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One of the most important elements of a business plan is a financing request, or the amount of funding your business is requesting of potential investors.
Many entrepreneurs may worry they are asking for too much money, while others may not feel totally certain about the future of their company, especially nowadays. This leaves the business in a sticky situation, as many investors require a form of equity (such as shares) in the business in exchange for capital.
Writing a financing request means taking a measured approach, and there’s no need to downplay the amount of capital necessary for your business. If this is your first time drafting a financing request, here are a few pointers to follow to ensure you receive the proper amount of funding.
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Make sure your current financial projections are accurate
Before a potential investor reviews your funding request, he or she will want to examine the financial projections of your business. This part of a business plan covers your company’s cash flow.
It also outlines (typically in graph and table form) the startup’s financial information, including the following:
- Projected profit and loss (P&L)
- Sales forecast
- Expenses budget
- Twelve-month income statement
- Break-even analysis
Once you’ve been in business for some time and notice a change in any of the above areas, you can revisit and update this section of your business plan. Remember that it’s important to be as accurate with your financial projections as possible. Don’t inflate numbers in an effort to seem more impressive to investors. It’s not professional, nor ethical, to fib for funding.
Be clear about how much you need
Remember, this is business. The money you are requesting is for your business and will help it grow and thrive in the long run. Clearly state how much funding your startup requires from investors, and specify whether the funds should be in a loan or investment format.
Additionally, think ahead to your company’s future. Will you need additional financing in the next five years? How much will you need? Define that number and include it with your financing request as a projection.
Articulate where the funding is going
Now that you know how much money you need from investors, make sure they understand where their funds are going. What will that money go toward and in what manner will it be spent? If you plan to spend the money on an assortment of your company’s needs, ranging from hiring employees to advertising and marketing, specify how much each item will receive.
It may also be helpful to explain to investors your “why” for requesting funds for different parts of your business. The better prepared you are and the more details you can provide an investor with, the better chance you have of receiving the full financing request.
Be mindful of the future of your business
It’s important to consider your financial long-term effects. Whether you’re seeking a loan or an investment, you need to consider the future of those funds.
For example, if you take out a loan, what does your repayment plan look like? How soon can you repay what you owe?
Financing request, summarized
Once you’ve finished drafting a financial request, consider having a trusted financial adviser or legal professional review the document with you. They can provide feedback on areas you may need to detail a bit more or assist with making subtle edits to the wording and language used so you’re represented in the most professional light.
Originally published March 30, 2020.