5 Questions Your Business Plan Needs to Answer to Get You Funding
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Are you planning to take out a business loan or pitch to investors?
You’re going to need a business plan to do it.
Not just to meet expectations but to help you answer critical questions about your business—the type of questions where a confident and detailed answer can help you secure funding.
1. What are your projected revenues, expenses, and profits?
Investors and lenders expect to see up to five years of financial statements and projections. Don’t let that scare you; it’s not as daunting as it may seem.
That’s because your initial forecasts are not meant to be perfect.
They’re educated guesses for how you expect your business to perform. As you run your business and bring in actual results, you’ll get better and better at making more accurate assumptions.
When pitching to lenders and investors, the important thing is having well-documented financial statements and reasonable forecasts. You can’t just make wild statements about growth and expect that to be convincing.
Then, be prepared to explain why your forecasts make sense and back up any assumptions with the rest of your plan.
Examples:
- If you don’t have any sales, then where are you pulling those estimates from?
- Why are you expecting expenses to decrease 3 months in?
- Why is revenue expected to grow by 2% every month?
All of these are educated guesses you’re making that either need to be based on previous results, expectations for the market, or even competitive data. So, be sure you can clearly answer where and why assumptions are being made.
Further Reading: How to Create a Financial Plan
2. How much funding do you need?
Asking for funding without a clear number in mind is a recipe for trouble. Investors and lenders want to see that you’ve done your homework and understand your own financial needs.
If you’re a new business looking for funding to support your launch—revisit your startup expenses and sales projections for the first year and determine:
- Total startup costs: How much will it take to launch your business?
- Financial runway: How long can you operate before you start generating revenue?
- Projected revenue: When will sales start coming in?
- Burn rate: How much cash are you spending each month?
- Break-even point: When can you expect to turn a profit?
If you’re up and running, the process isn’t all that different.
You’ll just have the benefit of being able to use past performance to forecast your funding needs. But generally, you should do the same process. Anticipate expenses, understand your cash position, and determine how much and when this initiative will generate revenue.
In either situation, breaking down the larger question of “how much” makes it much easier to find the right number and helps prove your financial acumen to potential investors and lenders.
“Getting the right amount of financing for your business will save you heartache and money. Do yourself a favor and create a full financial forecast to understand exactly how much funding you need.” — Sabrina Parsons, CEO of LivePlan
3. What will the funding be used for?
“How much?” will inevitably be followed by “what will it be used for?”
Again, your financial forecasts provide the details, but you need to tell the story. Clearly explain how you’ll use the funds and how it will impact your business.
For example, a tech startup seeking seed funding might explain:
- “$200,000 will be allocated to hiring a development team to build our minimum viable product.”
- “$50,000 will fund a marketing campaign to generate initial user acquisition.”
- “$30,000 will cover operational expenses like office space and legal fees.”
While very simple, this breakdown shows investors where their money is going. Your forecasts should also show the expected results if you receive this money. Otherwise, lenders may question whether the return is worth their investment.
Tip: Go a step further and create a scenario where you don’t get the funding. Not only does this make you look more prepared, but it also helps you answer the question, “How will I operate my business without outside funding?”
4. What has your business achieved so far?
Investors are looking for more than a good idea; they want to see proof that your business has momentum.
So, how do you demonstrate this traction?
- Milestones: Highlight key achievements like sales targets met, contracts landed, or profitability milestones reached.
- Revenue growth: Financial statements (profit and loss, cash flow, and balance sheet) demonstrating consistent business health and sales growth.
- Future plans: Outline your next steps for continued growth and expansion.
Essentially, you’re showcasing your track record: a clear plan, successful execution, and a vision for the future.
Example:
For instance, a new restaurant might highlight:
- Successful pop-up events with consistently high sales and positive customer feedback.
- A signed lease for a permanent location in a high-traffic area.
- Partnerships with local suppliers and delivery services.
- A plan to expand into catering and online ordering within the next year.
Further Reading: How to present milestones and metrics in your business plan
5. What is your long-term exit strategy?
You may never intend to leave your business. However, there’s a chance that investors will still ask you what your long-term plans are and how you will exit.
While not a core element of your business plan, having a rough exit strategy shows investors you’re thinking ahead. Whether you envision passing the business down to family, selling it to a larger company, or even closing up shop—outline a timeline and include it with your funding request.
Remember, an exit strategy is less about leaving your business and more about demonstrating thoughtful planning and a clear vision for the future.
Example:
An eCommerce entrepreneur might envision scaling their business to a certain revenue level within five years and then selling it to a competitor or private equity firm.
This exit strategy demonstrates their ambition and potential for significant returns, making them a more attractive investment opportunity.
Writing a business plan helps you answer questions at every stage
A detailed business plan is required if you actually want to get funding. In fact, research shows that businesses with a plan are far more likely to get funding than those without.
That’s because your plan provides answers for you and these outside stakeholders. And it’s not limited to getting funding.
Revisiting, revising, and expanding your plan can help you answer more difficult questions as you:
Make planning easier with LivePlan
If you want to create an investor-ready business plan that helps answer these questions (and more), try LivePlan.
LivePlan combines your business plan with powerful budgeting and forecasting features to make every effort count. With a single tool, you can go from exploring a potential idea to creating detailed forecasts and pitching your business.
It’s the perfect tool to start, plan, manage, and grow your business.
