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A solid business plan is one of the most important documents you’ll need to create for your company. This document provides a roadmap for your company’s future developments. However, no growth can occur without a sufficient amount of working capital. That’s why your business plan should include a source of funds section – it can remind you how to maintain the cash flow your company needs.

There’s another reason this part of your business plan matters. It can show certain lenders how much money you need beyond what the funding sources in your business plan can get you. That said, not all lenders will require you to share a business plan. For example, SmartBiz’s loan approval requirements don’t include business plans among the necessary paperwork. Either way, below are some source of funds examples in business plans.

What is a business plan?

A business plan is a document that guides your company’s growth. It helps define your business goals and provides a clear overview of how you’ll achieve them. You can also use it to plot out your marketing, operational, and sales approaches. Your business plan can be the foundation of a strategy to minimize risk and maximize growth.

Another reason why solid business plans are essential is that you’ll often need to provide them as you apply for business loans. Business plans provide an in-depth look at a company’s plan for profits, so lenders can more easily judge the borrower’s likelihood of repayment. Lenders are much more likely to finance borrowers whom they believe can pay back the loan amount in a reasonable timeframe.

8 source of funds examples

Having a source of funds – sometimes several sources of funding – is vital to growing your business . Common funding options include business loans, and sometimes, to qualify for them, you must show lenders your other funding sources. Understanding the below source of funds examples in business plans can help you better structure yours.

1. Personal savings

When you’re just getting your business off the ground, sometimes, the fastest way to fund it is directly from your current savings. However, entwining your personal savings into a company that could fail is a risky prospect – but it also shows commitment. Lenders and investors often respond well to a borrower who’s ready to go the distance with their ideas.

2. Money from friends and family

Money from family and friends, which you’ll also see called “love money,” is a viable source of funds in your business plan. However, just as it’s risky to get your own money wrapped up in a business, it’s dangerous with other people’s finances too. Plus, accepting money from a loved one can come with drawbacks. For starters, not everyone in your life has much to spare in the first place. Furthermore, if you borrow money from friends or family and you can’t repay it, the relationship could be damaged.

3. Federal and private grants

Occasionally, your business model can put you in line for federal grants. That said, rare is the business that qualifies for federal grants – technically, the government does not provide grants for small businesses growth. However, private companies ranging from FedEx to the NBA offer grants to small businesses that fit certain criteria. If there’s a chance your company could fit these criteria, you can include private grants as sources of funding in your business plan.

4. Share sales and dividends

Selling shares of your company to investors – as in, anyone who buys stocks – falls under a category of funding known as equity financing. This arrangement can be lucrative, which is a main reason why you see so many companies having initial public offerings (IPOs).

However, equity financing has a few drawbacks. For one, you’ll no longer have complete control over your company's future, as stockholders dilute your ownership. Additionally, you’ll have to account for dividends in your financial planning. You pay these sums to your shareholders every quarter.

5. Venture capital

If you need a large amount of cash, venture capitalists can be a viable option. Typically, though, venture capitalists are only interested in funding startup businesses in the tech sector with high growth potential.

Venture capital is a high-reward but high-risk funding source. It often requires you ceding a certain amount of ownership – and thus control – of your business. Furthermore, if your business fails, you may still need to repay any venture capitalists or firms that have funded your operations.

6. Angel investors

An angel investor is a wealthy private individual who invests in small businesses to help them get off the ground. They tend not to offer as much starting capital as a venture capitalist, but they can make up for the smaller amount with experience. Angel investors are often experts within a specific industry and put money back into it by investing in newer businesses within that sphere.

Although you’ll have to give an angel investor some control over your company, their experience and network can help your business grow. Additionally, the word “angel” in their name reflects that they typically don’t ask for their money back if your business fails. That makes them a safer bet than venture capitalists.

7. Business incubators

Unlike the previous funding options, a business incubator doesn’t offer direct monetary support. Instead, incubators help fledgling businesses thrive by allowing them into their workspace and letting them share resources as they get started. This type of funding is indirect – you’ll rarely get direct cash infusions, but you’ll get resources that would otherwise cost you money. It’s common in high-tech industries such as biotechnology, industrial technology, and multimedia.

8. Bank loans

Bank loans probably ring a bell for you. When a current or aspiring small business owner needs additional funds, these loans are often the first thing that comes to mind. They’re among the most in-demand funding options available given their large funding amounts, long-term repayment periods, and low interest rates . However, their high amounts introduce lender risk that can make them difficult to obtain. To minimize risk, most lenders impose strict qualification criteria that you might not make.

Why do you need to provide sources of funds in your business plan?

Providing a source of funds in your business plan paves a path toward obtaining and using your funding. Knowing where your money is coming from and what you’re spending can help with strategic financial planning. It also minimizes the chances of your business partners spending money the company doesn’t actually have.

In a lending context, your sources of funds may help you qualify for any loans you need in the future. Depending on the funding sources you’re using, lenders may view you as someone able to repay the debt financing they offer. For example, using personal savings shows your commitment to your business, meaning you’re likely a reliable borrower who won’t flake on a loan. You’ll show your commitment to your company and your business at the same time.

Parting thoughts

Reliable funding sources are essential to achieving your company’s objectives, and their presence in your business plan can help you obtain more funding. Namely, certain entities that offer small business loans require business plans as part of the borrower approval process. When your approval plan clearly shows why you need the loan money and how else you’re getting funding, lenders may trust you more.

However, certain lenders don’t require business plans. In fact, when you apply for SBA 7(a) loans , bank term loans, or custom financing through SmartBiz ® , you don't need a business plan. Check now to see if you pre-qualify * – the business funding you need might be closer than you think.

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The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

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Home > Business Plan > Funding Requirements in a Business Plan

Funding Requirements in a Business Plan

… our funding requirements are …

The summary given in the funding requirement section should be consistent with the rest of the business plan. The amount needed, and when it is needed should follow from the detailed financial projections, and the purpose of the funding, sales and marketing, hire of employees, to achieve a milestone etc. should again link in with the rest of the plan,

Funding Requirements Presentation

This is part of the financial projections and Contents of a Business Plan Guide , a series of posts on what each section of a simple business plan should include. The next post in this series is the final section, and deals with the planned exit for investors.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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The 7 Best Business Plan Examples (2024)

As an aspiring entrepreneur gearing up to start your own business , you likely know the importance of drafting a business plan. However, you might not be entirely sure where to begin or what specific details to include. That’s where examining business plan examples can be beneficial. Sample business plans serve as real-world templates to help you craft your own plan with confidence. They also provide insight into the key sections that make up a business plan, as well as demonstrate how to structure and present your ideas effectively.

Example business plan

To understand how to write a business plan, let’s study an example structured using a seven-part template. Here’s a quick overview of those parts:

• Executive summary: A quick overview of your business and the contents of your business plan.
• Company description: More info about your company, its goals and mission, and why you started it in the first place.
• Market analysis: Research about the market and industry your business will operate in, including a competitive analysis about the companies you’ll be up against.
• Products and services: A detailed description of what you’ll be selling to your customers.
• Marketing plan: A strategic outline of how you plan to market and promote your business before, during, and after your company launches into the market.
• Logistics and operations plan: An explanation of the systems, processes, and tools that are needed to run your business in the background.
• Financial plan: A map of your short-term (and even long-term) financial goals and the costs to run the business. If you’re looking for funding, this is the place to discuss your request and needs.

7 business plan examples (section by section)

In this section, you’ll find hypothetical and real-world examples of each aspect of a business plan to show you how the whole thing comes together. 

• Executive summary

Your executive summary offers a high-level overview of the rest of your business plan. You’ll want to include a brief description of your company, market research, competitor analysis, and financial information. 

In this free business plan template, the executive summary is three paragraphs and occupies nearly half the page:

• Company description

You might go more in-depth with your company description and include the following sections:

• Nature of the business. Mention the general category of business you fall under. Are you a manufacturer, wholesaler, or retailer of your products?
• Background information. Talk about your past experiences and skills, and how you’ve combined them to fill in the market. 
• Business structure. This section outlines how you registered your company —as a corporation, sole proprietorship, LLC, or other business type.
• Industry. Which business sector do you operate in? The answer might be technology, merchandising, or another industry.
• Team. Whether you’re the sole full-time employee of your business or you have contractors to support your daily workflow, this is your chance to put them under the spotlight.

You can also repurpose your company description elsewhere, like on your About page, Instagram page, or other properties that ask for a boilerplate description of your business. Hair extensions brand Luxy Hair has a blurb on it’s About page that could easily be repurposed as a company description for its business plan. 

• Market analysis

Market analysis comprises research on product supply and demand, your target market, the competitive landscape, and industry trends. You might do a SWOT analysis to learn where you stand and identify market gaps that you could exploit to establish your footing. Here’s an example of a SWOT analysis for a hypothetical ecommerce business: 

You’ll also want to run a competitive analysis as part of the market analysis component of your business plan. This will show you who you’re up against and give you ideas on how to gain an edge over the competition. 

• Products and services

This part of your business plan describes your product or service, how it will be priced, and the ways it will compete against similar offerings in the market. Don’t go into too much detail here—a few lines are enough to introduce your item to the reader.

• Marketing plan

Potential investors will want to know how you’ll get the word out about your business. So it’s essential to build a marketing plan that highlights the promotion and customer acquisition strategies you’re planning to adopt. 

Most marketing plans focus on the four Ps: product, price, place, and promotion. However, it’s easier when you break it down by the different marketing channels . Mention how you intend to promote your business using blogs, email, social media, and word-of-mouth marketing. 

Here’s an example of a hypothetical marketing plan for a real estate website:

Logistics and operations

This section of your business plan provides information about your production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan (a.k.a. financial statement) offers a breakdown of your sales, revenue, expenses, profit, and other financial metrics. You’ll want to include all the numbers and concrete data to project your current and projected financial state.

In this business plan example, the financial statement for ecommerce brand Nature’s Candy includes forecasted revenue, expenses, and net profit in graphs.

It then goes deeper into the financials, citing:

• Funding needs
• Project cash-flow statement
• Project profit-and-loss statement
• Projected balance sheet

You can use Shopify’s financial plan template to create your own income statement, cash-flow statement, and balance sheet. 

Types of business plans (and what to write for each)

A one-page business plan is a pared down version of a standard business plan that’s easy for potential investors and partners to understand. You’ll want to include all of these sections, but make sure they’re abbreviated and summarized:

• Logistics and operations plan
• Financials 

A startup business plan is meant to secure outside funding for a new business. Typically, there’s a big focus on the financials, as well as other sections that help determine the viability of your business idea—market analysis, for example. Shopify has a great business plan template for startups that include all the below points:

• Market research: in depth
• Financials: in depth

Your internal business plan acts as the enforcer of your company’s vision. It reminds your team of the long-term objective and keeps them strategically aligned toward the same goal. Be sure to include:

• Market research

Feasibility 

A feasibility business plan is essentially a feasibility study that helps you evaluate whether your product or idea is worthy of a full business plan. Include the following sections:

A strategic (or growth) business plan lays out your long-term vision and goals. This means your predictions stretch further into the future, and you aim for greater growth and revenue. While crafting this document, you use all the parts of a usual business plan but add more to each one:

• Products and services: for launch and expansion
• Market analysis: detailed analysis
• Marketing plan: detailed strategy
• Logistics and operations plan: detailed plan
• Financials: detailed projections

Free business plan templates

Now that you’re familiar with what’s included and how to format a business plan, let’s go over a few templates you can fill out or draw inspiration from.

Bplans’ free business plan template

Bplans’ free business plan template focuses a lot on the financial side of running a business. It has many pages just for your financial plan and statements. Once you fill it out, you’ll see exactly where your business stands financially and what you need to do to keep it on track or make it better.

PandaDoc’s free business plan template

PandaDoc’s free business plan template is detailed and guides you through every section, so you don’t have to figure everything out on your own. Filling it out, you’ll grasp the ins and outs of your business and how each part fits together. It’s also handy because it connects to PandaDoc’s e-signature for easy signing, ideal for businesses with partners or a board.

Miro’s Business Model Canvas Template

Miro’s Business Model Canvas Template helps you map out the essentials of your business, like partnerships, core activities, and what makes you different. It’s a collaborative tool for you and your team to learn how everything in your business is linked.

Better business planning equals better business outcomes

Building a business plan is key to establishing a clear direction and strategy for your venture. With a solid plan in hand, you’ll know what steps to take for achieving each of your business goals. Kickstart your business planning and set yourself up for success with a defined roadmap—utilizing the sample business plans above to inform your approach.

Business plan FAQ

What are the 3 main points of a business plan.

• Concept. Explain what your business does and the main idea behind it. This is where you tell people what you plan to achieve with your business.
• Contents. Explain what you’re selling or offering. Point out who you’re selling to and who else is selling something similar. This part concerns your products or services, who will buy them, and who you’re up against.
• Cash flow. Explain how money will move in and out of your business. Discuss the money you need to start and keep the business going, the costs of running your business, and how much money you expect to make.

How do I write a simple business plan?

To create a simple business plan, start with an executive summary that details your business vision and objectives. Follow this with a concise description of your company’s structure, your market analysis, and information about your products or services. Conclude your plan with financial projections that outline your expected revenue, expenses, and profitability.

What is the best format to write a business plan?

The optimal format for a business plan arranges your plan in a clear and structured way, helping potential investors get a quick grasp of what your business is about and what you aim to achieve. Always start with a summary of your plan and finish with the financial details or any extra information at the end.

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How to Write Your Business Plan to Secure Funding

Unlock funding for your business! Master the art of writing a funding-worthy business plan with our ultimate guide.

Introduction to Writing a Funding-Worthy Business Plan

When it comes to securing funding for your business, a well-written business plan plays a pivotal role. It serves as a roadmap that outlines your goals, strategies, and financial projections, giving potential investors or lenders a comprehensive understanding of your business. In this section, we will explore the importance of a well-written business plan and delve into the purpose it serves.

Importance of a Well-Written Business Plan

A well-crafted business plan is essential for multiple reasons. Firstly, it showcases your professionalism and commitment to your business idea. It demonstrates that you have thoroughly thought through every aspect of your venture and have a solid plan in place.

Additionally, a well-written business plan acts as a communication tool between you and potential investors or lenders. It allows you to effectively convey your business concept, market analysis, and financial projections, helping them understand the viability and potential of your business.

Moreover, a comprehensive business plan can help you identify any potential pitfalls or gaps in your strategy. By thoroughly analyzing your business model, market conditions, and financial projections, you can proactively address any weaknesses and make necessary adjustments.

Understanding the Purpose of a Business Plan

The purpose of a business plan extends beyond just securing funding. It serves as a strategic document that guides your business operations and helps you stay focused on your goals. Some key purposes of a business plan include:

• Attracting Investors and Lenders: A well-written business plan provides potential investors or lenders with the information they need to make an informed decision about whether to invest in your business or provide financial support. It showcases the potential return on investment and outlines the steps you will take to achieve success.
• Setting Clear Goals and Strategies: A business plan helps you define your short-term and long-term goals, as well as the strategies you will implement to achieve them. It provides a roadmap that keeps you on track and allows you to measure your progress along the way.
• Identifying Strengths and Weaknesses: By conducting a thorough market analysis and assessing your business's strengths and weaknesses, a business plan helps you identify areas where you excel and areas that require improvement. This enables you to develop strategies to leverage your strengths and mitigate any weaknesses.
• Guiding Financial Decision-Making: A business plan includes financial projections and analysis that help you make informed financial decisions. It provides a clear understanding of your revenue streams, costs, and potential profitability, enabling you to allocate resources effectively.
• Facilitating Collaboration and Communication: A business plan serves as a tool for collaboration and communication within your organization. It ensures that all team members are aligned with the business goals and strategies, fostering a cohesive and unified approach.

Understanding the importance and purpose of a well-written business plan is the first step towards creating a document that effectively communicates your vision and secures the funding you need. In the following sections, we will explore the key components, step-by-step guide, and best practices for crafting a funding-worthy business plan.

Key Components of a Funding-Worthy Business Plan

To create a business plan that attracts funding, it's essential to include key components that provide a comprehensive overview of your business. These components will help potential investors understand your business's potential and make informed decisions. Here are the key components you should include in your funding-worthy business plan:

Executive Summary

The executive summary is a concise overview of your entire business plan. It should provide a clear and compelling summary of your business, highlighting its unique selling proposition, market opportunities, and financial projections. This section should be written in a way that captures the attention of potential investors and encourages them to read further.

Company Overview

The company overview section provides an introduction to your business. It should include details about your company's mission, vision, and values. Additionally, this section should highlight key information such as the legal structure of your business, its history, location, and any notable achievements or milestones.

Market Analysis

The market analysis section presents a thorough examination of your target market, industry trends, and competitors. It should showcase your understanding of the market dynamics, customer needs, and competitive landscape. Including market research, data, and relevant statistics can strengthen your analysis and demonstrate the market opportunity your business intends to tap into.

Product or Service Description

In this section, you should provide a detailed description of your product or service. Explain how it addresses a need or solves a problem in the market. Include information about its features, benefits, and any unique selling points. Use this section to showcase the value proposition of your offering and differentiate it from competitors.

Marketing and Sales Strategy

The marketing and sales strategy section outlines how you plan to promote and sell your product or service. It should include your target market segmentation, pricing strategy, distribution channels, and promotional activities. Demonstrating a well-thought-out marketing and sales strategy can instill confidence in investors regarding your ability to reach and attract customers.

Organizational Structure and Management

In this section, provide an overview of your organizational structure, including key personnel and their roles. Highlight the qualifications and experience of your management team, as well as any advisors or board members. Investors want to see that your team has the expertise and capabilities to execute your business plan successfully.

