• how you intend to repay a loan or overdraft
• what you are going to do with the money
• how the loan will help the business to grow
• what other loan or debt commitments you have

Most lenders operate a credit-scoring system. Make sure you give up-to-date and relevant information. A good relationship with your bank manager will not influence the credit score - the manager may have discretion to negotiate terms but not to change the decision itself.

Tell potential investors about:
• what you are going to do with the money
• when and how you are going to pay it back
• the expected return
• your other sources of funding
• your management's track record
Include a detailed forecast of your profits and cashflow.


Indicate to shareholders:
• the prospects for the share price
• how they may be able to sell their shares
• what dividend they can expect on their shares
• your management's track record
• what say they might have in the business

Demonstrate how they can exit with positive returns within three to five years.

Many businesses with growth potential fail to raise funds because they lack investment readiness, ie they do not understand the expectations of investors, cannot turn proposals into attractive opportunities or are unaware of financing sources.

Common reasons why business plans and loan applications fail include:
• a weak management team
• a flawed marketing plan
• unrealistic forecasts
• incomplete financial history
• poor presentation

Demonstrate your commitment to the business
If you want to attract outside funding, you need to show that you are committed to the business. You will also need to either show that you have a good credit history or, if not, explain why not.

Demonstrating your personal financial commitment
To attract funding, you need to invest your own money in your business. If you are not prepared to risk your own capital, a lender or investor is unlikely to want to risk theirs.

Therefore, your business plan needs to show the extent to which you are committing your own resources.

For example, you should mention that you are:
• investing your own cash in the business

• reinvesting profits from the business rather than taking dividends yourself

• using your own assets and guarantees to raise funds, eg by remortgaging your house

• finding funds from family, friends and existing investors
It is always helpful to detail the backing you already have from banks and other investors - especially independent investors. Remember that money attracts money. The more backers you have, the easier it is to attract new ones.

Getting the best from your business plan - key considerations
Your business plan is a tool you can use to attract new funds or as a strategy document. Give yourself the best chance of success by following these suggestions.
Doing your research

Before writing your plan ensure that you:
• check that the help you are applying for is still available - you may no longer qualify

• back up any assumptions you have made with thorough research

• find out your own credit rating by applying to Experian or Equifax for your credit file - a small charge is payable

Writing your business plan
Write your plan in a way that demonstrates your commitment to the business. Give it a professional feel by using graphs, pie charts, photos etc, but use only one font type and colour.

Your plan should:
• Be realistic - make sure you can justify any assumptions or projections and avoid being overly ambitious.

• Highlight any potential financial difficulties - warn your bank or lender if you anticipate that you may not be able to meet a repayment. There is every chance you will be able to come to some arrangement.

• Show how you intend to devise and implement effective cashflow arrangements, eg have clear procedures for chasing up any accounts receivable.

Once you have finished writing your plan, get someone to read it to spot spelling and presentation errors, and to ensure it's set out logically.

Getting professional help
Seek the help of your business adviser or accountant in compiling your business plan or loan application form. They will ensure that the financial information is compiled and presented correctly and that key areas stand out.

A specialist broker can help to find potential investors, usually for a fee and a percentage of funds raised.

Revising a business plan
Once you have presented the plan, ensure you review and revise it as your business grows.
If you are refused investment or a loan, take the criticism on board and consider how you might improve the plan for presenting in the future.

Business Investment Checklist

Before offering business finance to a business plan, any investors will hopefully go through a rigorous testing process where the entrepreneur's business plan will be analysed, the financial forecasts scrutinised and the marketing research pondered upon. Whether an online business or regular, similar processes will be in place. You are putting your money into someone elses idea with the intention of bot contributing the business and also ultimately getting a healthy return. So what are you looking for from an investment point of view? Here are a a few issues that I hope you will consider before choosing whether or not to back the business in question.


In the spirit of transparency, please see my list below and let me know if you think I am missing any core issues.

The Basics
Can I understand the business?
what is the product?
what is the value?
who is the buyer and why would they buy?
can the buyer quantify the value? If so, what unit?

The Market
Is the market attractive?
Growth rates?
Profitability?
Is there a fundamental disruption that is the basis for the opportunity and limits the incubments' competitive response?

Market
Market --> SaaS, Open Source
Product --> core innovation
Is the product delivered in a buyer appropriate way?
open source for infrastructure
SaaS for a business app buyer
REST/SOAP/JavaScript for a web service

Is the core value tied to a technical innovation?
ex. HWVP's portfolio company examples = Baynote's collective intelligence algorithms and Move Networks' streaming protocols

Requirements and Obstacles
Are their frictions in....?
time and resources required to test the value proposition?
time and resources required to deploy?
time and risk to realize value?
Is there a good market comparable for both the business model and the exit multiple?
What unit scales the revenue model?
page views, sales heads, downloads, sessions?
Is the architecture scalable and does it leverage the best available infrastructure - EC2, S3, Rackspace, etc?

