There are a million means to earn money. But if we discuss what is the fastest way to raise a relatively big amount of money, then attracting an investor deserves a position in that conversation. Isn’t it amazing to have somebody invest the exact amount you need to start your business? But in order to obtain an investment, you need a little magic: you need to show the investors that your business deserves their investment because it is a profitable and sustainable business that will be constructive to the overall society.
You may ask: how to do that? The answer is simple, all you need is a thorough business financial plan (BFP), a written document that describes in detail how a new business is going to achieve its goals. A BFP will first tell you in detail how your own business will work and guide your way through running your business, and it will also help you explain everything to your potential investors.
What should I put into my BFP? For any novice in business, writing a plan about everything inside a business may seem overwhelming. Without a clear direction, it may be easy to get lost in the wonderland; before I talk about the actual composing process of a BFP, I want to provide an overview of information that is required for a persuasive BFP.
Imagine if you are an investor and you are listening to a presentation of a BFP, what do you expect to be up there? A calculation of expenses and income and a projection of profit might be one of your answers, because you want to know how much money the business will earn. You might also want to know who is running the business to see if the individual or corporation is reliable and trustworthy. In addition, a product description will also be helpful. Some of you may say you want to hear about what the market looks like, how to promote sales and how to manage a business, and all these are crucial to a successful BFP. In fact, there are generally six chunks of information that every BFP I read includes: an executive summary, a company summary, a product or service description, a market analysis, a strategy description, and a financial analysis. To make more sense when explaining each one of these, I will use the Chipotle BFP I found online as my example this time.
The first section of BFP is the overall summary which describes the general information and goals of this business; on page two of the Chipotle BFP there is a section called “Chipotle Mexican Grill Overview” and in the three-page overview there are goals of Chipotle, a short description of Chipotle’s history as well as expectations of the next fiscal years of Chipotle. Preferably, the executive summary is not very detailed; it is at its best when it is precise.
The company description is a section that provides background information about the individuals or corporations that will be in charge of this business. In the Chipotle BFP, this section is briefly touched by talking about past successes of Chipotle and comparisons between Chipotle and other fast-food restaurants. Because this Chipotle BFP is not written to raise outside investment, but for inner corporation references, the company description section is not too detailed
as the majority of its readers are familiar with the company.
Chipotle puts financial analysis right after the overview. For both an existing business like Chipotle and a potential future business seeking investment, financial analysis is fundamental because it is the most reliable prediction of your business outcome in the future and no investor will sign the sponsorship contract without being promised profit. Financial analysis in BFP is sometimes understood as accounting report for the future. The two are similar in that both use numbers of income, expense, liability, asset and equity to calculate and exhibit how robust the company was or will be in terms of money. In the financial section of Chipotle’s BFP we see a lot of numbers and it also uses graphs to demonstrate the calculation at the end of the document. For an investment seeking business, it is also important to provide the break-even analysis, a calculated analysis to show how much revenue is desired for the business to make profit and sometimes how long it takes for the business to settle its liabilities so that investors will know how long it will take for them to regain their money.
And then comes the market analysis section in Chipotle’s BFP, in which the entire fast-food chain in the US and its projected growth, as well as other competitors of Chipotle are addressed. For a new business, the most important purposes of this section are to show that the market is a steady or a growing one and that there is still profit to be earned with in the market. You want to present a succulent fruit to your investors if you want their support.
A strategy description of a BFP explains what steps the business will take in order to maximize its profit. In the strategy description part of Chipotle’s BFP (called Wasabi’s Implementation Plan), there are two main future steps for Chipotle to take: keeping its current style of operation and opening Wasabi Restaurants using the same business style. That this part relies heavily on previous financial analysis to demonstrate why these future implementations are viable and profitable reflects an important feature of a successful BFP: different sections focus on different aspects of a business but they are all related because they all serve to explain the same business.
Finally, there is the product description. Similar to my blog in week one, this portion describes the actual product or service that will be provided in the business. Chipotle gets a bit lazy by only showing a chart of all its products in the appendix section; but again, an investment seeking BFP should try its best to deliver the excellence of its product or service.
There are additional sections in the Chipotle BFP that I won’t address because these are mostly customized features that differ in every business. But there is one more thing I want to remind my readers: a BFP is not merely something to attract investment, but a guideline to follow during the actual operation. Other than that, I wish you all a great week , and stay tuned for my next blog: the creational process of a BFP.