Financial Projections and Analysis

The financial projections and analysis section is crucial for illustrating the financial viability of your business. Include projected income statements, balance sheets, and cash flow statements for at least the next three years. Additionally, provide a detailed analysis of your financial assumptions and key performance indicators. It's important to present realistic and well-supported financial projections.

Funding Request and Use of Funds

In this section, clearly state the amount of funding you are seeking and how you intend to use it. Break down the allocation of funds, highlighting specific areas such as product development, marketing, operations, or expansion. Providing a detailed breakdown of the use of funds demonstrates your ability to effectively utilize the investment.

The appendix section serves as a supplemental section that includes any additional information that supports your business plan. This may include market research data, product samples, patents, licenses, permits, or any other relevant documents. The appendix provides investors with access to more detailed information without overwhelming the main body of the business plan.

By including these key components in your funding-worthy business plan, you can present a comprehensive overview of your business and increase your chances of securing the funding you need to bring your entrepreneurial vision to life.

Step-by-Step Guide to Writing a Funding-Worthy Business Plan

Writing a business plan that is compelling and attractive to potential investors is a crucial step in securing funding for your venture. To help you navigate this process, here is a step-by-step guide to writing a funding-worthy business plan.

Research and Gather Information

Before diving into the writing process, it's essential to conduct thorough research and gather all the necessary information. This includes understanding your industry, target market, competitors, and potential investors. Collecting data and market insights will provide a solid foundation for your business plan.

Define Your Business and Goals

Clearly define your business and outline your goals. Describe the nature of your business, the products or services you offer, and what sets you apart from your competitors. Additionally, establish both short-term and long-term goals for your business, focusing on specific, measurable, achievable, relevant, and time-bound (SMART) objectives.

Conduct a Comprehensive Market Analysis

Perform a comprehensive market analysis to gain insights into your target market, customer demographics, and industry trends. Identify your target audience's needs, preferences, and purchasing behavior. Analyze your competitors to understand their strengths, weaknesses, and market positioning. Presenting this information in tables can help organize and present the data effectively.

Market Analysis Factors                                       Data

‍ Target Market Size

Customer Demographics

Industry Trends

Competitor Analysis

Develop a Strong Marketing and Sales Strategy

Outline a robust marketing and sales strategy that highlights how you plan to reach and attract customers. Define your unique selling proposition (USP) and outline your pricing strategy, distribution channels, and promotional activities. This section should demonstrate your understanding of your target market and how you plan to position your business in the competitive landscape.

Outline Your Organizational Structure and Management

Describe your organizational structure and management team. Provide an overview of key personnel, their roles, and their qualifications. Highlight any relevant industry experience, expertise, or accomplishments that make your team well-equipped to execute the business plan successfully. A clear and concise organizational chart can help visualize the structure.

Create Financial Projections and Analysis

Develop financial projections that estimate your business's future revenue, expenses, and profitability. Include a projected income statement, balance sheet, and cash flow statement. Use realistic assumptions based on your market research and industry benchmarks. Additionally, conduct a comprehensive financial analysis that evaluates the financial health and viability of your business.

Craft a Compelling Executive Summary

The executive summary is a concise overview of your entire business plan and should entice readers to continue reading. Summarize the key elements of your plan, including your business concept, market opportunity, competitive advantage, and financial projections. Craft a compelling and engaging executive summary that captures the attention of potential investors.

Polish and Revise Your Business Plan

Once you have completed the initial draft of your business plan, take the time to polish and revise it. Review the content for clarity, coherence, and accuracy. Ensure that your plan flows logically and presents a compelling case for investment. Proofread for grammar and spelling errors. Consider seeking feedback from trusted advisors or professionals to refine your plan further.

By following this step-by-step guide, you can create a comprehensive and compelling business plan that increases your chances of securing funding for your venture. Remember to tailor your plan to the specific needs and preferences of your target audience, providing them with all the necessary information to make an informed investment decision.

Tips and Best Practices for Writing a Funding-Worthy Business Plan

Writing a business plan that is compelling and effective in securing funding requires careful attention to detail and adherence to best practices. Here are some tips to help you create a funding-worthy business plan:

Keep it Clear and Concise

When writing your business plan, it's essential to communicate your ideas clearly and concisely. Avoid using unnecessary jargon or technical terms that may confuse your readers. Use straightforward language and structure your content in a logical manner. Remember, clarity and simplicity are key to ensuring that your business plan is easily understood by potential investors.

Tailor Your Plan to the Target Audience

Each business plan should be tailored to the specific needs and expectations of the target audience. Consider the preferences and priorities of potential investors or lenders and customize your plan accordingly. For example, venture capitalists may be more interested in growth potential and return on investment, while traditional lenders may focus on cash flow and collateral. Understanding your audience will allow you to highlight the aspects of your business that are most relevant to them.

Support Claims with Data and Research

To instill confidence in your business plan, it's important to back up your claims with data and research. Provide market research, industry trends, and competitive analysis to support your assertions about the viability and potential of your business. Including relevant statistics, market projections, and customer surveys can help validate your assumptions and demonstrate that your business plan is grounded in reality.

Seek Professional Help if Needed

Writing a funding-worthy business plan can be a complex and time-consuming task. If you are unsure about certain aspects or need assistance in crafting a compelling plan, consider seeking professional help. Business consultants, accountants, or industry experts can provide valuable insights and guidance to ensure that your business plan is comprehensive, accurate, and persuasive.

Remember, a well-written business plan is not only a tool for securing funding but also a roadmap for the success of your business. By following these tips and best practices, you can increase your chances of creating a business plan that effectively communicates your vision and attracts the attention of potential investors or lenders.

Q: What is a funding-worthy business plan?

A: A funding-worthy business plan is a comprehensive document that outlines your business concept, market opportunity, competitive advantage, financial projections, and other key components to attract potential investors or lenders.

Q: What are the key components of a funding-worthy business plan?

A: The key components of a funding-worthy business plan include an executive summary, company overview, market analysis, product or service description, marketing and sales strategy, organizational structure and management, financial projections and analysis, funding request and use of funds, and appendix.

Q: How long should my business plan be?

A: While there is no strict rule on the length of a business plan, it's generally recommended to keep it concise and focused. A typical business plan can range from 15 to 30 pages. However, the most important thing is to provide all the necessary information in a clear and compelling manner.

Q: Do I need professional help to write my business plan?

A: While you can certainly write your own business plan with careful research and attention to detail, seeking professional help can provide valuable insights and guidance. Business consultants, accountants or industry experts can offer specialized knowledge that can enhance the quality of your business plan.

Q: How often should I update my business plan?

A: Your business plan should be viewed as a living document that evolves over time. It's recommended to review and update your plan regularly to reflect changes in your industry or market conditions. You may need to update it annually or even more frequently if significant changes occur in your business operations or financial performance.

By addressing these frequently asked questions about writing a funding-worthy business plan in your document or during presentations with investors or lenders can demonstrate that you have thoroughly thought through the planning process.

As an entrepreneur seeking funding for your business, a well-crafted and comprehensive business plan is essential. By following the step-by-step guide outlined in this article, you can create a funding-worthy business plan that effectively communicates your vision, market opportunity, competitive advantage, and financial projections to potential investors or lenders. Remember to tailor your plan to the specific needs and expectations of your target audience, keep it clear and concise, support claims with data and research, and seek professional help if needed. With a compelling business plan in hand, you'll be one step closer to turning your entrepreneurial dreams into reality.

https://blog.hubspot.com/sales/how-to-write-business-proposal

https://www.etu.org.za/toolbox/docs/finances/proposal.html

https://www.mybusiness.com.au/how-we-help/grow-your-business/increasing-sales/how-to-write-a-funding-proposal

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• Building Your Business
• Becoming an Owner
• Business Plans

How To Write the Funding Request for Your Business Plan

What goes into the funding request, parts of the funding request, important points to remember when writing your request, frequently asked questions (faqs).

MoMo Productions / Getty Images

A business plan contains many sections, and if you plan to seek funding for your business, you will need to include the funding request section. The good news is that this section of your business plan is only needed if you plan to ask for outside business funding. If you're not seeking financial help, you can leave it out of your business plan. There are a variety of  ways to fund your business  without debt or investors. Below, we'll cover how to write the funding request section of your business plan.

Key Takeaways

• The funding request section of your business plan is required if you plan to seek funding from a lender or investors.
• You'll want to include information on the business, your current financial situation, how the money will be used, and more.
• Tailor each funding request to the specific funding source, and make sure you ask for enough money to keep your business going.

The funding request section provides information on your future financial plans, such as when and how much money you might need. You will also include the possible sources you could consider for securing your funds, such as loans or crowdfunding. Later, you can update this section when you need outside funding again for business growth.

An Outline of the Business

Yes, you've done this already in past sections, but you want to give potential lenders and investors a recap of your business. In some cases, you might simply share the funding request section so you need to have your business details such as what you provide, information about your target market, your structure (i.e. LLC), owners' and members' information (for partnerships and corporations), and any successes you've had to date in your business.

Current Financial Situation

Again, you've provided some financial information in the financial data section , but it doesn't hurt to summarize. If you're submitting just the funding request, you'll need this information to help financial sources understand your money situation.

Provide financial details such as income and cash flow statements, and balance sheets in your funding request section.

Offer your projected financial information as well. If you're asking for a loan for which you'll be offering collateral, include information about the asset. If the business had debt, outline your plan for paying it off. Finally, share how you'll pay the loan or what sort of return on investment (ROI) investors can expect by investing in your business.

How Much Money Do You Need Now and in the Future?

Indicate what type of funding you're asking for such as a loan or investment. Outline what you need now and what you might need in the future as far as five years out. 

How Will the Funds Be Used?

Detail how you'll be using the money, whether it's for inventory, paying a debt, buying equipment, hiring help, and more. If you plan to use the money for several things, highlight each and how much money will go to each.

Most financial sources would rather invest in things that grow a thriving business than things that pay for debt or overhead expenses. 

Current and Future Financial Plans

Current and future financial plans include items such as loan repayment schedules or plans to sell the business. If you're getting a loan, outline your plans for repayment (although most lenders will have their own schedules). If you have plans to sell the business, let the lender know that and how it will affect them. Other issues to consider are relocation (if you move) or a buyout. Finally, let investors know how they can exit the deal, such as cashing out (and how long before they can do that).

You're asking for money, so you need to always be professional and know your business inside and out. Here are some other things to keep in mind:

• Tailor your funding request to each financial source : Lenders and investors need different information, such as loan repayment versus ROI, so create different reports for each. 
• Keep your funding sources in mind : Each resource will have different questions and concerns. Do a little research so you can address them in your report.
• Ask for enough to keep your business going : Don't be stingy, as you don't want your business to fail from a lack of money. At the same time, don't be greedy, asking for more than you need. 

How do you request funding for a nonprofit?

Most nonprofits seek funding in the form of grants. Write a grant proposal that includes information on the project or organization, preliminary budget needs, and more. Be sure to format it with a cover letter, proposal summary, the introduction of the organization, problem statement, objectives, methods, evaluation, future funding needs, and the budget.

What are three methods of funding?

Grants and scholarships, equity financing, and debt financing are the main three methods of funding for small businesses . Grants and scholarships do not need to be repaid and are often best for nonprofit organizations. Equity financing is when you receive money in exchange for ownership and profits. Debt financing is when you borrow money that needs to be repaid.

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Small Business Administration. " Fund Your Business ."

Congressional Research Service. " How To Develop and Write a Grant Proposal ."

Library of Congress Research Guides. " Types of Financing ."

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• Small Business

How to Maximize Your Business Plan to Secure Funding

Updated Aug. 5, 2022 - First published on May 18, 2022

By: Jennifer Post

Writing a business plan for your small business should be one of the first steps you take when a business idea pops into your head. This is how you’ll discover whether your idea can actually be a profitable business. Lenders will want to know the business you plan on starting will make enough money for you to be able to pay back a loan or other forms of investment.

Why is having a business plan important to get funding?

Investors want to invest in a business projected to be profitable within a certain amount of time, has a marketing strategy ready to go, and will exist in a receptive market. All of that information is provided in a business plan. Here are a few reasons why having a business plan is crucial to get funding.

Credibility

Before anyone invests money in your business, lenders will want to know you have a concrete, detailed plan for paying the loan back. Provide information such as:

• Market value of your product or service
• Projected sales in the first year against projected expenses
• Projected profit during your first five years in business

Going through the process of putting all of this together is just another aspect of your credibility as a future business owner, no matter how much money you’re asking for.

If you’re not serious about your business, why should potential investors be? The investing community isn’t as big as you might think, especially once you get to a certain caliber of investor. If you show up to a meeting and don’t have your business plan at the ready, you might not even get to your opening statement before the meeting is over.

You don’t want to earn the reputation of being an ill-prepared entrepreneur. If you take your business idea seriously, show it.

Business need

Just because you’ve thought of a business idea and have outlined every aspect of it doesn’t mean investors and banks will feel the same way. Banks mostly care about whether or not you can pay back a loan, while investors tend to back businesses they connect with.

The need for your business is much more important than it might seem. In order to pay back a loan, your business needs to be profitable. In order for that to happen, you need customers. To get customers, you have to offer something they can’t get anywhere else, whether that’s a product, a service, or an experience.

What should you include in your business plan for funding?

Be detailed and thorough in every idea you present since you’ll most likely have to explain yourself and your business idea. Here’s what should be included in your business plan if you’re seeking funding.

1. Details about your business and company as a whole

It’s important to think about how you plan on setting up your business -- and for more than one reason. Some things to consider:

• Will you be a sole proprietor?
• Do you have a business partner?
• LLC vs. incorporation?

Business structure also matters for paying back a loan. If your business is unable to pay back a loan, the legal structure can be the difference between you having to pay it back somehow (with your home or other assets) or splitting the remaining balance among shareholders or partners.

2. Target market

At the risk of sounding like a broken record, your business can’t make money without customers. Take your business idea and research different locations to find your customers, and ask yourself a few questions:

• Are there a lot of other businesses like yours already out there?
• Are those businesses doing well?
• Is there a gap in what they offer?

You could also pick your target audience first. Let’s say you want young adults between the ages of 25 and 40 to be your main customers. You need to find where those people are and ask the questions noted above. Either way, those questions need to be answered and in a lot of detail.

3. How you plan to make money

This is so much more than just saying, “by selling a lot of product,” or “having a long list of clients.” Anyone can say that. Ask yourself a few questions, just like you did with the market aspect above:

• How much will you charge for your offerings?
• Will people actually pay that amount?
• How much do you need to sell to break even? To make a profit?

Even if your product is worth x amount of dollars in market terms, the harsh reality is it’s only worth what people are actually willing to pay for it. It’s best to underestimate and over-deliver -- as long as your plan still guarantees your ability to pay off a loan.

4. How much funding you’re seeking and its intended use

You need to have a firm grasp on how much funding you need to accomplish your goal, and don’t be shy about it. If you’re seeking a bank loan, it’s a little different because you will qualify for a certain amount based on a number of factors.

Some lenders also have use case limitations, where there are restrictions on what you can use the money for. Consider that, among all of the other qualifications, before deciding if that type of loan is the way you want to go.

If you’re going with an investor, it’s not usually a make-or-break factor to detail what you plan on using the money for, but the more information you provide, the better.

How to write your business plan for funding

Now that you know why a business plan is crucial for funding and what needs to be included in one, let’s get to actually writing it. There are also business plan templates and sample business plans available online that are a good guide to get you started.

Step 1: Write your executive summary

This is generally the first section of your business plan and your first chance to make an impression. As with most introductions, this is where you’ll summarize all the other sections of the business plan, such as your mission statement , general company information, products or services, and financials.

Step 2: Explain your company overview

All that time you spent researching different business formation options will pay off in this section. You’ll explain the structure of your company, exactly what your business does, and the target market you plan on addressing. You’ll want to get into detail about the market you’ve chosen, why you fit into that market, and how you plan on expanding within it.

Step 3: Detail your market analysis

This is the section where you will dive into the nitty-gritty of your intended market. Explain the following aspects:

• What audience lives within that market?
• What do they want?
• How do you plan on providing what they want?
• How much is your product worth?
• What are your plans for growth?
• Are there setbacks you might run into? How will you overcome them?

As anyone who has started a business knows, it’s not all gains. Letting investors know that you recognize there will be obstacles shows that you’ve really thought all of this out.

Step 4: Describe your product/service

In this section, you’ll do more than just explain what you will sell, although that’s part of it. If you’ve invented something or patented something, include that in this section. Don’t only show what you’re offering but explain how it works and how it improves on what’s already out there. If it’s a service, explain how you will produce better results than others.

Additionally, if you have to source materials or equipment from somewhere else, outline whom you will work with and what the process will be to secure those materials.

Step 5: Write out your sales plan

Here are a couple of steps you’ll want to take to outline your sales plan.

• Have some branding ideas on hand: These might include a company name, logo, color scheme, and sample materials, such as business cards or brochures. This will position your product for sale.
• Explain how you’ll market your product: Decide whether you will go with free online marketing, such as social media, or paid marketing, such as online or print ads. While you can choose among options, it will come down to your target audience. Do they spend most of their time online, or do they still read the newspaper every morning? That will determine where you should put your marketing efforts, and since ad return is a business metric you’ll want to track later on, having a solid plan in the initial stages will make that process smoother.

Step 6: Detail and explain your financial projections

This section should come fairly easily once you’ve completed the others. You should have an idea of what it will cost to produce your product or service, how much you can charge for it, your market share, and how you will spend money on marketing.