Dependencies
Are there exogenous dependencies?
carrier or MSO deals?
RFID deployments, etc?
Is there a market master?
WMT or MSFT or Dell....

The Entrepreneur
Who is the incumbent? How will they react?
Who are the other new companies in the space?
Is the team able and honest?
Prior track record of working together?
Is the CEO special?
What is his/her motivation, passion, strength?
Where do they need help and complement?

The Investment
Are the round size and pre-money reasonable?
Is the model reasonable (profit margins, growth, burn)?
Is the plan capital efficient?
how much money for 18 months?
margin of safety?
are their clear milestones in the plan that will allow for an objective assessment of value creation - ie a new investor

Opportunity and Possibility
Can this be a home run?
What are the core risks?
why will the company fail? is their a plan in place to mitigate such risks?
What are the KPIs - ie leading indicators to measure and track the company's progress?
Is the cap table clean and the paid-in capital reasonable?
Is the progress to date commensurate with the money in?
Has the money in to date been productive?

While I am sure there are risk and questions not raised above, the goal is to systematically measure a prospect against a consistent analytical framework that, hopefully, ensures smooth take-offs, flights, and landings.

What to include in a business plan

Although every business plan is different as the purpose and the audience for whom it is written for governs the structure and wording within the business plan, most business plans will still consists of three main sections.

1. The Executive Summary
2. The Main plot
3. The Financials and Finance

Arguably, is the most important part of the plan, the Executive Summary normally consists out of one or two pages providing the reader with a synopsis of what is to come. This section can really be seen as a bite-size version of the plan. The reason why it is so important is that, as with most first impressions, the reader will quickly decide if this is something that is of interest or. If yes, the rest of the business plan will be read, if not, well, your plans is probably destined for the waste paper basket and you will have to continue your search for an sympathetic eye. Think of your executive summary as a longish elevator pitch.

The Main Plot provides the reader with a more detailed account of the important areas of your business. This is the ideal place for you to ensure and that you have thought through the functional areas of your business such as strategy, the products and services, the people, the competition the market, and most importantly your sales & marketing plan. Of course you are not only writing the business plan for yourself and this section will also be targeted at the chosen audience who you want to impress. Remember that most of the business plan can be used as a selling document as you are off course intending on getting a second party to take action. Whether the action is to provide you with finance or simply to impress a future business partner or grant provider. Get your fax correct and don’t oversell, as this can be highly off-putting.

The financials will consist of your Profit & Loss, Balance Sheet and Cash-flow forecasts with full assumptions. This section can often develop a life of its own, especially where you re trying to justify a certain amount of funding needed for the business. You must resist the temptation to sound to optimistic as lenders will quickly recognise when your forecasts are unrealistic. Make sure you consider the realities of delivering your products or services and the possibilities of obtaining new business. 

One of my favourite quotes comes from John Chambers, CEO of Cisco Systems, "Deal with the world the way it is, not the way you wish it was." Another possible pot hole here is to not under estimate the amount of finance that your business needs. Its common for first time owners to over estimate their income for the first year and hence under forecast the amount of business finance needed. This often results in a red faced entrepreneur having to go back to bank or VC asking for an additional round of funding. Be realistic. Your business does not have to be cash machine to get start-up capital, it simply has to be viable while entering a market with potential.

The reality of finding finance for a new business

Finding business finance for your business plan is often much more challenging that what people may realise. Luckily us entrepreneurs are a hardy bunch and a few obstacles and challenges along the way will 99% of the time simply make us more determined. You will obviously have written a business plan by now and then the fun really starts. But you should not confuse a challenging financing process with a poor business idea which just simply does not deserve the funding you are looking for. Make sure that you have done sufficient marketing research to determine that someone else that you and your friends & family believes in the product and that will be a demand for the product once it gets to the market.

I am providing this information because so many people here post requests for funding to cover 2 to 3 years of product creation or R&D. Then when they are ignored, they get angry.

Let's look at the typical stages in a successful company's financing. Although there are rare exceptions to this sequence, in most cases it looks like this:

If you are realistic about what types of scenarios attract investors, you won't get angry. Instead you will work to create an opportunity that will be attractive to investors at every stage.

If you think that you are going to attract money to cover your living expenses and provide a bit of fun money while you create the product for 2 or 3 years, you are in for nothing but frustration.

