business-plan, investors, cashflowWhen building a business plan, aiming to raise money from investors, it is usually based on a financial plan. Do they expect only a high level cashflow, focusing mainly on the business model and where the income will come from, or do they expect a detailed cashflow, with all expenses laid out? There is a significant amount of effort in building the detailed plan, so is it really necessary? Do investors even look into it?
In my experience, investors tend to allow you some margin of error depending on how inexperienced they think you are. The younger you are, the more leeway, kindness and guidance you can expect.
Nobody can predict the future, and this is fact. Therefore, rational investors would not expect to see you come out with a 100% accurate forecast for the next 2 years. There will be variances between your forecast and actual performance, and good investors will point out details you might have overlooked and ask for revisions.
Eisenhower said, “In preparing for battle I have always found that plans are useless, but planning is indispensable.”
Similarly, seasoned investors want to see you go through all the checklists of preparation, but will account for a margin of error in their calculations.
Bottom line, the only way to prepare a successful BP, i.e, one that is sound and gets you funds, is to get it in front of seasoned investors and listen carefully to see what they looking to find in it. You repeat that until you get a sellable BP.
Without a doubt in the world, professional investors will require the detailed plan. Not only does it show that you’ve actually thought through the costs involved in running your business (so they can see it will actually be profitable using sensible assumptions), but it also shows that there isn’t going to be a huge cashflow crisis in 6 months time.
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