Do your projections in time increments for the lifecycle of your business , such as the first year, first five years, and looking ahead at 10 years and beyond.

The first couple of years you can be pretty specific about your projections, whereas your long-term projections can be offered up more as goals you would like your company to reach in a certain period of time and how you plan to achieve them.

4 tips for writing effective business plans to secure funding

Now that you have a firm grasp on what needs to be in your business plan, how you obtain that information, and how you actually create a business plan, here are some tips to make sure you’re getting the most out of it.

1. Don’t leave anything out

Leaving bits and pieces of your business up for interpretation or guessing will only hurt your chances of securing funding. If investors are left to fill in the blanks, you have no control over what they fill them with. Make sure you’re as thorough as possible in your research and writing so that nothing is left out.

2. Write with personality

There’s a scene from Parks and Recreation where Tom is presenting a business to a potential investor. His original idea, Tom’s Bistro, is one he’s extremely passionate about. Ben comes in with another idea that has a greater chance of being profitable. Tom starts presenting that and soon finds both he and the investor are bored. As soon as he switches back to Tom’s Bistro, the mood in the room completely changes.

Even though that’s a scene from a television show, it’s a good representation of how adding a little bit of your personality and passion into your business plan can pay off, literally.

3. Don’t speak in general terms

Be as detailed as you possibly can. Use exact numbers, names, dates, etc. Doing this will not only show that you’ve done your homework, but that you’re committed to reaching those numbers by the dates you list.

It can seem daunting to feel like you’re committing to so much, but commitment is what investors are looking for. They need to see that you’re serious about your business, and the amount of detail you include in your business plan will reinforce that.

4. Be upfront about what you’re asking for

Don’t be afraid to ask for the amount you really need, even if it’s high. Being wishy-washy about the number might not present so well. As previously mentioned, bank loans are different in that you only receive an amount you qualify for. If you’re meeting with angel investors , it’s important to go in with a specific number in mind.

While the process doesn’t need to be as dramatic as Shark Tank , expect some back and forth once you present your business plan and offer up how much money you’re asking for.

Final thoughts

A business plan is one of the most important documents you’ll create for your business. It’s where you introduce who you are, what your business is, and how it will be successful. If, as most people do, you’re using your business plan to secure funding, you’ll want to be as detailed and thorough as possible in your research and writing.

You want potential investors to be as serious about your business as you are, so convey to them why you’re serious and how you’re bringing something unique to the table that they would be lucky to be a part of.

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Jennifer Post writes about marketing and software for small businesses for The Ascent and The Motley Fool.

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Funding Request

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What is a Funding Request?

The funding request section of a business plan is an outline of the future funding requirements of a company. Usually, the time scale is limited to the next five years, especially in cases of startups with an uncertain future. Information needs to be provided about the company’s future financial plans, such as the amount of funding required at different phases or the different sources of capital.

• The funding request section of a business plan is an outline of the future funding requirements of a company.
• The name and nature of the company, location, owners, service or product offered, target audiences, etc., must be included in the section.
• It must specify if the company is looking for a short-term loan or an investment in exchange for stake and/or board membership.

Writing a Funding Request

1. business summary.

A business summary is only required in cases when a funding request is being created as a standalone document. The name and nature of the company, location, owners, product or service offered, target audiences, etc., must be included. In cases of established companies, past achievements can be highlighted.

2. Amount Required

The amount required section includes a ballpark figure of the total funding required at the moment and whether the company plans to raise capital again sometime in the near future. It must specify if the company is looking for a short-term loan or an investment in exchange for an equity stake and/or board membership.

Future requirements must be calculated after accounting for existing resources and income channels, if any. Usually, companies estimate their requirements five years down the line to arrive at a figure. The amount is usually negotiable; companies may leverage shareholding, fixed assets , or interest rates for the same.

3. Future Plans

The future plans section includes the specifications of where the funding, if any, will be spent. Funds can be needed for working capital, geographical expansion, recruitment drives, building machinery or buildings, advertising, and so on. Several hidden aspects may be involved, and it is important to include any eventualities that may affect the cost of the aforementioned things. They may relate to the anticipated appreciation of property rates, tightening of government regulations , the imposition of tariffs, etc.

4. Financial Information

The financial information section is only required in cases when a funding request is being created as a standalone document. In case a business plan is being prepared, all information will be covered under the financial information section of the plan.

The financial information includes historical data such as income statements , debt repayment history, etc. Forecasts about future needs are also included here. Any activities that may negatively or positively impact the company’s ability to repay loans or deliver results promised, such as relocation, expansion, or mergers and acquisitions, need to be included here.

The terms section covers how the company expects to pay back a loan or produce deliverables for investors. It is important to provide lenders with a potential exit plan from the company, which may include cash outs or Initial Public Offering (IPO) plans. The process is extremely important from the investor’s perspective, as it provides them with a chance to minimize risk and maximize their profit.

Key Factors to Remember

There are a number of important factors to consider when preparing a funding request, including:

1. Target audience’s perspective

It is important to consider the target audience’s perspective when writing a funding request. Applying for a loan is very different from approaching an investor or a potential partner, as they involve different contract terms, amounts of money, or types of funding.

A bank may look at past credit history , existing sources of secured funding, and income statements. On the contrary, an angel investor may focus more on the business concept and associated risk, while a venture capitalist may want well-modeled projected cash flows.

2. Accuracy

The financial section of the plan may come in handy while preparing a funding request. It is important to be conservative in one’s estimates of future growth potential or market size, especially when approaching investors. False claims about the potential of a product and unrealistic estimates of consumer engagement are likely to drive away investors.

3. Consistency

It is important to be consistent about the financial requirements at the different stages of the venture. One must request enough funding to cover all costs fully, to avoid a situation where one is unable to achieve organizational objectives. At the same time, one must not set the requirement too high, as experienced investors usually have a fair idea of the value of the concept.

More Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)®  certification program, designed to help anyone become a world-class financial analyst. To keep learning and advancing your career, the additional CFI resources below will be useful:

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How to Finance a Business: 4 Options to Consider

• 04 Aug 2020

In entrepreneurship, the old adage “you must spend money to make money” often rings true.

Once you’ve developed an innovative business idea , identified a market need, and created a value proposition , you need to acquire funding to get your company up and running.

The key to financing a business is keeping expenses as low as possible. You also want to ensure invested money is used to gain insight into how to proceed.

In the online course Entrepreneurship Essentials , taught by Harvard Business School Professor William Sahlman, entrepreneurship is described as the process of "spending money to produce information about future possibilities."

For instance, using funds to rent a beautiful office may be tempting, but leveraging it to run tests, conduct market research, or identify more efficient means of production can help you learn about your product, pivot accordingly, and expand your company’s growth potential.

Here’s a guide for assessing startup costs and expenses, along with four business financing options to consider.

Access your free e-book today.

How Difficult Is It to Fund a Startup Business?

Securing adequate funding for your business can be challenging. However, it’s important to remember that starting your own business is a large investment that should be given an appropriate period of time to succeed.

Often, new businesses need to raise funding quickly and efficiently to properly grow and thrive in their given market, but it can be difficult to adhere to various lending requirements without existing financial information. In spite of these challenges, there are various financial resources that can help you get your business off the ground.

Evaluate Startup Costs and Expenses

Before deciding how to finance your business, determine how much money you anticipate needing for startup costs and regular expenses. Whether you run a brick-and-mortar or online business, consider the following when taking stock of expenses:

• Licenses and permits
• Trademarks, copyrights, or patents for your brand and products
• Business insurance
• Legal or accounting assistance
• Rent and utilities (for brick-and-mortar businesses)
• Equipment required for production
• Website platforms
• Marketing materials (both print and digital)
• Shipping supplies
• Subscriptions to content management systems and sales or marketing platforms
• Market research

As your business scales , you may need to expand your expense list to include:

• Employee salaries
• Rent and utilities for office space
• Travel expenses
• Conferences, conventions, and networking events

These lists aren’t exhaustive—every business’s needs are different—but they provide a starting point for you to brainstorm all possible expenses for your startup. When your list is complete, calculate your total estimated startup cost. This number is the amount of funding you’ll need to invest when starting your company.

Before raising capital, it’s also wise to familiarize yourself with how to read and create a balance sheet, income statement, and statement of cash flows. Financial literacy is a critical skill for entrepreneurs , and being aware of these financial statements will ensure you’re taking the necessary steps to become a responsible business owner.

Now, how do you obtain this necessary capital? Here are four sources of funding for your business’s launch.

Related: 6 Questions to Ask Before Starting a Business

How to Finance a Business

1. self-funding.

If your projected expenses add up to a manageable amount, you may be able to fund the business yourself. This can involve taking money from your personal savings account, dipping into your retirement funds, using credit cards and paying back the debt, or asking for donations from friends and family.

Self-funding comes with the risk of long-term debt or losing personal savings and, potentially, money from loved ones. However, it’s a financing option that allows you to retain full ownership over your business, which is often seen as a downside of raising venture capital from investors.

2. Crowdfunding

If you believe your business can garner a fan base, crowdfunding could be a good option. Crowdfunding platforms, such as Kickstarter, Indiegogo, and Patreon enable entrepreneurs to pitch their products and request financial backing.

If people are intrigued and support your product, they can donate to your company in exchange for a free item, discount code, or acknowledgment once your business is up and running. For this reason, crowdfunding is typically a good fit for business-to-consumer startup companies with physical products, although there are exceptions. Each platform has its own terms and conditions, which you should read before selecting one.

Like self-funding, crowdfunding allows you to maintain full ownership of your company, as long as you’re willing to thank your donors with free or discounted products. A few brands that got their start using crowdfunding are Oculus, PopSockets, and Allbirds.

3. Taking Out a Small Business Loan

Applying for a small business loan is another way to secure necessary startup funds. Before applying to banks and credit unions, prepare a business plan, value proposition, expense report, and financial projections for the next five years. Most banks or credit unions will ask to see some combination of these documents when considering your application.

Be sure to weigh the pros and cons of every bank loan offer you receive. Which gives you the lowest interest rate? What are the terms and conditions?

As Sahlman says in Entrepreneurship Essentials , “The terms of financing have a major impact on the success or failure of a venture.”

Related: What Does It Take to Be a Successful Entrepreneur?

4. Raising Venture Capital from Investors

Another avenue for funding your business is raising venture capital from investors.

“Successful companies are always forming hypotheses and testing all aspects of their business,” Sahlman explains in Entrepreneurship Essentials . “Ventures typically need outside investors to run experiments.”

Before reaching out to investors, prepare a business plan, value proposition, financial projections, and a tight, effective pitch deck.

The process of obtaining venture capital has been likened to dating —investors typically want to get to know you and your business before they commit.

One way to start this process is by asking a mutual connection to introduce you to investors. Your contact can serve as a character reference, if needed.

This process can take a while. If you’re looking for quick, easy money to start your business, raising venture capital may not be the right choice. Investors often want to see how you run your company before deciding to invest. Even after they supply funding, they may bide their time to see what you do with the money before investing more.

“Sensible investors stage their commitment to a company—they give enough money to conduct a value-changing test,” Sahlman says. “They preserve the right to abandon the venture by refusing to invest more money. They also design contracts that give them the right to invest more if the test yields encouraging results.”

There’s one factor that sets this option apart: Investors want to own a large, valuable share of your company in return for their investment. This allows them to sell their share in the future, when they predict your company will be worth a lot of money.

In Entrepreneurship Essentials , Sahlman shares Facebook’s journey with various investors and notes that it received $500,000 from angel investor Peter Thiel in its first round of funding in 2004. Just one year later, Facebook received a $12.7 million investment from prominent venture capitalist Jim Breyer.

Resist the urge to go big right away. Perhaps raising venture capital from investors is a second or third step for the funding of your business.

What's the Best Way to Finance Your Business?

Keep in mind that no two businesses are the same—only you know the ins and outs of your company’s needs. By weighing the risks and rewards of each funding option, along with your personal finances, predicted startup costs, and business expenses, you can select the best option for financing your business.

Are you looking to learn more about financing your venture? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world. If you aren't sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

This post was updated on June 3, 2022. It was originally published on August 4, 2020.

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1. Retained Earnings

2. debt capital, 3. equity capital.

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What Are the Sources of Funding Available for Companies?

Corporations often need to raise external funding or capital in order to expand their businesses into new markets or locations. It also allows them to invest in research & development (R&D) or to fend off the competition. And, while companies do aim to use the profits from ongoing business operations to fund such projects, it is often more favorable to seek external lenders or investors to do so.

Despite all the differences among the thousands of companies in the world across various industry sectors , there are only a few sources of funds available to all firms. Some of the best places to look for funding are retained earnings, debt capital, and equity capital. In this article, we examine each of these sources of capital and what they mean for corporations.

Key Takeaways

• Companies need to raise capital in order to invest in new projects and grow.
• Retained earnings, debt capital, and equity capital are three ways companies can raise capital.
• Using retained earnings means companies don't owe anything but shareholders may expect an increase in profits.
• Companies raise debt capital by borrowing from lenders and by issuing corporate debt in the form of bonds.
• Equity capital, which comes from external investors, costs nothing but has no tax benefits.

Companies generally exist to earn a profit by selling a product or service for more than it costs to produce. This is the most basic source of funds for any company and, hopefully, the primary method that brings in money to the firm. The net income left over after expenses and obligations is known as retained earnings (RE).

Retained earnings are important because they are kept by the company rather than being paid out to shareholders as dividends. Retained earnings increase when companies earn more, which allows them to tap into a higher pool of capital. When companies pay more to shareholders, retained earnings drop.

These funds can be used to invest in projects and grow the business. Retained earnings provide several advantages for businesses. Here's why:

• Using retained earnings means companies don't owe anyone anything.
• They are an inexpensive form of financing . The cost of capital of using retained earnings is what's called the opportunity cost. This is what companies make shareholders give up by not getting dividends. And corporations save on using retained earnings compared to issuing bonds because they aren't obligated to pay interest to bondholders.
• Corporate management can decide to use all or part of the company's earnings to pass on to shareholders. The leadership team can then decide how to use whatever funds to be reinvested back into the company.
• They do not dilute ownership.

But there are cons to using retained earnings to fund projects and fuel corporate growth. For instance:

• Shareholders can lose value even with retained earnings that are reinvested back into the company. That's because there's a chance they won't result in higher profits.
• There is also the argument that using retained earnings is not cost-effective because they don't actually belong to the company. Instead, they belong to shareholders.

Don't owe anyone anything

Inexpensive form of financing

Flexibility to use retained earnings as management desires

Do not dilute ownership

Loss of value for shareholders

Earnings actually belong to shareholders

Companies can borrow money just like individuals—and they do. Using borrowed capital to fund projects and fuel growth isn't uncommon. There are several instances when debt capital comes in handy. for short-term needs. And businesses that are deemed high-growth need a lot of capital and they need it fast. Borrowing money can be done privately through traditional loans through a bank or other lender, or publicly through a debt issue .

Debt capital comes in the form of traditional loans and debt issues. Debt issues are known as corporate bonds . They allow a wide number of investors to become lenders or creditors to the company. Just like consumers, companies can reach out to banks, other financial institutions , and other lenders to access the capital they need. This gives them a leg up because:

• Borrowing money allows a tax deduction on any interest payments made to banks and other lenders.
• Interest costs tend to be less expensive than other sources of capital.
• It can help boost corporate credit scores , which is especially beneficial for new companies.
• Because the funds are borrowed, there is no need to share profits with investors.

But there are downfalls to using debt capital. For instance:

• The main consideration for borrowing money is that the principal and interest must be paid to the lenders or bondholders. This may be problematic when profits are scarce.
• A failure to pay interest or repay the principal can result in default or bankruptcy.

Interest on financing is tax deductible

Interest costs less than other sources of capital

Helps boost credit score

Profit-sharing isn't necessary

Companies are obligated to repay lenders

Failure to repay can result in default or bankruptcy

It may be harder for smaller or troubled businesses to get debt financing when the economy is going through a slowdown.

A company can raise capital by selling off ownership stakes in the form of shares to investors who become stockholders. This is known as equity funding . Private corporations can raise capital by offering equity stakes to family and friends or by going public through an initial public offering (IPO). Public companies can make secondary offerings if they need to raise more capital.

The benefit of this method is:

• There's nothing to repay. That's because this type of financing relies on investors—not creditors .
• It allows companies with poor credit histories to raise money.

Disadvantages of equity capital include:

• Dilution . Equity shareholders also have voting rights , which means that a company forfeits or dilutes some of its control as it sells off more shares. This includes small businesses and startups that bring in venture capitalists to help fund their companies.
• Costs. Equity capital tends to be among the most expensive forms of capital as investors may expect a share in profit.
• There are no tax benefits like the ones offered by debt financing.
• Internal headaches. Bringing in outside financing can lead to increased tension as investors may not agree with management's views of where the company is heading.

No repayment

Don't need a good credit history

Dilution in ownership

Investors expect share of profits

No tax benefits

Possibility of tension between investors and management

How Can Businesses Raise Money From Internal Sources?

One of the main ways that companies can raise money internally is through retained earnings. This is the simplest and easiest way to do so. Retained earnings is a generalized term that refers to any net income that remains after any expenses and obligations are paid off.

What Are the Three Major Sources of Financing?

The three major sources of corporate financing are retained earnings, debt capital, and equity capital. Retained earnings refer to any net income remaining after a company pays off any expenses and obligations. Debt capital is funding that a company raises by borrowing money from lenders through loans or corporate bond offerings. Equity capital is cash that a public company raises or earns by issuing new shares to shareholders on the market. This could be done by selling common or preferred stock.