-Seed Round
At this stage you have no more than an idea. You are going to build the next Facebook or Google or Apple...only it will take a year or two of work before there is something that can be sold. Or maybe it's a dull little business which excites only you?

So, who comes in at this stage if you should be lucky enough to attract any money? The answer is the "3Fs", otherwise known as Family, Friends, and Fools. Yes, this means your parents and rich frat buddies from your days at Harvard or Yale. What's that? Your family is not wealthy and you didn't attend an Ivy League college? In that case, you are going to have to finance your seed stage the most common way: with a day job.

-Angel Round
Angels come in with money when you have started selling. They jump aboard because you now have tangible proof of concept. You're finally walking your talk. It's no longer all just hot air coming from the founder. Be honest, talk is cheap.

-Venture Capital A-Round
VCs step in when the business looks like it has potential for an IPO or acquisition a few years down the road.

-Venture Capital B-Round
Wall Street is starting to take notice of the company. Therefore, the VCs want to maximize its forward momentum.

-Venture Capital C-Round
The IPO is now in sight and the C-round is used to "fatten the pig" as much as possible in addition to preparing the company for it. Often this preparation includes replacing management with C-level officers who are known to and respected by Wall Street.

-The IPO
This is the big pay-off at the end of years of hard work. It means liquid stock selling at, hopefully, a high P/E multiple. (The second best alternative is to be acquired by a large company such as a member of the Fortune 1000.)

Welcome to Planet Earth. That's how 99% of start ups get through the seed stage and if you are having difficulty in succeeding here refer yourself to the opening paragraph and assess into which category you fall. Best of luck as you will probably need it.

Social Network for Fashion raises $millions in finance

Tumblr a online business— which has been compared to Facebook and previously attracted just over $10 million with their business plan from Spark Capital and Union Square Ventures (both key investors in Twitter) — was recently able to raise between $25 million and $30 million in additional business financing, valuing the business at an estimated $135 million. Famed Silicon Valley VC firm Sequoia Capital was the lead investor. “I will say, it is nice to be well-received on the West Coast,” Tumblr’s president, John Maloney, told Business Insider.

According to comScore, microblogging platform Tumblr hit an “inflection point” sometime last June. Page views on Tumblr.com — which lets users create mixed-media blog posts with the kind of extreme simplicity and immediacy not found in traditional blogging platforms — began to surge. By October 2010, page views in the U.S. were up a staggering 1,540 percent from the year before. According to the New York-based company, Tumblr now has 47 million unique visitors per month, 2.7 billion page views per month, and over 9 million users, with approximately 30,000 new users joining the platform every day.

Interestingly, Tumblr has been very well-received in the fashion community, as well, giving rise to a universe of fashion-related microblogs. “Over the past year, fashion has emerged as one of the fastest growing segments of the Tumblr community, with 20% of our top 1000 blogs related to fashion,” said Rich Tong, a co-founder of Weardrobe (sold to Like.com in 2009) and Tumblr’s new fashion director.

It’s not surprising then that Tumblr founder David Karp told TechCrunch last week that Tumblr wants to be “the best place in the world for the best creative communities,” with fashion at the core of this focused strategy.

Many of the most popular fashion Tumblrs are personal style blogs like whatiwore and triciawillgoplaces, vintage and craft-focused blogs like psimadethis and hawtvintage, and street style blogs like fuckyeahstreetstyle and lookbookdotnu, launched by the eponymous look-sharing site. But a recent post on Refinery29 entitled “The Best Fashion Tumblrs To Follow Now” reflects the striking diversity of fashion blogs that have sprung up since the platform was launched in 2007. The list includes shoelust, theimpossiblecool, and textbook, a Tumblr dedicated to answering the question “What would Holden Caulfield wear?”
Industry insiders have embraced the platform as well. Purple Fashion editor Olivier Zahm and photographer Terry Richardson, for example, both use Tumblr to publish informal, spontaneous and highly popular personal diaries, Purple Diary and Terry’s Diary.

On one level, Tumblr has struck a chord with the fashion community because, like fashion itself, the platform is both immediate and highly-visual. While Tumblr posts can be text, images, quotes, links, chats, audio clips or videos, 50% of all posts are photos. “As a platform Tumblr is almost purely visual,” said Francine Ballard, founder and editorial director of Designer Social, an online showroom that operates a Tumblr. “Most of what gets reblogged is prompted by a sort-of visceral response. So by definition, it has the potential to be a fantastic medium for fashion.”
Indeed, Tumblr has found particular resonance amongst fashion creatives, who use the platform to aggregate and share the inspiration they find online. “I use Tumblr as a way for my creative team to share things that they are inspired by,” said Diana Hong, creative director at digital fashion agency CreateThe Group and an early adoptor of the platform.
Tavi Gevinson, best known for her blog The Style Rookie, also maintains a microblog called Slow Motion Crawl, which she migrated from Blogspot to Tumblr early last year. “It’s much more informal, more for archiving and self-reference than anything else. My favorite thing is how convenient it is for storing inspiration — when I compile images for a post on Style Rookie, I usually find them all in my Tumblr archives.”

