What are funding requirements in a business plan?
The Funding Requirements section of your business plan is where you outline:
- How much money your startup is going to need to begin operations and reach self-sufficiency
- Whether you are seeking debt financing, equity financing, or both
- Any other details regarding how the money will be used, how much will be returned to the financier(s), and when it will be returned
Unless you have a really big chunk of money saved up, you’re probably going to have to do what most other startups do – ask for money. Ultimately, the goal is, of course, to make the business self-sufficient. But, early on, if you want to scale up quickly, you’re probably going to have to leverage someone else’s money.
What would you want to know if you were giving someone money to start a business? Would you want to know how they’re going to use it? How they’re going to preserve it? How about how they’re going to build upon it?
Maybe you’re a lone wolf? You want to keep this operation as lean as possible. Particularly when it comes to people.
I can appreciate that!
Nevertheless, if you’re going to be funding this thing on your own, you still want to hold yourself accountable. You want a plan regarding where your money will be spent, and how you’re going to earn a return on it.
1) Capital, operating, and financial budgets
Starting a business from scratch is not so different from a decades-old business starting a new year. The required tasks are nearly the same.
Writing posts on, and making templates for, strategic planning topics is the foundation of this website. Capital, operating, and financial budgeting is critical to small business success.
The capital budget will specify any projects and/or large-scale assets you intend to buy. Plus, what kind of return you expect on that investment.
The operating budget is where you forecast your first one, three, or five years of operation. Your revenue, your cost of revenue, and your sales/administrative costs. An operating budget leads to the creation of a pro forma income statement.
Finally, your financial budget. This is your cash budget. It specifies when you think you’ll actually put money in your bank account from all those sales you’ll be making. It also specifies how you plan to stay solvent. This budget leads to the creation of a pro forma balance sheet and cash flow statement.
2) Determine funding need
All of the preceding budgets, particularly the financial (cash) budget, show where the money is going to be used. Once you compare the business’ cash needs to the cash you’re contributing, you’ll know how much is required from outside sources.
Budgeting will also show when and how the business is expected to make enough to support itself. Furthermore, other important milestones will be reflected. Milestones such as your first sale, your first $10,000 in revenue, your first $1 million in revenue(?), and so forth.
Can you see how these budgets will serve as a good measuring stick for your business’s launch and growth?
3) Funding details
Now that you know how much outside funding you’ll need to get off the ground, it’s time to really get into the nitty-gritty details.
Step one is to specify how much of the funding will be debt and how much will be equity. If you’re seeking equity investment, you’ll want to outline a proposal dictating what their investment will buy them. Also, how much power that equity investment will wield.
Another important point to clarify is the timeframe. For instance, things such as debt/balloon payments. If you’re really aggressive, there might come a point where you expect to cash out of the business and pay your equity holders
Whatever the case may be, you’re going to be clear about the status of the business at the end of the five-year forecast. Plans can change, of course, but you’ll want to include an exit strategy for those who are investing in you.
Finally, you should consider building on step one (budgeting) and clarify how the debt/equity funds will be used. Will it be for fixed assets, marketing, other operating expenses, or something else?
What are business funds?
Business funds are used by the business for their financial requirements. A business needs money to run. It is the oxygen that fuels its operations.
Starting a business is not cheap. To fund your new company, you’ll need some money upfront and this can be one of the first financial choices made by entrepreneurs when they start their own enterprise. But it’s also an important decision that could have lasting impacts on how your structure and run your business over time.
There are a variety of sources to turn to if you’re looking for small business funding. Capital may come in various forms like loans, grants, or crowdfunding.
Don’t Guess if Crowdfunding Can Help Your Small Biz – Know
Before you seek out funds, make sure to have a solid business plan and a clear outline of how the money will be used. Investors want assurance that their investments are being well managed so they can invest with confidence in the company’s future success!
What are funding requirements in a business plan?
This is what your entire business plan has been building up towards.
If you follow these steps for calculating funding requirements, don’t you think you’ll have an enormous amount of insight as you launch your startup?
This is the culmination of all the hard work you’ve put into your business plan thus far. Once completed, you’ll know how much money you’ll need, and what you’ll use it for.
Asking someone to invest in your business is like asking for a sale. Fortunately, if you’ve stuck with me this far you’re well prepared to write the funding requirement section of your business plan. I’m sure you’ll get what you need to be successful!