Is Debt Financing or Equity Financing Better?

Both debt and equity financing can be risky. Debt financing obligates companies to repay creditors. Failure to repay can result in default or bankruptcy. This can affect corporate credit scores. While companies aren't obligated to repay any debts with it, there are no tax benefits associated with equity financing. There's also a risk of dilution of ownership since it involves adding more shareholders to the mix. Investors (new and old) may also expect a share of corporate profits.

In an ideal world, a company would simply obtain all of the money it needed to grow simply by selling goods and services for a profit. But, as the old saying goes, "you have to spend money to make money," and just about every company has to raise funds at some point to develop products and expand into new markets.

When evaluating companies, look at the balance of the major sources of funding. For example, too much debt can get a company into trouble. On the other hand, a company might be missing growth prospects if it doesn't use money it can borrow. Financial analysts and investors often compute the weighted average cost of capital (WACC) to figure out how much a company is paying on its combined sources of financing.

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14 Top sources of funding for businesses

Find out about all the sources of funding available to your business, the advantages and disadvantages of each and which is the right type of funding for you.

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• Sources of funding for small businesses
• Top 23 business funding sources (Debt, equity & alternative)
• Business loans and funding options for UK businesses

Whether you’re looking to start or grow your business, you’re going to need  some form of funding  to get underway. However, figuring out what sources of funding are available to you as a business owner is trickier than you might first think.

Top 23 business funding sources (Debt, equity & alternative)

What is invoice factoring and how does it work, what is invoice discounting and how does it work.

Overall, there are two primary forms of financing available to small businesses: debt and equity. These are both covered here, as well as further types of funding. This guide will help you navigate these different sources of funding , discussing the advantages and disadvantages of each funding option, including the stage of business they suit best.

1. Small business loans

Traditional business loans , provided you can get them at a reasonable rate, are still an excellent way to raise finance for your venture, particularly if you are already generating revenue. Remember that any loan is debt finance which you are obliged to pay back. Carefully review any terms you agree to and, when possible, try to find other forms of finance before you consider taking on any debt.

Startup loans

The  Startup Loans Scheme  is a government stimulus package that gives you access to a low-cost loan. The scheme is an excellent way to fund a new venture or expand an existing small business. The loan also comes with 12-months free mentoring, which is invaluable for new entrepreneurs.

Typically up to £10,000 is available for those starting out and for those looking to expand, this amount goes up to £25,000. The terms are also usually very favourable compared to traditional lenders but be aware that a startup loan is personally owed by the entrepreneur who takes it out, not the company. Many entrepreneurs overlook this aspect, so be sure to read the paperwork thoroughly.

2. Small business grants (Government and private)

The UK government, local authorities and private organisations provide funding and  grant opportunities to small businesses  across the country. These grants are typically available for new companies or existing businesses who are supporting economic growth in a particular area or nationwide, by developing technology in a specific field or helping the disadvantaged.

To be eligible for a small business grant, you must meet the grant-specific criteria. You’ll then need to apply and undergo a vetting process. The main benefit of grant funding is that it’s effectively free money, which you don’t have to pay back.

However, sometimes grants are not the  right funding route for your business . Some have very specific eligibility requirements, and some use a very time-consuming application process. Consider whether you can afford to wast the time it takes to apply for a grant, should you be unsuccessful.

3. Business accelerators

A business accelerator  is a programme offering developing startups a small investment in exchange for equity, along with mentorship ,  office space and  network access  that will enable them to become sustainable and self-sufficient in the long-term. This initiative also provides access to future investors once entrepreneurs have completed the accelerator programme.

Business accelerators can be a great way to grow your startup business. Do note, however, that the failure rate beyond the accelerator programme is exceptionally high; many companies face difficulty transitioning from the high level of support they receive in the programme to complete autonomy.

4. Business overdrafts

Business overdrafts are effectively a super-fast way to set up a loan. When your balance hits zero, you can carry on making payments up to the limit set with your bank, known as the facility.

Having an overdraft facility is a useful option if your business operations include seasonal activities, where you may have short-term cash flow shortages. If your business needs a constant loan function to trade, then these are likely the best solution for you.

Be aware that this type of finance usually comes with higher interest rates than conventional loans. What’s more, many banks charge an overdraft fee on top of interest. The bank may also demand that you pay back the full amount owed at any point, meaning this finance option carries significant risk.

5. Crowdfunding

Crowdfunding  platforms allow you to raise funds from a number of small contributions from many individual investors or purchasers. You can either run an equity-based crowdfunding campaign, where you exchange equity for investment, or a reward-based crowdfunding campaign, where your investors receive perks or rewards in exchange for their capital.

Useful platforms for crowdfunding a project include kickstarter , Seedrs , Crowdcube and IndieGoGo . Crowdfunding doubles as effective marketing, as you’re effectively driving pre-sales to fund your project.

Keep in mind that it usually takes a significant amount of preparation and marketing to create and run a successful crowdfunding campaign. With that in mind, it is an excellent form of alternative finance for small businesses.

6. Business credit cards

Business credits cards  can be a handy source of finance for trading entrepreneurs. Credit card limits can reach £10,000, which is effectively free money provided you pay off the debt within the interest-free period.

If possible, you should avoid using business credit cards to start a business. The interest rates are high with strict repayment periods; APR can exceed 20%, and the interest-free period is typically 30-45 days. If you fail to pay, it is all too easy to get into crippling debt. This can also have a damaging, lasting effect on your company’s credit rating.

That said, if you are a trading business and you need such a facility, it can be a useful alternative to an overdraft as you can pay it off monthly. For temporary, short-term use, it’s a fantastic way to boost your instant purchasing power.

7. Business angels

Business angels  are private investors, typically  former entrepreneurs or wealthy individuals , who invest in startups and small companies in return for an equity stake of usually 10-20%. Business angels are a fantastic way to secure seed money for a project, as they can offer advice, guidance and mentorship through a project.

This type of funding usually ranges from £5,000 to £150,000; the higher end often comes  under SEIS . When taking on an investor, make sure you’re confident that you can establish a good working relationship with them, as you’re going to be in business together for a while. Their stake in the project also dictates an amount of control that they’ll have in the company.

Business angels are advantageous as they are usually willing to take far bigger risks than banks. There’s also no obligation to pay back the invested capital if the venture flops.

8. Invoice finance

If your business is trading and generating revenue, then  invoice finance  is a great way to  improve your cash flow  and raise funding quickly, especially for service companies with long invoice payment terms of 30, 60 or 90 days. Invoice finance means that a third party will buy unpaid invoices owed to your company. They’ll pay you up to 85% of the value immediately and the remainder once the invoice has been paid to them, minus a fee.

Invoice finance is a fantastic way to cover gaps in cash flow, where clients frequently pay late or have extended payment terms. On top of this, many arrangements protect the company from incurring debt if customers don’t pay their invoices.

To secure invoice finance, you’ll need evidence that you generate significant revenue and that customers are usually consistent in paying their invoices. Financiers will want to see detailed accounts before they buy your invoice as debt, so make sure that your finances are in order. It’s also important to note there are two different forms of this type of finance, being invoice discounting and factoring .

9. Venture capital

Venture capitalists  invest huge sums into startups or expanding businesses with tremendous growth potential and traction, typically investing considerably more capital than angel investors. VCs are professional investors, responsible for investing and growing some of the world’s most innovative companies, including Facebook, Spotify and Airbnb.

As with angel investors, there’s no obligation to pay back the investment if your startup fails. Venture capitalists are attractive as they can offer considerable business knowledge, vast sums of capital and often take much higher risks.

With higher risk comes the expectation of a higher reward. VCs will expect considerable returns and will want a clear exit plan, in the form of acquisition or selling shares. These are professional investors, so they’ll want to see a solid business plan and sound accounts.

The type of funding is typically reserved for more developed technology businesses. It’s often more complicated, as such significant sums of money come with more hands-on investors who will want more control over their investment, and therefore within your business.

10. Asset-based lending

Asset-based lending is a form of  asset finance that allows a business to release cash from its existing assets. If you’re struggling to meet loan payments on a particular asset that you already own, you can sell this asset to an asset finance company for a lump sum. You’ll then lease the asset from the provider over an agreed period.

If your business has a range of assets, such as property or vehicles, you can use these items as security, or collateral, to secure a reasonably significant business loan, depending on the value of your assets. This method is known as asset refinancing. Similar to a mortgage, businesses typically undertake asset-based loans by putting up physical assets as security to gain access to a loan from an  asset finance company .

Hire purchase

Hire purchase is another form of asset finance, where companies can spread the cost of a particular asset over an extended period. An asset finance provider agrees to buy the asset for the company outright in return for a deposit, usually 10% of the purchase value. The company must then repay the remaining asset value in regular instalments, with a final payment at the end of the lease period. Following this final payment, the company receives ownership of the asset.

HP is a useful form of funding for companies that don’t have sufficient capital for items that they need. You’ll need to pay for the full value of the asset at its purchase date over time, even if it depreciates in value. Hire purchase assets will appear as an asset on your balance sheet during the lease period and the hire purchase amount will appear as a liability, less any HP payments you’ve already made. For this reason, it’s worth considering whether you need the asset in the long-term: if not, it may be more cost-efficient to use a lease.

Repayment options are usually flexible in terms of amount and frequency when using hire purchase. The payment term is generally between 1 and 5 years long.

Finance Lease

A finance lease is a favourable option for companies that don’t have the capital to purchase necessary assets, where companies only have use of the assets for a limited period. As with hire purchase, a finance provider agrees to purchase an asset. However, instead of paying an upfront fee and paying back the full value of the asset, the company leases the asset over a set period, covering only the value of the asset within that period.

The main difference with hire purchase is that the business will never own the asset. In the case of a finance lease, the asset finance provider intends to sell the asset at the end of the lease period. In some cases, the finance company may offer the business a portion of the sale value of the asset.

A lease is suitable for more substantial assets that your company needs for a limited term. As you don’t technically own the asset, you don’t need to list it on your balance sheet. This means you can offset your rental costs for property or land against your profit, which can be a significant tax benefit.

11. Business competitions

There are a considerable number of business competitions open to SMEs in the UK. Winners can receive ample funding as well as business guidance and support, mentorship and press. The competitions usually offer prizes in the form of a lump finance sum of up to £1 million, depending on the backing organisation.

These competitions typically target startups and early-stage businesses in a particular field. Some are only available to companies in a specific industry or projects with specific aims.

12. Commercial mortgages

If you’re seeking funding for property investment, consider taking out a commercial mortgage. You can borrow up to 75% of the property value, or up to 65% if you’re generating rental income from the property.

Commercial mortgages come with higher interest rates than personal mortgages. They’re considered high-risk: for this reason, a commercial mortgage is a form of secured loan, where the property is collateral. If you’re no longer able to pay your mortgage, you’ll lose ownership of the property to the lender.

Commercial mortgages are more attractive than business loans as they offer lower interest rates, which are tax-deductible. You’re also able to rent out the property to cover the mortgage payments. If your interest rates increase, you can reflect this increase in the rent you charge on the property, too.

Taking out a commercial mortgage can be extremely complicated. Many mortgages require you to put up extra security in the way of other fixed assets. A mortgage broker can help you find a mortgage suitable for your business with the best loan to value ratio (LTV) and ensure that you fully understand all the payment terms.

13. Merchant cash advance

A merchant cash advance is a form of finance where companies can receive funding in exchange for a percentage of their daily credit card income. It’s only available to companies who take the majority of their sales using a card terminal, as the advance amounts are based on card sales. An MCA provider will operate through your card terminal provider and offer you a lump sum advance based on your average monthly sales taken by card.

An MCA is a smart option for seasonal businesses, as they can repay their loan in proportion to the revenue coming in, offering a safety net for companies with fluctuating cash flow. Most providers only consider companies that take an average of £3,500 in card sales per month and have been operating for a minimum of 6 months. The lender will take payment every business day until the loan is paid off.

14. Tax reliefs

An indirect source of business funding comes in the way of tax relief. Reducing your tax bill opens up funds that you can use elsewhere in your business. Tax relief options available to SMEs include the Employment Allowance , which allows eligible employers to reduce their National Insurance liability up to a certain threshold, and the Annual Investment Allowance (AIA), which lets you deduct the value of eligible items off your profits before tax.

Specific tax relief schemes can also help you to secure investment by drawing individual investors to your business. The Seed Enterprise Investment Scheme (SEIS), for example, offers significant tax breaks to investors buying shares in your company. You can typically secure up to £150,000 in funding through SEIS.

On top of these, there are hundreds of privately and publicly funded grant schemes which offer a reduction in tax or cash rewards. Take a look at our list of grants available to small businesses for more information.

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How to Write a Business Plan: Step-by-Step Guide + Examples

Noah Parsons

24 min. read

Updated May 7, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

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How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan
• Templates and examples

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How to Write the Funding Request for Your Business Plan?

Free Startup Fundraising Checklist

• May 7, 2024

Funding requests are one aspect where the “under promise and over deliver” phenomenon might not work.

Set your business valuation too high, and investors might not invest. In contrast, value it too low, and you might end up receiving way less than what you’re truly worth.

Moreover, if I were to invest in your business, I would want to know why you are raising funds and how they will be used.

In short, a well-planned funding request with the purpose of fund-raise and a realistic ask is key to securing funds. You cannot mess up.

Need help writing the funding request for your business plan ? Here’s our quick guide on writing a compelling and realistic funding request to ensure you don’t miss out.

Let’s dive right in.

What is the funding request?

The funding request section of a business plan is an official section for the organizations to ask for new funding. It outlines the amount of funding needed, the purpose of the funds, how they will be used, and in what timeline they will be used (generally for 5 years).

The main goal of a funding request is to secure the necessary capital to start or expand a business, fund a project, or achieve a specific objective.

How to write your business plan funding request

How you write your funding request heavily depends on why you’re raising funds—the purpose. So, before you start writing, be clear about your requirements and the purpose of fundraising.

Your purpose can be hiring new staff, getting the latest equipment, launching a new product, or starting or expanding a business.

Once you do that, you may start working on your funding request; follow these steps:

1. Provide business information

Start by providing a brief overview of your business. I know—you’ve already included all the information in the prior sections, but adding it here would be an opportunity for you to give your investors a little recap.

No, it does not get redundant—It doesn’t have to be. So don’t worry.

Moreover, sometimes, you only need to send the funding request, not the entire business plan. In such cases, such information makes sense and comes in handy.

So, here’s what you will have to explain in the funding request section of your business plan:

• Target Market
• Your business structure like LTD, LLC, or more
• Brief about your product/service
• Partners involved
• Business heir, if there exists.

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2. Present the current financial situation

You might have provided some financial information in the financial section. But, you have to add some figures here anyway. Not only will it be contextual but easier to have a clear picture in one place.

Here are some financial details that you will have to include in this section:

• Quarterly as well as yearly cash inflow and outflow
• Balance sheets
• P&L statement
• Expected financial condition in the upcoming quarter and year
• Include the list of assets and their ownership details if you are asking loan from the bank or applying for any grant
• Break-even point
• If your business is in debt, explain the situation in detail and brief plan for paying it
• Mention how much return on investment can they expect
• In the end, mention how will you pay off the loan or transfer the ownership of the business

3. Announce how much funds you need

When you explain the situation in brief and have all the facts and figures put aside, narrow it down to your requirements. Mention how much money you need.

For that, you will need to calculate your startup costs or the total costs of the activity for which you need funding.

Finally, justify your funding request by explaining how the investment will benefit your organization and contribute to its growth and success.

4. Discuss how you will use the money

Here, you have to narrow down what you need the money for and how you are going to use it. Just list down the details and put the figure for it—so much like how you do your billing. If you are taking the money for multiple things, highlight every detail.

Some examples of various areas where you might use the funding are:

• Product development
• Marketing and advertising
• Operational expenses
• Technological integration

5. Explain current and future financial planning

You must have explained a little about the inflow and outflow in the financial section of a business plan . But over here, you have to get into the details like:

• If you are getting a loan, outline your timelines for payments.
• If you are looking forward to selling, mention how it will affect the investors.
• And then, finally, mention the exit strategy. Your exit strategy includes how you will transfer the business ownership.

Key points to remember

As we now know what to include in the funding request, let’s see certain points that you need to keep in mind while writing it:

Target audience’s perspective . Applying for a loan is different from approaching an investor. Each of these situations involves different contract terms, types of funding, or amounts of money.

Clarity . Clearly explain with numbers how much funding is required, why you need it, and where you will use it. Also, keep your language for funding requests simple so that everyone can understand.

Realistic financial projections . Provide realistic financial projections so investors can feel confident about your business and trust you with an investment.

Call-to-action . Include a clear call-to-action that encourages investors to take the next steps, whether that’s scheduling a meeting or making an investment.

These may seem like simple tips, but they can help you write a strong funding request that gets investors interested in your business.

As a wrap-up, writing a compelling funding request requires a strategic approach and attention to detail. So, being carefully and include realistic projections.

If you are still confused about writing a funding request, you can leverage business planning software and make your business plan investment-ready.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

Do i need a business plan to get funding.

Yes, a business plan is necessary for securing funding for a business. It allows investors and lenders to grasp the company’s vision and mission. A well-thought-out business plan increases your chances of securing funding.

How do I determine the amount of funding to request?

To determine the amount of funding, you will need to assess your organization’s startup costs, forecast cash flow, and consider growth plans.

Taking the help of an AI business plan generator or a financial advisor can help you determine a realistic funding amount based on your business’s needs and goals.

Do I need financial projections in my funding request?