But as well as being radically visual, quick and convenient — a Tumblr bookmarklet, as well as Tumblr mobile apps for Blackberry, iPhone and Android, make it incredibly simple to share content — Tumblr is fundamentally different from traditional blogging platforms because it comes with a built-in community. On Tumblr, users can “follow” and “reblog” other bloggers, whose posts appear in realtime streams on a Tumblr “dashboard,” much like on Twitter.

“It’s so addictive because you follow your favourite Tumblrs, which give you the best of the internet, so you just keep clicking through your dashboard and finding more and more that you like,” said Tavi.
“Tumblr seems to now have an audience of regular users and we decided it would be beneficial to drive traffic back to the site, as well as being a source of inspiration,” said Alistair Allan, digital director at Dazed Group, which operates popular fashion, art and music website Dazed Digital and, last month, launched dazeddigital.tumblr.com, a Tumblr that highlights favourite items from Dazed Digital each day.

“Many publications primarily care about Tumblr as a traffic driver, but we’ve noticed that the ones who use Tumblr to express a point of view are the ones who succeed within the community,” said Tumblr’s Mr. Tong, commenting on the Dazed Digital offering. “Once they do that, the traffic takes care of itself.”

Notably, Tumblr has managed to attract a passionate community that’s largely composed of young and influential, design-focused people. For fashion media brands, this is an extremely attractive, high-value demographic who have an almost insatiable appetite for content and share their discoveries with their social graph, both on Tumblr and across the web. “Our community loves original content — and loves reblogging it straight from the source,” said Mr. Tong.

Conveniently, a Facebook app and publish to Twitter feature neatly integrate Tumblr into the two most important social networks on the internet, enabling the platform’s influential userbase to easily distribute content to friends and followers.

It’s no surprise, then, that major fashion publishers like Vogue and Elle have recently launched Tumblrs. “The demographics of the Tumblr audience are very much in line with the demographics of our readers: typically young, fashion-minded people with a strong appreciation for pop culture,” said Keith Pollock, editorial director of Elle.com.

The platform also allows fashion media brands to speak to consumers in a softer, more personal tone. “Tumblr provides a great opportunity for brands and publishers to step out of their strict editorial guidelines and create a down to earth, approachable voice,” said Mr. Tong. What’s more, Tumblr makes it easy to establish the kind of genuine reciprocal relationships that turn fans and followers into brand loyalists. “By following users you think create great content, liking their posts and reblogging their content as well, you establish a very passionate and loyal following,” explained Mr. Tong.

But it’s not just media companies who are getting in on the action. LVMH-backed ethical fashion brand Edun operates a Tumblr called Eye of Edun, where the company shares behind the scenes imagery and visual inspiration. “Tumblr is embraced by artists and creative communities more so than other blogging platforms,” said Edun’s brand director Bianca Barattini. “Edun.com tells our entire story, from backstory to mission and offers a shopping experience, while the Tumblr is purely inspiration.”

But it may not be long before fashion brands start to integrate commerce into their Tumblrs. Last Thursday, a small startup called Of a Kind, which offers limited edition items from emerging designers, became the first store to launch on Tumblr. “Building our site on Tumblr seemed like an obvious move — it has allowed us to put our content in front of early adopters in a place where they were already congregating,” said co-founder and president Erica Cerulo. Tumblr does not technically support e-commerce, but Of a Kind was able to easily connect their Tumblr to Shopify, a simple digital commerce app, to offer a fully shopable experience.

Asked if Tumblr would be adding e-commerce functionality in the future, Mr. Tong responded: “We haven’t yet pursued supporting that feature set, but given the virality of our network, we’re definitely exploring ideas on how best to integrate the e-commerce component into our user experience.”
With the possibility of commerce-enabled Tumblrs on the horizon, the existing opportunities for content distribution and audience engagement, and the minimal time and effort it actually takes to start blogging on Tumblr, we suspect it won’t be too long before smart fashion brands see Tumblr as an indispenable tool in their social media arsenal, alongside Twitter and Facebook.

If fashion and creative communities are at the heart of Tumblr, BoF must be there too. You can now follow us on Tumblr: businessoffashion.tumblr.com
Vikram Alexei Kansara is Managing Editor of The Business of Fashion.