Yes, including financial projections in a funding request is important. It provides potential investors or lenders with a clearer understanding of your finances. Usually, you should add a crux of your finances for at least three years.

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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Knowledge Base Fundraising

• Knowledge Base
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• Funding Sources

12 Funding Sources for Businesses and Startups

Table of content, introduction, bootstrapping, family, friends, and fools funding (3fs), crowdfunding, angel investors, startup grants for small businesses, family offices, the investment criteria of venture capital firms, what startups need to know about vcs, why do corporates set up their own corporate venture funds, how does corporate venture investing work, what are examples of corporate venture capital, what is private equity, what are the types of private equity, what are typical investment criteria of private equity investors, how do private equity investors exit, what do startups need to know about private equity, dex offerings, equipment leasing, bank lending criteria, startups and bank lending criteria, ways to obtain bank financing for startups, the pros and cons of the different investor types for startups.

There are many occasions when businesses require funding,  especially for new businesses such as startups, who will have to identify suitable funding sources. In principle, there are two main startup funding types: Self-funded and funded by third parties such as investors or banks. However, this view falls short of capturing the many nuances in how startups get funding. Often, leaders will have to become creative to organize the capital they need to grow their businesses. This article goes beyond traditional financing sources and will explain 12 potential funding sources for businesses and startups. Of course, not all of them will be suitable for any startup but there are many times more potential funding sources available than just the obvious ones. The task here is to open the eyes towards all potential alternatives to obtain funding sources for Startups to start a new business.

When we look for Bootstrapping meaning, we can define it as starting a new business with little to no capital and reinvesting first profits into the business to grow it. As such, Startups who use bootstrapping do not take on external financing sources and rely on their means to achieve growth. Bootstrapping puts the entrepreneurs in a very tough spot as such startups typically are cash-strapped, and they have to turn every penny carefully before spending it. The good thing is, this incentivizes the entrepreneurs to find innovative and cost-effective solutions because such is needed to survive. Another plus is that bootstrapped businesses are not dependent on external financing providers. Therefore the founder will remain in complete control of their Startup.

A famous bootstrapping example is Mailchimp , a side-business founded in 2001, which 20 years later resulted in the largest bootstrap exit ever with the sale to Intuit of $12 Billion in November 2021. This example shows that especially in industries that do not require a lot of capital and rather rely on the know-how and talents of the founders, bootstrapping can be a very successful strategy and means to get funding for startups. As seen in this bootstrapping example, it is inherently complex, costly, and requires a lot of time. Therefore in many cases, like this bootstrapping example, it is a more suitable option when started as a side business first.

Another aspect of bootstrapping meaning requires a business concept that is profitable from the start. Growth is slower as the financial resources are much limited to the profits obtained, which means time and patience are required to grow the business. Compared to using third-party financing, bootstrapped businesses usually grow slower. Founders need to be ready with a lot of cash flow with bootstrapping, meaning they need to prepare funds to allocate properly before they execute their startup.

When considering external financing sources, most startups face the main problem of nobody knowing or trusting the founders since there is zero credibility at the beginning. As they don’t have any credibility, the potential circle of potentially interested investors will be limited. One way to enhance credibility is to take on first investors.

The first natural step to obtain funding for a startup will generally be to check with Family, Friends, and Fools Funding called the 3 Fs, and ask them for funding. The main advantage here is that Family and Friends know the founders already and are ready to trust them. Family and Friends might not be sophisticated investors. In reality, they are not investing in the business idea itself; they are investing in the founder(s) because they like and wish to support them. One famous example of taking on the family as investors are Jeff Bezos’s parents, who invested in Amazon early on. That investment was very successful as Amazon became one of today’s most valuable companies.

One main topic of taking on family and friends as investors are personal and business affairs. Especially if a startup should not be successful and loses its funds, this can lead to ugly conflicts and disputes. Friendships quickly can end over such things. Therefore, the actual cost is the risk of losing those friendships.

The Fools are another investor category because they usually are the people the founders get to know when they start pitching their idea. Significantly investing in Startups in the Seed stage is inherently risky since many variables are in motion, ranging from the quality of the startup business idea, the founders’ commitment, the ability to execute, and the flexibility to adjust a business plan as needed. So, any reasonable person would have a large number of reasons why not to invest. Therefore, only the fools will be left to invest at the very early stage. Nevertheless, fools are very valuable as they are the followers who can bring an idea to life. The bottom line is that this investor category strongly believes in the founders for personal reasons. Family, Friends, and Fools Funding (3Fs) are the most accessible investors to deal with.

Crowdfunding is another option that Startups can consider to get funding for startups . The main idea here is to offer an alternative way of getting financing by using a pool of interested investors. There are different participation schemes how crowdfunding can work in principle:

Raising equity and debt from a large pool of private investors usually is subject to applicable capital market laws to protect those investors. These laws add a lot of administration and compliance requirements to the process or even can be prohibited in certain countries. Therefore, these two participation schemes are more difficult to implement and less common.

What has become quite common on today’s Crowdfunding marketplaces is raising funding to develop or produce new products. These are usually new and innovative products that today are not yet available on the market. Creative entrepreneurs have developed concepts, designs, prototypes and need funding to bring those projects to life. Funding products also lower the ticket items, so that investment can turn into a purchase for a $100 product. The advantage here is that investors become customers in exchange for the funding raised, and they receive a product in exchange. Surprisingly, many people are ready to support the innovative ideas of creators as they like to stay at the forefront of the latest technologies and products. For the entrepreneurs, there are two main advantages to raising funding via a product-based crowdfunding approach:

• No Equity: Entrepreneurs do not have to give away their shares and equity in the company. They avoid becoming diluted.
• Attracting Customers: They can build up an audience and first customer base. Building audiences can be very helpful for the marketing of such products.

Another variation of crowdfunding is to use a donation approach. Donating is a bit vaguer and may be more suitable for artists or concepts with a less precise output definition.

For getting a Startup off the ground, it can be a good idea to start with launching a new product. Famous Crowdfunding platforms are Kickstarter ,  Indiegogo , and GoFundme , among many others.

What Are Angel investors? Angel investors – or business angels – are private individuals, often wealthy and many times possess an entrepreneurial background. They usually possess a higher risk tolerance than other investors as they are more familiar with the entrepreneurial journey and the typical pitfalls. They invest either for personal reasons, like the excitement of being part of innovative ideas, witnessing entrepreneurial journeys, or targeting abnormal returns in exchange for participating in higher-risk investments.

Angel investors typically provide funding for startups in their early stages and therefore face

high-risk plays. Angel investing is demanding as every investment comes with a lot of risk and many unknowns. Therefore, the experience and investment know-how make an angel investor successful.

How much can an angel investor invest in a startup? The calculation goes like this. Investing in Startups is inherently risky. Therefore, an angel investor can only invest a small part of his net worth in startups, estimated maybe 5% to 10% as an example. They can expect only 1 out of 10 startups to succeed, as a rule of thumb. The others might fail in the worst case.

Furthermore, a startup might need additional funding rounds in the future, so an angel investor might also want to reserve some of his capital for an add-on investment to avoid becoming diluted. Let’s say an angel investor has a net worth of $ 100 Million. How much can he invest in a single Startup?

• Net worth $100 Million
• Only 5% of the Net Worth to be invested in a portfolio of Startups: $ 5 Million
• 40% of Funds ($2 Million) will be reserved for future financing rounds, 60% to be invested in new startups ($3 Million)
• The Business Angel targets to invest in a diversified portfolio of 20 Startups
• $3 Million divided by 20 is $150,000, which the business angel can invest in a single Startup

This calculation shows how a business angel might tick and how he calculates the size of a possible investment ticket ($150,000). The calculation also means that many times a Startup will have to approach several business angels as the required funding many times will exceed the financial means of a single angel investor.

Therefore, many times, angel investors will team up with other business angels in so-called business angel clubs. Apart from the social and networking aspects, the advantage here is the sharing of deal flow, research, opinions, and know-how become easier. Furthermore, it is a more practical thing to do since a Startup will have to find multiple angel investors anyway. Sharing know-how, opinions, and research about startups with fellow other angel investors make the whole investment process easier for Angel Investors.

The Bottom line is that securing Angel investors are an attractive option for Startups. To add to what are angel investors, are individuals also driven by emotion, are ready to invest early on, and usually are entrepreneurs themselves to best understand the situation of the founders and the Startup. The downside is that ticket sizes might be small, and it might require taking several Angel investors to reach the desired funding level.

Another funding source many times are available is Startup grants for small businesses. The main benefit is that a grant does not need to be paid back. Grants usually are available from endowment funds, governments, or other organizations seeking to support a particular purpose. Therefore, using a grant requires typically strict compliance with the grant’s criteria and reporting requirements to ensure the funds are spent in an intended manner.

As grants are not profit-oriented, they usually do not use bank-like lending criteria and can be easier to obtain. One advantage is that grants can already be available in the early phase of a startup, the seed phase. Another advantage is that a grant is a “gift” that does not need to be paid back and will not dilute the equity ownership of the startup’s founders.

Therefore, if startups can access a grant and comply with the grant requirements, a startup business should use the available grant funding options.

We can differentiate startup grants by the party that provides them. Here is a list of where to look for grants from which parties:

• Government Grants : Governments often offer grants to support projects that provide certain desired benefits to the public. There are government grants available at the federal, state, or community level, not in the US but also other countries. Examples of such grants are to support the development of new technologies leading to cleaner air, less pollution, solving traffic problems, increasing the water quality, or reforestation. We can find examples of such grants grants.gov , Small Business Innovation Research (SBIR) ,  FONAFIFO , among many others.
• Cryptocurrency Grants: These are grants provided by promoting specific crypto-currencies aiming to develop the ecosystems of their currencies with more apps and use cases. Here the aim is to increase demand for the parent cryptocurrency and make the ecosystem more attractive. Many major blockchains have their grants as they need to incentivize developers to develop apps with more use cases for their ecosystems.  They also seek to increase demand and market adoption for the leading cryptocurrency. Such grants can drive significant value to blockchains, e.g., Ethereum, Cardano, Algorand, Chainlink, etc. There are many examples such as the Web3.0 Foundation , Chainlink Grants to develop integrations and applications for Chainlink, ETHPrize . which supports projects to make Ethereum better, Algo Grants , which is focused on developing projects for Algorand, among many more.  
• Corporate Grants: There are also grants available from more giant corporations., E.g. FedEx Small Business Grants , Walmart Local Community Grants among others.
• Private Endowment Funds: There are also grants to available from private endowments funds to support specific purposes, e.g., AmberGrants seeks to support Women, various Scholarship funds to support students, and many more.

Using startup grants for small businesses can be very attractive for startups or small or medium-sized businesses. Startup Grants for small businesses are definitively something that needs to be checked.

Another investor type potentially interested in investing in a Startup is a family office. Family offices are – same as business angels – are private individuals or members of a family who need to manage their wealth and systematically protect their interests. The origins of a family office typically date back to a successful entrepreneur. As parents may have several kids, the family grows over a generation, and the individual member’s interest could potentially conflict with the interests of the business they own. Some family members might want to sell; others want to run a company. Many times, the goal of the family office is to put in place family rules on how to keep and manage the wealth and ensure they can transfer wealth to the next generation to protect the legacy of the founder.

We differentiate between two types of family offices:

• Multi-Family Office
• Single Family Office

A multi-family office is a team of investment professionals that manages and invests the capital of several families. These usually are smaller fortunes, therefore require only a minor investment team, and there is a cost advantage when sharing the office expenses with other families.

Single Family Office is typically a more exclusive service and used by families with a more considerable net worth who can afford a dedicated team of investment professionals.

Sometimes, the wealth management tasks are not purely return-oriented but go into philanthropy. A family office may or may not decide to set up a set of investment criteria that defines in which asset classes how much of the wealth can be invested.

The main characteristics of family offices are that financial decisions are not purely rational but also consider other objectives. Some family offices might be interested in investing in a Startup, while others might not. Family offices are approached frequently for funding. Therefore they usually keep a low profile and rely on a trusted network of advisors and partners for deal-flow.

The main difference between a Family Office investor and a Venture Capital investor is that family office investors usually are not exit-driven. They follow a long-term investment strategy to build wealth over generation and do not need to chase short-term returns. Securing such a long-term investor typically makes the life of a Startup much more accessible than dealing with an exit-driven investor such as a Venture Capital firm. However, family offices willing to invest in Startups are challenging to identify, and usually, only a few of them will invest directly in Startups.

Venture Capital

Venture capital (VC) investors are a particular type of private equity that focuses on investing in startups instead of in established businesses. Same as Private Equity Funds, Venture Capital firms normally create investment funds funded by Limited Partners (LPs), which they manage as a General Partner (GP). Such a fund typically lasts 7-10 years and includes a performance scheme to reward the General Partner for outstanding financial returns. Important to note here is that the realization of financial returns will require an exit event where the VCs can sell the startup so that the VC can realize a financial return. Return expectations typically range between 20% – 35% Internal Rate of Return on the invested capital by the fund.

Venture capital firms are set up following an institutional organization. Normally, the investment criteria will be defined upfront. Here is an example:

• Investment ticket USD           $500,000 – $2,000,000 per Startup
• Minimum Equity Stake:          Minority Stakes, starting as of 5%
• Industry:                                 eCommerce, SaaS, Marketplaces, Social Networks
• Stage:                                      Series A, B, C
• Team:                                      Qualified Management Team
• Product Stage:                        First Traction
• Target IRR:                             35%
• Exit route:                               Trade sale or IPO within 5-7 years

A venture capital fund typically targets a fund size north of $10 Million up to even billions of Dollars and will seek to invest in a diversified portfolio of Startups. Some of these startups will succeed, while others might fail. Therefore, the returns of the successful ones need to cover the costs of the failed investments. The goal is to invest the funds within 3-4 years as per pre-agreed criteria in promising Startups, which VCs can exit again within 7-10 years. Upon successful exit, the funds will be returned to the Limited Partner investors.

For startups, it is essential to understand that Venture Capitalists are exit-driven and need to create superior returns. They intend to invest in high-growth startups, leading to a successful exit at a much higher valuation. Therefore, VCs are under pressure to deliver those high returns to satisfy the financial performance promises they make to their Limited Partners. Therefore, Venture capitalists usually look at investing in Startups from a purely financial perspective. They will also base their investment decision on whether the expected Internal Rate of Return (IRR) of their investment case meets their minimum return targets or not.

The implications for Startups are that they need to be aware of this and prepare thoroughly for a discussion with VCs. The best is if Startups prepare their business and financial plans to show VCs how they generate their return, making funding discussions easier and showing the VC that the startup founders understand their situation.

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VCs are professional investors who possess significant know-how and experience investing in Startups. In exchange, they might expect significant shareholder participation and protection rights and are exit-driven. Startups will need to meet the predefined investment criteria set out by the VC firm.

Corporate Venture Funds

A Special type of Venture Capital is Corporate Venture Funds. Here a giant corporation reserves its funds to be invested in Startups, commonly in minority stakes. The approach is pretty similar to Venture Capital; each deal targets a financial return, but on top of that, a Corporate Venture Fund may add additional investment criteria as per the parent company’s goals.

The primary motivation for giant corporations to set up separate Corporate Venture Funds is to obtain access to the following, which otherwise is not available within the larger organization itself. Here is a list of the motivations why a large corporation would be interested in investing in risky startups:

• Access to Innovation,
• New markets
• New customers
• New technologies
• New processes
• Talented People

These are all problematic items to acquire once a sizeable multinational company reaches a specific size and operates as standardized processes. Putting Startups into such a large corporate setup often kills their initiatives, and they get burdened with paperwork, compliance, and reporting requirements. The solution to this problem is to offer Startups a particular vehicle through which a giant corporation can participate until a Startup is mature and could be better integrated into the structure of a giant corporation.

An additional aspect is that typically there is a lot of industry know-how inside a large corporation. Therefore, this can significantly reduce the risk of investing in specific industries since the team of the Corporate Venture Fund is more familiar with the industry and even contribute with their know-how to the businesses of Startups.

For Startups, there is a benefit as well as it will be much easier to interact with the team of a separate Corporate Venture Fund where they receive better attention and are viewed as a priority.

Corporate Venture funds typically aim to participate through a minority stake. Investment criteria may be very similar to those of a Venture Capital investor. Still, they usually come with tweaks as the giant corporation seeks to achieve its own goals. Investment criteria should specify the following aspects:

• Minimum Investment ticket size
• Minimum Equity Stake
• Industries of Interest
• Team requirements
• Minimum target Internal Rate of Return (IRR)

It is important to note here that Corporate Venture Capital will require an attractive financial return, simply as they carry many risks that need to be compensated. They will also require an exit event – or if a startup is booming – many times will offer to invest additional capital to grow it further. In some cases, the parent corporate might also be interested in fully acquiring the startup later. However, this should typically not be the base case scenario upon which an investment decision is made, simply as there are too many unknowns yet, and things typically do change over time.

Today’s examples of Corporate Venture Funds include Corporate Venture Funds such as Intel Ventures , NOVA by St. Gobain , Googles Corporate Venture Funds GV , CapitalG , Gradient Ventures , Danone Ventures , among many others. Corporate Venture Investing has been done nearly since the industrialized age. One famous example is Du Pont which invested already 1914 in General Motors, which could accelerate its growth in the automotive industry. Apart from the financial returns, DuPont created a new customer as demands for its products increased, creating an actual win-win situation.

When looking for Venture Capital, Startups usually go hand in hand to also approach Corporate Venture Funds as they operate very similar to normal VCs. It can be much better to partner with a Corporate Venture Fund in some cases. They usually possess a lot of industry know-how that otherwise is not accessible to a startup and might be willing to invest in earlier stages than a VC. Apart from this, Corporate Venture Funds typically also have other motivations to invest in startups rather than pure financial returns, making the discussion easier. They also require a fit with their investment criteria and may expect significant shareholder participation and protection rights.

Private Equity

Private Equity (PE) firms invest equity capital into private businesses. They are considered an alternative Asset Class towards investing in the stock market. Therefore, the businesses that Private Equity firms are investing in are not publicly quoted and are quite attractive for institutional investors. The presence of non-publicly quoted firms allows them to diversify their portfolios better and benefit from typically higher returns than what can be achieved on the stock market (at least, this would be the idea). This investing is called “Private” Equity or abbreviated PE.

Private Equity is the parent category of venture capital. A General Partner puts an investment fund together and takes on Limited Partners, which generally invest in the fund for a commitment period of 7-10 years. The General Partner is responsible for selecting and managing the investment opportunities until exit. The General Partner usually will receive an annual management fee (ca. 1% – 2% of the Funds under management) and a performance fee that depends on the actual financial success achieved upon exit. Like Venture Capital firms, Private Equity investors will also seek to exit their investments within 3-7 years as they will need to pay back the funds to their Limited Partner investors.

Private Equity funds are profit-oriented investment vehicles that usually will target a 20% IRR by investing in mature, stable businesses that can take on financial debt to improve their returns.

Investing in private businesses is inherently risky as there is no easy way to sell the investment in case of need. Investments are illiquid, and the Private Equity firm will be stuck with the invested business until it can be sold, generally through a private trade sale. Therefore, the Private Equity fund manager (the General Partner) is crucial for the firm’s success. Private Equity Management teams typically consist of experienced industry veterans who possess years of investment and industry know-how. Private Equity firms usually will have to prefer industries they are comfortable investing in, which their investment criteria will reflect. In addition, they will seek to structure their deals in a manner that gives them more control about their exit and will demand investor participation rights to protect their investment. There is a range of sophisticated strategies applied to protect their investment.

The Private Equity investment category comes in different flavors and has several subclasses of Private Equity investor types. Here we list the main ones:

• Distressed/Turnaround: These are Private Equity investors specializing in distressed opportunities. These usually are firms going through a bankruptcy process and are looking for a white knight. Such opportunities come very cheaply, but they require some investment and specialized know-how to turn them around, as this is one of the riskiest investment categories of Private Equity firms but potentially can lead to a lot of upsides. There are many cases, e.g., in the automotive supplier industry, where Private Equity investors picked up distressed companies and turned them around, including successful exit.
• Succession (Management Buy-In): These are investments in owner-led firms and where the current owner has no successor and seeks to retire. With no successor, the Private Equity firm will have to bring in a new management team to manage the company. Offering such succession solutions adds quite a lot of value as many times it is not easy to find a qualified new owner. Private Equity firms specialized in succession solutions can offer an attractive alternative here.
• Management Buy-Out (MBO): This type of Private Equity investment seeks to work together with an already existing management team of a private company that feels that their current owners either limit them or cannot support them in their further growth. So, the management team will look to partner with a Private Equity firm. The management team will bring the know-how, while the PE will bring the capital.
• Leveraged Buy-Out (LBO): This investing focuses on acquiring businesses with stable cash flows entitled to receive a high amount of debt financing. This process is called leveraging: The company’s cash flows are used to pay for its acquisition, minimizing the required equity investment and leading to quite attractive returns. However, in this form of investing, there is an additional risk to be considered, the risk of defaulting on the debt payment. LBOs can be combined with other forms of private equity investing whenever the use of debt exceeds the average level.
• Real Estate: Some private equity funds will invest in real estate, e.g., commercial and/or residential real estate assets. Real Estate is considered a particular form of private equity investing as here the topic is managing a building and not a company anymore.
• Venture Capital: As mentioned before, Venture Capital is a unique form of Private Equity investing which specifically targets investing in Startups or new Ventures. Venture Capital comes with additional risk and requires unique know-how to manage this type of risk.
• Fund of Funds: Fund of funds investing means that this type of Private Equity investor will seek to invest in other Private Equity funds. The idea here is that only select Private Equity investors can deliver exceptional returns, and the selection of Private Equity funds is critical. Therefore, outsourcing fund of funds investment to a specialized team familiar with analyzing Private Equity funds. The downside here is an additional fee layer introduced, making this more expensive.
• Buy and Hold: This would be another form of Private Equity investing mentioned here. In this case, investors would agree not to seek an immediate exit but rather stay invested over a an extended period. Vehicles like this typically will get listed on a stock exchange so that the limited partners can exit beforehand while allowing new investors to come in at any time.

So as you can see their many sub-types of Private Equity investors might be worth it for businesses seeking investors to know about those.

The goal of Private Equity firms is to generate attractive returns, as reflected in the selection of suitable investment opportunities which need to meet specific criteria:

• Target Company Size
• Business Situation
• Qualified Management Team

Please note, in contrast to Venture Capital, Private Equity Funds typically target to obtain a significant minority stake with investor participation rights (e.g., 33%) or even a controlling stake (>51%). The reason is that they will need more control over their exit and, in many cases, will be the only investor, also as there are no additional funding rounds are expected. The other aspect is that it takes the same amount of work to do the due diligence for one business to be invested in, and the rewards are immense when investing a larger ticket size.

Private Equity firms typically need to clarify their likely exit routes before investing in a new firm. They will need comfort that at least one of these following exit routes will be realistic:

• Trade Sale: Refers to the sale of the company to a new owner.
• IPO: Refers to the listing of the company on a stock exchange, whereas the stock, later on, can be sold
• Leveraged Refinancing: In this case, there is no actual exit. The Private Equity firm will seek to obtain additional debt financing (leverage) from a bank and use those proceeds to pay out an extraordinary dividend.

It is essential to know that the typical Private Equity investor will not even invest in startups. Only specialized types of funds or Private Equity funds targeting certain situations can offer a viable funding solution. Therefore, it is worthwhile to ask for and carefully analyze the investment criteria of the Private Equity fund.

Another essential topic to analyze is the amount of debt financing a Private Equity firm plans to use. Taking on debt on a company’s balance sheet requires service later on. Servicing debt draws funds away from the free cash flows that otherwise can be invested in new growth initiatives. Using high amounts of debt financing will put a lot of pressure on the company to service that debt.

Private Equity investors also are exit-driven which raises the question of who will become the following company’s owner. Choosing the successor leaves significant power in the hands of the Private Equity investors. Any business or startup looking to raise funds from these funding sources for a startup might want to include such considerations when selecting suitable investors.

Overall Private Equity firms are professional investors who typically possess significant investment know-how and experience. However, only very few Private Equity firms will invest in a startup.

A new alternative to startup funding has been developed in the cryptocurrency space. DEX refers to “ decentralized exchange ”, which are automatic market makers such as Uniswap , Sushi Swap , PancakeSwap , TraderJoe , and many more in development. It works here is that a new cryptocurrency creates its digital coins or tokens and lists them on decentralized exchanges. The main idea here is to make those coins liquid upon issuance to be traded as digital tokens and allow investors the flexibility to sell them provided there is sufficient liquidity in the market.

The initial listing process is called initial dex offering (IDO), where typically, investors need to apply and fulfill specific criteria to get whitelisted and benefit from attractive entry prices. The initial Dex Offering is similar to crowdfunding because there need to be many investors, and their money needs to be pooled together to create a new cryptocurrency. Ideally, the funds raised will go to the project, but many times will end up in the hands of the founders.

DEX offerings have a reputation for being pump and dump schemes. Typically, upon offering, the price pumps, and then when it goes up, the investors take profit, and the price dumps again. Sophisticated marketing campaigns commonly accompany Dex Offerings via Social Media, which aim to create hype to manipulate the price, and many times there is suspicion of insider trading.

There is also a question about regulatory compliance with current security laws pending, as many of these cryptocurrencies potentially fulfill the securities criteria. Therefore such DEX offerings would be subject to the applicable local security laws. Currently, many projects simply are ignoring these questions as this is a bit of a grey space at the moment. Furthermore, regulators have not followed up on many of these cryptocurrency projects and left it to the market to decide. We can expect that more clarity will become available in the following years on how regulators will treat these kinds of projects.

Raising Startup funding via an initial DEX offering might not be a suitable alternative for many startups and appears to be more of an option for those with projects in the cryptocurrency space that will provide utility. There is also a pending question if such an offering might not violate local security laws.

Another kind of funding source for startups to consider is Equipment Suppliers. Many times, equipment suppliers selling Trucks, Agriculture Equipment, Injection Molding Machines, or other types of Equipment will offer two possibilities to purchase the equipment:

The outright purchase option is the traditional way of paying for the equipment by cash. The alternative is if the equipment supplier can offer a leasing arrangement. The way it works is that the equipment can be paid in installments during a leasing period of typically 2-7 years (depending on the type of equipment). In this case, the equipment supplier will carry the risk if a startup cannot pay.

The equipment supplier can carry such risk because they know their equipment very well, and if something goes wrong could take the machinery back and sell it to somebody else. Often there will be a second-hand market for such machinery, and the equipment supplier has access to a pool of alternative buyers if needed. In addition, this can be a very lucrative business opportunity for an equipment supplier. The startup will often be obliged also to purchase the maintenance service and a service level agreement from the equipment supplier, leading to stable revenues. Many times, equipment suppliers have relationships with financing providers themselves so that leased equipment can be re-financed in a back-to-back agreement with a bank or a specialized leasing financing firm. In addition, the equipment suppliers can adjust the equipment price for the risk reflected by an interest rate included when calculating the monthly or quarterly leasing rates. The adjustments can lead to higher profit margins than a cash sale. So overall, offering equipment financing can be an appealing additional business opportunity for an equipment supplier.

However, this still requires that the startup passes the due diligence of the equipment supplier. Possible due diligence criteria for equipment leasing might be the following ones:

• Evidence of a source of revenue (e.g., a contract for producing certain parts which would require the use of the machinery)
• Know-how and ability of the lender to operate the machines
• Financial projections can demonstrate that the startup will have the financial ability to service the lease as per the agreed period (typically 2-7 years leasing period)

For equipment leasing or financing, the machinery will remain in possession of the equipment supplier until the end of the leasing period. The startup can often buy machinery at a remaining pre-agreed price.

Equipment leasing will only be feasible for a particular type of startup. The typical characteristics are the following ones:

• The Prospect of Revenues – Startup facing prospects or even have secured their first revenues (e.g., via an off-take agreement)
• Standard Equipment could also be used by another company when sold in a secondary market. Equipment leasing typically wouldn’t work if the startup requires specific equipment with many complex customizations that this startup can only use.
• Knowledgeable Workforce with the ability to operate the equipment
• Immediate start of production with all prior development work already done and the machinery can be put in place and will start operating from day one onward.

So overall, using equipment financing can be an attractive additional funding source for a startup. Leasing costs are typically cheaper than having offered an equity stake, so it’s a cheaper form of financing than equity capital. The downside is that servicing the leases reduces free cash flows, and equipment financing is not available for every type of equipment.

Bank Financing

The last funding option for startups we consider in this article is bank financing. Bank Financing is usually a very challenging source of funding compared to all other startup funding types as startups do not precisely meet the preferred lending criteria many banks will use. Here is a reminder of what kind of standard lending criteria banks typically have:

• Established business model
• Track-record with many years of profitability
• Business plan available which clearly outlines how to service a loan
• Stable cash flows and profits
• Available Assets which can be used as collateral
• Availability of equity financing which can absorb risk

As you can see in the list above, startups usually have difficulties meeting those criteria.

• Startups typically do not have an established business model. They are in the process of launching a product or service to the market and will first require validation and traction. Therefore, there is always a risk that insufficient demand for such a type of service or product in the market.
• There is no historical track record or evidence of profitability.
• Startups usually will prepare a business plan. Here the question is how credible this business plan will be, which typically depends on the team’s profiles, their track record, and how well prepared the business plan and feasibility study will be. However, even the best business plan alone might not be sufficient to meet the bank’s lending criteria.
• Startups typically do not yet have businesses with stable profits and cash flows. Often, first profits will need to be reinvested to grow the business further. Paying interest on a loan can be a real obstacle to achieving such growth as the cash will be diverted away from funding growth initiatives to servicing a loan.
• Assets that often serve as collateral are rare or non-existent. Therefore, many times startups simply won’t have sufficient collateral to offer to a bank.
• Many times, equity financing for startups will need to cover the initial costs to set up the business and cover operating losses at the beginning. So available equity financing might disappear quite quickly or even become negative in the case of loss-making startups.

As you can see, startups typically will have a tough time satisfying the lending criteria of bank financing providers. Now the question is, are there ways to overcome these obstacles?

Let’s consider some examples of exceptional cases where startups can obtain bank financing.

• Properties / Mortgages: When buying a property, the property has value and serves as collateral. Therefore, banks might accept offering a mortgage to a startup when a startup will purchase a tangble property. Furthermore, banks also can set a Loan-to-Value (LTV) ratio typically in the range of 65% (commercial properties) to 80% (residential properties) to a lower limit if they deem the risk to be higher. If  something goes wrong, the bank can claim the property in a foreclosure process and auction it off on the market to recover its money.
• Guarantees from credible third parties: The prominent problem startups face their lack of credibility and track record. For this reason, banks typically avoid this risk. However, it will be a different story if credible third-party steps in here and guarantee this risk. An example would be Loan Guarantee Funds from IFAD or public guarantees for bank lending in response to the Covid pandemic. Please note that every guarantee provider will have additional criteria a startup needs to meet and will do his due diligence on top of this.
• Guarantees from a parent company: If a startup is owned or invested by an already established company with a solid relationship and track record with bank financing, it would also be possible that such an investor could provide a guarantee to the startup to cover an eventual loss. Typically, the way to go here is to first negotiate with the investor and introduce the idea of providing an additional guarantee to obtain bank financing (a so-called recourse loan). However, not all investors will accept this as this will add up to their risk. Investors  will only do this if they strongly believe in the startup or have additional motives to require a product for themselves. For the investors, this can be super risky.

As you can see there sometimes exist creative ways to obtain bank financing by a startup. However, this will typically require meeting additional criteria, and the funding process becomes more complex. In addition, the consequence is also that there will be more reporting work to be done as every lender will ask for regular updates, and typically will want to be kept in the loop. The number of stakeholders in the company will increase which will absorb more time by the company’s founders – time which otherwise could be spent on developing the business. For the startup, this means spending more time on admin and paperwork and having to service the debt will also eat up a significant part of the cash flows early on. For these reasons, it can be a bad idea to fund startups with debt and should only be considered a last resort.

Overall, many times bank financing will not be available for a Startup. If it should be available, using debt financing from a bank typically is much cheaper than using equity financing.

Conclusion: Available Funding Sources for business depend on the Type of Startup

In this article, we have reviewed 12 potential funding sources for Startups. With some creativity, the point here is that there are many more funding sources for business available than just using venture capital. Each startup might want to carefully analyze its situation and seek all available financing options from this list as the availability of funding sources for business strongly depend on the type of Startup.

Below we have listed the pros and cons for each startup funding type to consider for startups and small businesses.

Unlike other funding sources, bootstrapping doesn’t need to be externally sourced but is actually from the savings of the investors. The problem with bootstrapping is that the risks are solely shouldered by the founders. It might be faster to use other funding sources vs bootstrapping, meaning that patience will be required and profits, if any, would need to be reinvested to continue to grow the company. While it is convenient to borrow from family, friends, and fools, it is not wise to take their belief in the founders for granted. Since they are also part of the founders’ professional circle, personal relationships may also be affected when things do not go so well for the startup. If you’re up for large-scale reporting to many customers, you can also opt for crowdfunding. Crowdfunding is appealing to individuals who are willing to fund your inventory so that you can create the product you are offering. To answer what are angel investors, while they may invest in you early, Angel investors alone aren’t enough to fund startups. The founders need the support of other funding sources of startups to jumpstart their business idea. The Good thing about angel investors is that they are also entrepreneurs, and they may be as enterprising as the founders, if not more.

For free investments, the founders can apply for startup grants, which are too specific in terms of criteria. Startup grants are also strict with requirements since grants are given to further a cause that is aligned to the entities that give the grant. Another type of funding source is the family offices. While they’re not as common, it would be very beneficial to the founders to get a family office on board. Family offices are not exit-driven, which means that they will hold on to their investments for a very long time. They are very conservative investors, though, so it would be difficult to get them to invest in a startup.

For professional investors, we have 3 kinds, first, is the most popular called venture capital. Venture capital is professionals investing in startups and they also guide the founders. The problem with venture capital firms is that they are exit-driven, and they would want a bigger piece of the pie because they believe in the value they bring to the table. The same is true with corporate venture funds, the only difference is that corporate venture funds also look at the alignment of direction between the startup and the corporation planning to invest. Lastly, we have private equity firms. Private equity firms are relatively conservative, and might not invest in startups because of the nature of startups.

While cryptocurrency is a fledgling industry, we can also consider the IDO or the Initial DEX offering as another form of funding for startups. DEX is short for decentralized exchange, and while it would also be suitable for cryptocurrency projects, IDOs can easily accumulate funds through marketing and online channels. Current problems include regulatory requirements and that this can only be used by cryptocurrency projects.

Another form of funding is from equipment leasing. With this, you don’t need to dilute your investment to get funding. Leasing equipment is also cheaper than equity financing, the only problem here is that it limits cash flow, and is also limited to whatever equipment can be leased. Finally, we have the banks, and while banks can technically finance your startup, the riskiness of the project will most likely discourage banks from lending.

With all these funding sources of business available to startup founders, they must evaluate the best combination of funding sources to tap, based on their current situation.

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How to Estimate Funding Requirements for Your Business Plan

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Even if you’re launching a one-person business located for the time being at the kitchen table, you still need to project the time it takes to sign the first client and cash the first check — and then the next one. While you’re waiting for revenue to take off, you’ll be burning through cash reserves to fund business expenses.

• Create a realistic forecast of your financial situation. Follow the steps for preparing a pro forma or estimated statement of income, expenses, and profit, along with an estimated balance sheet and cash flow statement.
• Estimate your funding need. Use your financial forecasts, and especially your cash flow projection, to determine how long you anticipate expenses to exceed revenue and by how much. Doing so helps you get a handle on when you expect expenses to be incurred, when you expect revenues to roll in, and the amount of funding you need in order to cover the gap.
• Create a funding time frame. After you establish how much funding you need, create a schedule for how long you need the funding to last before your business needs to become self-sufficient. This schedule, called your time frame , should include dates by which you plan to meet revenue-generating milestones — for example, first customer, first major contract, first $10,000 in sales, and so on — that you can monitor as indicators that your business is on track to achieve profitability before funding runs out.
• Runway: The amount of time funding needs to last before your business becomes profitable and self-sufficient or until additional funding will be required
• Burn rate: The speed with which you expect to spend the funding you’ve raised — in practical terms, the amount of cash required each month to cover the costs of staying in business

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Your brilliant idea has no startup funding to back it up.

Sound familiar?

Maybe you’ve chosen the right business model, locked down a co-founder, and drawn up a goal pyramid to outline your first steps.

But there’s still that one big problem: you lack funding.

You need to learn your best options on how to fund a startup . Here’s a quick guide to get you started on getting funding for a startup business.

If you’re just not sure where to begin, and always wanted to see a clear-cut menu of funding options out there in this modern world of startups, this post is for you.

Types of Startup Funding

1. Self-Funded (Bootstrapped)

2. friends and family, 3. crowdfunding platforms, 4. government grants or loans, 5. business loans, 6. accelerators, 7. corporate partners, 8. investors.

Which Should You Choose?

The Basic Categories of Funding

There are two models for funding a startup: that which costs you equity, and that which costs you debt.

There is a third, grants, and gifts, but this is less common for profit-seeking businesses.

Debt as a Form of Funding

Debt, a form of funding so many of us are unfortunately familiar with, is money that you’re obligated to pay back with interest over an agreed-upon time period.

This can be in the form of a bank loan or just racking up a bunch of money on credit cards. The latter is probably the easiest and fastest way to scare up some money, but there’s a reason it’s a bad idea.

Rates are usually terrible, and if you don’t have a lot of cash flow, you can end up saddled with that burden for years. Small business loans are one traditional avenue for funding, but they are often restricted to people with existing cash flow or some kind of collateral to put up.

Offering Equity in Exchange for Funding

Equity, on the other hand, means a percentage of ownership in your business offered up at market value in exchange for money.

This is what investors will typically deal with. Clearly, to offer equity to an investor, you need to have some perceived value or proof of concept to instill confidence.

Grants and Gift Grants

Grants are much more common for endeavors like charities, nonprofits, or social enterprises. Don’t be envious, though, it’s hard work to get a foot in the door with a grantmaker, and often funds come with stringent requirements and oversight.

As far as grand gifts go, well, here’s hoping a bag of money lands on your doorstep. If you’ve ever watched the show Shark Tank this will be familiar to you, as the sharks will often haggle over what kind of stake they get in exchange for the money they’re going to sink into the business.

Entrepreneurs tend to want to reduce the amount of equity they give away because this means lower profits for them in the future. This can also be risky because if more than half of a company’s equity is sold, that means a potential loss of control.

Now, how do you get your entrepreneurial paws on this cash? On to the juicy bits:

Don’t Skip: How to Start a Startup (Advice from Those Who’ve Done It)

8 Funding Options for Your Startup

There are costs and benefits for each of the 8 most common types of startup funding. Let’s break them down.

We know that’s not what you wanted to hear, nor is it quite on point with the purpose of this article. Technically, this isn’t really a source of funding. You’re just paying for it yourself with your hard-earned cash, minimizing expenses such that you can still cover bills.

But this hard medicine is what you need to accept when it comes to funding: It will be much harder to convince someone, to take a chance with their money on your idea if you haven’t done the same first.

That means working on your project as a side hustle , self-funding it as much as possible, and burning the midnight oil to cover labor yourself. Or, that might mean saving up enough money so you can have a few months of runway, building out the basis for your idea before seeking out external funding.

And in doing this, you’re certainly not alone. Alongside the burgeoning generation of young entrepreneurs has come a sharp decline in reliance on investors. This means more young entrepreneurs have started building their value through bootstrapping as a primary source of initial funding for their startups.

A lot of people swear by bootstrapping, and for good reason. In fact, foundr itself was a bootstrapped business run by our CEO, who moonlighted in the early days and gradually scaled up the business over time.

Bootstrapping can be extremely gratifying, like building something with your bare hands. And it’s great for first-time entrepreneurs because it proves you can hack it, making it easier to land funds as you launch future businesses.

This is not to say you can’t get your startup funding after you’ve bootstrapped. As Chris Strode of Invoice2go once told foundr:

What I’d tell…every other early entrepreneur out there, is to bootstrap your startup for as long as possible. Founders are often eager to raise funding and take their businesses to the next level, but if you can build a profitable business on your own, you’ll be better positioned to have a favorable conversation with VCs when the time is right. Focus on getting your product right where you want it for your users, and grow it from there.

This method is advantageous as it lets you grow an audience and a user base that will serve as awesome validation and possibly even lead to revenue or profit before you seek out additional funding.

And, of course, you get to keep all the equity.

Want to self-fund your business (or fund it with a business partner) ? Follow these steps to fund your startup online business yourself:

• Sacrifice and save: If you’re self-funding, you will need to sacrifice in order to save the funds you need. This looks different for every entrepreneur, but many sell assets such as cars or even homes to help free up cash to start their businesses.
• Find a co-founder you can trust: Regardless of how good you are at saving, sometimes you may simply need more funds. A problem shared is a problem halved, so to solve this, consider bringing on a co-founder. If you’re both investing significantly in the business, though, you’ll need to find someone you can trust. Try friends or business connections, but if you can’t find anyone suitable, consider using websites such as CoFoundersLab .
• Freelance on the side: Starting a business can be an all-consuming, full-time commitment. But if you’re self-funding and you’re concerned you’ll run out of funds, consider freelancing on the side so you can continue to earn an income.

A great piece of startup advice is to start with your inner circle and branch out when it comes to selling your business. In other words, start seeking funding for your business from family and friends.

We know this might send chills down some of your spines. And depending on your relationships with certain friends and family, it’s clearly not an option for everyone.

But the important thing here is taking stock of your existing support network. So often, entrepreneurs try to build something utterly from scratch, as if they have to concoct success within a vacuum. The truth is, most of us have a lifetime of connections all around us, many of whom may have tremendous confidence in us and may even be part of our target audience.

Friends and family are one of the most common sources of funding. Over 38% of entrepreneurs report raising money for their ideas from loved ones’, and over $60BB is raised in startups from family and friends each year. Although these people may not have endless cash to throw your way, the money they are able to support you with may come with many advantages:

• Those close to you’re much more likely to take a chance on you and your idea in good faith and lend you money at a low-interest rate or even no interest rate or may ask for a lower amount of equity.
• Money coming from people you know makes you much more committed to success and providing a good return for their money.
• There is a better chance that your friends and family will stay at a supportive distance instead of breathing hungrily down your neck as some investors might.

Remember that you’re looking for a kind of partnership with like-minded people you have an existing connection with. If they truly believe in you and your business, they’ll be excited to get on board, and you couldn’t ask for a better backer than that. And if they’d use your product or service themselves, you’ve also got a potential test market, and early adopter rolled up in one.

At the end of the day, though, this is a very personal decision that needs to be taken seriously. Some of the best startups in the world resulted from friendships… as did some classic disasters. Tread carefully.

Even if you’re looking for funding options for a startup online business (which can cost less money in many cases), if the issue is that you’re simply embarrassed to ask your family and friends to back your startup, then maybe it’s time to rethink your business idea. If you’re shy about going to people who know and love you, it’s not going to be any easier approaching investors.

Crowdfunding has rapidly become a premier way for entrepreneurs to get their startups funded. Since platforms like Kickstarter and Indiegogo came on the scene, it has cracked open virtually infinite possibilities for companies to get started.

Long story short, crowdfunding involves getting a large group of people to back your company with relatively small individual contributions. These backers will not always get a say in how your business is operated, depending on the platform, and they collectively share a relatively small risk each, because together they enthusiastically want the project in question to exist.

Even veteran investors like Shark Tank star Barbara Corcoran told Foundr she’s been blown away by the potential of crowdfunding:

The access to capital isn’t at your local bank—it’s online. I would say that at least 40 percent of all the entrepreneurs we met on Shark Tank had already raised a lot of money online through crowdfunding. You can teach yourself how. Analyze successful campaigns. Figure out what works.

This funding model can not only be used to gather up some initial funding but can be used for subsequent fundraising for future products and services. Just for one example chosen completely at random, there’s our first print publication, Founder Version 1.0, which we funded with our first Kickstarter campaign. It went great!

While earning funding through these platforms is incredibly convenient for both financial purposes and public exposure, it can be even more successful if you have a little something already saved up. According to Forbes , having around 25% of your monetary goal already raised before approaching the crowd can help account for relevant fees, while also enticing potential investors to keep the momentum going and the funding coming.

Crowdfunding is a great way to land some cash, but it’s not for the faint of heart. It’s both art and science, and now that it’s such a widespread practice, it takes some real work and even investment of its own to build up and execute a successful campaign.

If you’re interested in using crowdfunding for your startup, start by researching which crowdfunding platform best suits your needs. Look for:

• What types of campaigns was the website designed for
• Whether you have to hit a goal to receive the contributions
• Cost of using the crowdfunding platform
• How the platform integrates with social media

This is an often-overlooked way to get your startup funded.

Many people don’t know that their government may be offering convenient loans or full-on grants for aspiring entrepreneurs in their midst. Because new businesses are a large source of economic growth in industrialized economies, governments have it in their best interests to support the individuals looking to throw their chip into the ring.

Mission-driven organizations are also well-suited to pursuing grant funding, as there are more and more grant programs popping up to support sustainable and socially conscious businesses that have the potential to fuel a regenerative economy.

The downside of grants is that they are highly competitive, and it’s often time-consuming to apply. If you decide to seek out grant funding, choose a grant program that matches your business. It’s better to take a targeted approach rather than casting a wide net. You may also want to consider hiring a consultant who specializes in grant writing to give you the best shot of securing a grant. If you go this route, make sure to ask the consultant for examples of grants they’ve secured for other businesses. You may even want to ask what the grant amounts were relative to what the consultant billed for help writing the grant, so you can decide if the investment is worth the return.

If you’re young (say, under 35 years old) or if you’re creating a new business in science or technology especially, you’ll have a decent shot at landing some funding. What’s more, governments at various levels tend to have their own individual loans available. To find this funding, search at the city, province/state, and federal levels.

Business loans provide you with a sum of money that then has to be repaid to the lender with interest. Business loans allow you to maintain equity and control of your business without having to worry about answering to an investor or giving up equity. The downside of business loans is that they come with a short-term cost of capital that needs to be repaid and depending on what type of business loan it is, that cost can get high.

A bank or lender typically makes their decisions based on 3 factors: your time in business, your revenue, and your personal or business credit score. Because a startup by definition doesn’t have much time in business and doesn’t have established business credit, your loan options are more limited.

The Loans You Might Qualify For as a Startup

SBA loans are backed by the US Small Business Administration, which means the government agency guarantees the loans with the lender in case you default on the loan (think of it like having the US government co-sign your loan). In terms of startup loans, you’re not going to find better terms or interest rates than an SBA loan. There are several different SBA loan options, but the most common is the SBA 7(a).

The tradeoff of these rare and majestic loans is that they come with government-level paperwork and they’re highly competitive. If you choose to go the loan route, it’s worth rolling up your sleeves and trying for an SBA loan.

Short Term Loans

Short term loans are best used when your burn rate is going to put you into a short-term bind. You can use a short term loan to cover inventory for large purchase orders or to make payroll while you wait on payment from a client. Short term payments come with pretty high interest rates because they’re designed to be repaid quickly and that structure allows the lender to still make money from the loan. This small business loan type can be an asset if used wisely, but if you wait to pay it off it can get very expensive very quickly.

Line of Credit

A line of credit allows you to borrow against a predetermined amount of money, repay it, and borrow again as many times as you like over the term of the loan. A line of credit can be a tremendous asset for a startup founder. It gives you the capital you need to finance your startup growth , and you only pay interest on what you borrow. That gives you flexibility and control.

Equipment Loan

An equipment loan is specifically for equipment and can be used for anything from computers to an espresso machine to Square card readers to robotic mining equipment. Because the loan is secured by the equipment itself, this loan is easier to qualify for than other small business loans, and it typically comes with lower interest rates.

Business Credit Cards

Okay, this might surprise you but business credit cards can be a pretty solid way to bootstrap a startup, especially if your capital needs are on the lower end of the spectrum. Business credit cards can be used to finance everything from office supplies to equipment purchases. If you need to make some large purchases and know you’ll have the funds to repay them within 6 months to a year, you could consider a 0% introductory APR credit card. These cards don’t collect any interest during the introductory period, which can make them a clutch option for entrepreneurs, especially those who don’t qualify for other forms of funding.

Now we’re getting into the fast lane. If you’re looking for much more than a simple bit of money tossed your way, accelerators are a great option to consider, especially if you’re interested in getting funding for a tech startup.

Accelerators focus on supercharging early-stage business growth by providing short programs (usually 2-4 months long).

They will take applications, dole out funding to those that pass in exchange for equity, plus usually welcome you, your business, and your small team (if you have one) into their program.

The program will often feature an enticing mixture of mentorship and office space. These programs are usually grueling affairs, but if you’re looking to speed up a stage in your business growth, these are the best option. One of the defining factors is their short-term timeframes (incubators, by contrast, tend to last a few years), often culminating in a big presentation session or “demo day.”

These accelerators also tend to present startups with great opportunities to network with other startups and mentors in the business world. In fact, it’s worth noting that accelerators are often much more focused on developing the entrepreneurs or founding teams themselves than a business’s idea.

Applications for accelerators tend to be very competitive, especially for “elite” accelerators such as TechStars and Y Combinator . These two accept only between 1% to 3% of their applicants.

But there are actually quite a few of them, something like 200, and more are always starting. Most of the top accelerators are based in California, including Alchemist , AngelPad , and 500 Startups . But not all of them, and TechStars actually has 20 programs all over the country. Sometimes they’re broad, others are industry-focused.

We suggest starting with local accelerators in your area or looking at niche accelerators targeted to your background or industry.

Big businesses aren’t what they used to be. The average lifespan  of a corporation has plummeted from 24 years in the 1960s to just 12 now. Companies everywhere are looking at ways to transform and innovate, and partnering with your startup might just be the way they do so.

There’s actually a lot of corporate-partner sponsored startups, but you wouldn’t know it, as the partnership isn’t always obvious. One example of a hugely successful startup that began through a corporate sponsorship is Crowdz. Crowdz, which recently completed a Series A funding round for $5.5 million, was created in partnership with Barclays bank .

With corporate partnerships being so lucrative, how do you secure one? We spoke to Carrie Kwan, the founder of Mums & Co , to find out. Mums & Co, a business community for mothers, was created in partnership with IAG insurance.

Carrie was pregnant with her second child when she came across the idea for the company. Through a business connection, she was introduced to someone who would eventually become her corporate partner:

“I was introduced to Phuong Ly, the executive general manager of IAG, and it became evident that we had a mutual interest in reaching the small business community, particularly mothers.”

This mutual interest was extremely beneficial to Carrie, and after deciding it was something she wanted to pursue, she spent a frenetic few months developing an MCP with the backing of IAG. But during that time, she made it clear that it wasn’t just funding that she was after. She wanted a corporate partner who shared her values:

“I was halfway through my second pregnancy when I was in discussions with IAG. But when I raised this, they said, ‘Congratulations. You shouldn’t have to choose between your family and your career.’ This gave me assurance that they shared my values and understood my vision.”

Carrie signed on as a corporate partner for IAG, and the partnership remains strong today, over three years later.

Want to find a corporate partner to help fund your startup? Follow these steps:

• Build out an MVP: Just like any other investor, a corporate partner will need to understand your vision before partnering with you.
• Network, network, network: Meet everyone in your network, and pitch them our idea. Then ask them who they can refer you to. Repeat, repeat, repeat.
• Connect with other founders who’ve secured a corporate partner: They will be able to provide guidance and possibly introductions.
• Approach corporations directly: Many large companies that have innovation agendas will run incubators, demo days, pitch nights, or networking events. Research corporations that you think share your target audience and values, and see what they have to offer. You can also apply directly to corporate programs through websites such as CoVentured .

Before diving into the intricacies of how they operate, let’s look at the basic definition of an investor .

An investor is a person who has control over some pool of assets, and who invests money into a project in exchange for shares. This means they are not neutral actors in your business.

Investors will have expectations that you use the money in frugal and wise ways, such as for expanding market share through marketing, and not wasting funds on unnecessary expenditures. Second of all, investors by definition expect a return on their investments within a certain period—this return is often a 10x return within up to 5 years. This usually occurs either when your company goes “public” or is sold off.

These expectations can make dealing with investors difficult and stressful. The emphasis will often be placed on growth, and pressure to expand your business asset will be coming from outside you and your team. Still, just as with bootstrapping, there are entrepreneurs who swear by raising capital.

If you’re looking to grow a huge business, accepting investment is usually the only option. Companies that grow large and fast can usually only do so through accepting an injection of investor cash.

Onto the types of investors. They fall into three main groups: personal, venture, and angel investors.

Personal Investors

Personal investors or angel investors are typically in the form of friends and family, as described above.

Venture Capital

Venture Investors, or Venture Capitalists, usually come in the form of experienced investors looking to make large returns by investing in business ideas. Rather than a loan, which a recipient is legally bound to pay back, a VC accepts a certain amount of risk that they won’t make the money back, in hopes that some of their investments pay off huge. Although there is acceptance of risk, they are very selective of who they support.

They will rarely be interested in pouring money into a new/unproven idea and will demand a track record and some demonstrable value before placing money into a business endeavor. Venture capitalists don’t deal in 100s or 1,000s of dollars—we’re talking in terms of millions of dollars invested. If you’re just starting out, a VC is probably not the breed of investor you should seek out.

Angel Investors

Angel Investors are the investors that you’ll be looking for if you’re a burgeoning young business. These are investors who are looking to give relatively small amounts (usually tens or hundreds of thousands) into businesses in exchange for equity and will often be tolerant of other forms of growth besides revenue.

They are often other entrepreneurs who have wealth of their own, as opposed to huge pooled investment funds, and are looking to seed people or businesses they believe in at the early stages of their growth. They sometimes fill a gap between friends and family support and larger forms of investment such as venture capital.

In contrast to Venture capitalists, angel investors may not require a part-ownership of the company. Instead, he or she may request a percentage of return on her/his investment. But, as with venture capitalists, there will be situations where angel investors require ownership and management decisions in your company.

Understanding Startup Funding Stages

What the heck is a seed round? Will you need a Series A, B, and C? This financial mumbo jumbo (technical term) can feel intimidating for an aspiring entrepreneur, but it doesn’t need to be. The multiple funding round structure has become more common in recent years, especially in the tech industry. But as tech startups have seen wild success, the model has also spread to other industries as well.

You may not need to know anything about how a Series B works. Many small businesses find the funding they need without going this route. You’ll likely only encounter this if you plan to seek out external investors like an angel investor or venture capitalist.

Seed Funding

Seed capital is an outside investment in a startup during the nascent stages in exchange for equity in the company. The typical investment made during seed funding ranges from $10,000-$2,000,000. Seed funding is especially popular in tech. The benefit of seed money is that it gives you quick access to larger amounts of capital, allowing you to grow and scale a startup quickly and gain more traction. In the seed stage, these investments often come from friends and family members

Because the company doesn’t yet have a straightforward valuation, seed round investors typically receive a convertible note. A convertible note provides equity as repayment rather than interest or stock.

Series A Round

Series A funding is usually the first funding round to come from outside investors. A Series A typically comes after a startup has begun to generate revenue but isn’t yet profitable. In return for their investment, Series A investors are usually given preferred stock (which gives no voting rights to shareholders) that can be converted into common stock at a later time.

Because Series A investors are taking on substantial risk—the company isn’t’ profitable yet and a lot of startups fail—their stock will typically give them a pretty substantial payout if the company is successful.

Series B Round

Startups that seek a Series B round are more established. They’ve gone through the seed round and the Series A. They have either broken even, or they’re close, but they’re generating enough revenue that they carry a solid valuation. Series B investors again tend to receive preferred stock in return for their capital investment. Because there is (or theoretically should be) less risk during Series B funding, investors during this stage typically receive a smaller return than Series A investors.

Series C Round

Series C funding comes when a business is in the later stage of the funding cycle and growth process. It works similarly to the Series B round. Typically, investors want to see a higher valuation in the Series C than in previous rounds. That shows that the company is healthy, profitable, and growing. Because there is the least risk associated with Series C investment, it gives investors the smallest payout for their investment.

Keep Learning: Series Funding for Startups – Terms and Jargon Explained

Which Type of Funding Should You Choose?

Now that you understand funding a startup and the different routes you can choose, what’s next?

While there’s no one right way to fund a startup, there are mistakes to avoid.

Before you ask your family for cash or reach out to potential investors, follow these steps from Alexa von Tobel , founder of Inspired Capital, to avoid wasting time and potentially failing before you’ve even started.

• Identify Your Goals: Where do you want to go, and what do you want your business to achieve?
• Getting Organized: Make sure you’re covered and set up for success with the core essentials of a business, from bank accounts to financial staff and checking accounts.
• The Basics: Familiarize yourself with the essentials of business finance so you can understand your financial statements.
• Your Business Model: Build a business model that suits your business, helps you get the most from your resources and network, and guides your interactions with your accountant and CFOs.
• Creating Good Habits: Create weekly, monthly, quarterly and yearly financial habits to stay ahead of your business’ finances.
• Scaling Your Business: Know when and how funding can make your business more valuable, then reach out to investors.

If you have a solid financial plan for your startup, any funding search will be easier. Remember that the best startup funding is the one you have access to. Most entrepreneurs don’t know a guy who works at a Silicon Valley incubator, and that’s okay. The most successful startups pull from multiple funding sources as they scale.

Need more specifics? Here’s a rule of thumb when choosing the right startup funding.

• Service Startup: Self-funded, friends and family, business loans, government grants or loans.
• Direct-to-Consumer (DTC) Product Startup: Self-funded, friends and family, crowdfunding, accelerators, or seed funding (later in the journey).
• Business-to-Business (B2B) Startup: Business loans, accelerators, corporate partners, or seed funding.
• SaaS Startups: Crowdfunding, business loans, accelerators, corporate partners, or seed funding.
• Niche Industry Startups (healthcare, civics): Business loans, accelerators, corporate partners, seed funding, government grants, or loans.

Keep Learning: Business Startup Costs Checklist: How Much and Where to Spend

You Know Your Way Around Startup Funding. What’s Next?

There are many different ways to get funding for a business, and a lot of it really varies based on your experience level and track record. For early entrepreneurs, we here at foundr are big fans of bootstrapping as long as possible, as attested by many of the entrepreneurs that foundr has featured. And we’ll show you how to do it.

Check out our trainings on everything from launching an ecommerce business to growing your online platform and making a killing with YouTube ads.

About Assya Barrette

Assya is a content strategist and consultant based in Toronto, Ontario, Canada. Her and her client's work have been featured in outlets including Yahoo!, Salon.com, Qz.com, and others. You can see her work and learn more here: Kangen Demo

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Business Plan Section 8: Funding Request

These guidelines will help you prepare a funding request to present to a potential lender alongside your loan application.

We’ve talked before about the benefits of having a business plan for every business, but the truth is, most companies don’t put one together until they want to apply for funding, whether from a bank or investor. Sometimes, even if you don’t need a full business plan when applying for a loan, you will be asked for a funding request. You can also follow the guidelines below to prepare a stand-alone proposal to present to a potential lender with your application.

If the purpose of your business plan is NOT to get funding, feel free to skip this section.

As we’ve said before about writing a business plan, it’s important to keep your audience in mind. You can certainly prepare different versions of your funding request depending on whether you’re applying for a loan or approaching an investor. The terms of each would be different, and you might be looking for different amounts of money or types of funding, especially if you’re approaching several potential partners.

Be clear about whom you’re directing the request to, and think about the questions they might have and what they would want to see. Make sure you’ve done your homework regarding the costs involved with your plans. This is where the financial section of your plan will work hand in hand with this one. Be consistent with your numbers, and ask for enough to cover your needs fully so you don’t fall short and remain unable to complete your goals. At the same time, don’t ask for more than you need.

What to Include in Your Funding Request

1. a summary of the business.

If the request is part of your business plan, you will have already put together all the information found in a business summary. If you’re creating a funding request as a stand-alone document, explain what the company is, where you’re located, what you sell or what services you offer, and who your customers are. Mention whether you’re incorporated, and if so, what type of corporation it is, along with who the owners and key staff members are. Briefly list your business successes and accomplishment thus far.

2. How much money you’re requesting

How much cash are you looking for now, and if you anticipate this being the first part of an ongoing growth plan, how much more money do you plan to request over time? What would the specific timeline look like? The Small Business Administration suggests thinking as far as five years down the road when putting your funding request together. Also spell out what type of funding you’re looking for, whether a loan or investment, and the terms you’re asking for. (As we suggested above, you can put together different versions of the request for different types of funding.)

3. What you will use the money for

Do you need some extra funds for working capital to buy more inventory? Are you paying off a high-interest loan? Buying a building, new equipment, or another company? Expanding your advertising campaign, or hiring more staff? Whatever it is, explain how much each aspect will cost.

4. Financial information

This will be the heart of the financial information section of your business plan , but you need to include it here if you’re putting together a stand-alone funding request.

You’ll need historical data on the company (if it’s an established business), like income statements, balance sheets, and cash flow statements for the last three to five years. If the funding request is for a loan that requires collateral, document what you have to offer. If you’ve invested your own money in the company or there are other investors, state that along with how much.

Offer realistic projections for the future, and explain how this new funding would help you reach those goals. Prepare yearly forecasts for income, balance sheets, cash flow and capital expenditure budgets for the next five years. Be even more specific for the first year, with projections for each month or quarter.

You also need to cover how you plan to pay off the debt, or what kind of return on investment you can offer a potential investor. Potential funders will pay particular attention to this, wanting to maximize their gains and minimize their risk as much as possible. If the plan is targeted to investors, what would their exit plan be? Can they cash out in a specific number of years? Do you plan to go public and offer stock?

Finally, address anything that might affect your ability to repay, whether positively or negatively, such as being acquired, buying out another business, relocating, etc.

Getting money to fund your business may very well be the point of creating your entire business plan, so take the time to carefully prepare your funding request, making sure to include all the information a decision-maker will need.

NEXT ARTICLE > BUSINESS PLAN SECTION 9: APPENDIX

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Free Business Plan Template for Small Businesses (2024)

Use this free business plan template to write your business plan quickly and efficiently.

A good business plan is essential to successfully starting your business —  and the easiest way to simplify the work of writing a business plan is to start with a business plan template.

You’re already investing time and energy in refining your business model and planning your launch—there’s no need to reinvent the wheel when it comes to writing a business plan. Instead, to help build a complete and effective plan, lean on time-tested structures created by other  entrepreneurs and startups. 

Ahead, learn what it takes to create a solid business plan and download Shopify's free business plan template to get started on your dream today. 

What this free business plan template includes

• Executive summary
• Company overview
• Products or services offered
• Market analysis
• Marketing plan
• Logistics and operations plan
• Financial plan

This business plan outline is designed to ensure you’re thinking through all of the important facets of starting a new business. It’s intended to help new business owners and entrepreneurs consider the full scope of running a business and identify functional areas they may not have considered or where they may need to level up their skills as they grow.

That said, it may not include the specific details or structure preferred by a potential investor or lender. If your goal with a business plan is to secure funding , check with your target organizations—typically banks or investors—to see if they have business plan templates you can follow to maximize your chances of success.

Our free business plan template includes seven key elements typically found in the traditional business plan format:

1. Executive summary

This is a one-page summary of your whole plan, typically written after the rest of the plan is completed. The description section of your executive summary will also cover your management team, business objectives and strategy, and other background information about the brand. 

2. Company overview

This section of your business plan will answer two fundamental questions: “Who are you?” and “What do you plan to do?” Answering these questions clarifies why your company exists, what sets it apart from others, and why it’s a good investment opportunity. This section will detail the reasons for your business’s existence, its goals, and its guiding principles.

3. Products or services offered

What you sell and the most important features of your products or services. It also includes any plans for intellectual property, like patent filings or copyright. If you do market research for new product lines, it will show up in this section of your business plan.

4. Market analysis

This section includes everything from estimated market size to your target markets and competitive advantage. It’ll include a competitive analysis of your industry to address competitors’ strengths and weaknesses. Market research is an important part of ensuring you have a viable idea.

5. Marketing plan

How you intend to get the word out about your business, and what strategic decisions you’ve made about things like your pricing strategy. It also covers potential customers’ demographics, your sales plan, and your metrics and milestones for success.

6. Logistics and operations plan

Everything that needs to happen to turn your raw materials into products and get them into the hands of your customers.

7. Financial plan

It’s important to include a look at your financial projections, including both revenue and expense projections. This section includes templates for three key financial statements: an income statement, a balance sheet, and a cash-flow statement . You can also include whether or not you need a business loan and how much you’ll need.

Business plan examples

What do financial projections look like on paper? How do you write an executive summary? What should your company description include?  Business plan examples  can help answer some of these questions and transform your business idea into an actionable plan.

Professional business plan example

Inside our template, we’ve filled out a sample business plan featuring a fictional ecommerce business . 

The sample is set up to help you get a sense of each section and understand how they apply to the planning and evaluation stages of a business plan. If you’re looking for funding, this example won’t be a complete or formal look at business plans, but it will give you a great place to start and notes about where to expand.

Lean business plan example

A lean business plan format is a shortened version of your more detailed business plan. It’s helpful when modifying your plan for a specific audience, like investors or new hires. 

Also known as a one-page business plan, it includes only the most important, need-to-know information, such as:

• Company description
• Key members of your team
• Customer segments

💡 Tip: For a step-by-step guide to creating a lean business plan (including a sample business plan), read our guide on how to create a lean business plan .

Benefits of writing a solid business plan

It’s tempting to dive right into execution when you’re excited about a new business or side project, but taking the time to write a thorough business plan and get your thoughts on paper allows you to do a number of beneficial things:

• Test the viability of your business idea. Whether you’ve got one business idea or many, business plans can make an idea more tangible, helping you see if it’s truly viable and ensure you’ve found a target market. 
• Plan for your next phase. Whether your goal is to start a new business or scale an existing business to the next level, a business plan can help you understand what needs to happen and identify gaps to address.
• Clarify marketing strategy, goals, and tactics. Writing a business plan can show you the actionable next steps to take on a big, abstract idea. It can also help you narrow your strategy and identify clear-cut tactics that will support it.
• Scope the necessary work. Without a concrete plan, cost overruns and delays are all but certain. A business plan can help you see the full scope of work to be done and adjust your investment of time and money accordingly.
• Hire and build partnerships. When you need buy-in from potential employees and business partners, especially in the early stages of your business, a clearly written business plan is one of the best tools at your disposal. A business plan provides a refined look at your goals for the business, letting partners judge for themselves whether or not they agree with your vision.
• Secure funds. Seeking financing for your business—whether from venture capital, financial institutions, or Shopify Capital —is one of the most common reasons to create a business plan.

Why you should you use a template for a business plan

A business plan can be as informal or formal as your situation calls for, but even if you’re a fan of the back-of-the-napkin approach to planning, there are some key benefits to starting your plan from an existing outline or simple business plan template.

No blank-page paralysis

A blank page can be intimidating to even the most seasoned writers. Using an established business planning process and template can help you get past the inertia of starting your business plan, and it allows you to skip the work of building an outline from scratch. You can always adjust a template to suit your needs.

Guidance on what to include in each section

If you’ve never sat through a business class, you might never have created a SWOT analysis or financial projections. Templates that offer guidance—in plain language—about how to fill in each section can help you navigate sometimes-daunting business jargon and create a complete and effective plan.

Knowing you’ve considered every section

In some cases, you may not need to complete every section of a startup business plan template, but its initial structure shows you you’re choosing to omit a section as opposed to forgetting to include it in the first place.

Tips for creating a successful business plan

There are some high-level strategic guidelines beyond the advice included in this free business plan template that can help you write an effective, complete plan while minimizing busywork.

Understand the audience for your plan

If you’re writing a business plan for yourself in order to get clarity on your ideas and your industry as a whole, you may not need to include the same level of detail or polish you would with a business plan you want to send to potential investors. Knowing who will read your plan will help you decide how much time to spend on it.

Know your goals

Understanding the goals of your plan can help you set the right scope. If your goal is to use the plan as a roadmap for growth, you may invest more time in it than if your goal is to understand the competitive landscape of a new industry.

Take it step by step

Writing a 10- to 15-page document can feel daunting, so try to tackle one section at a time. Select a couple of sections you feel most confident writing and start there—you can start on the next few sections once those are complete. Jot down bullet-point notes in each section before you start writing to organize your thoughts and streamline the writing process.

Maximize your business planning efforts

Planning is key to the financial success of any type of business , whether you’re a startup, non-profit, or corporation.

To make sure your efforts are focused on the highest-value parts of your own business planning, like clarifying your goals, setting a strategy, and understanding the target market and competitive landscape, lean on a business plan outline to handle the structure and format for you. Even if you eventually omit sections, you’ll save yourself time and energy by starting with a framework already in place.

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Business plan template FAQ

What is the purpose of a business plan.

The purpose of your business plan is to describe a new business opportunity or an existing one. It clarifies the business strategy, marketing plan, financial forecasts, potential providers, and more information about the company.

How do I write a simple business plan?

• Choose a business plan format, such as a traditional or a one-page business plan. 
• Find a business plan template.
• Read through a business plan sample.
• Fill in the sections of your business plan.

What is the best business plan template?

If you need help writing a business plan, Shopify’s template is one of the most beginner-friendly options you’ll find. It’s comprehensive, well-written, and helps you fill out every section.

What are the 5 essential parts of a business plan?

The five essential parts of a traditional business plan include:

• Executive summary: This is a brief overview of the business plan, summarizing the key points and highlighting the main points of the plan.
• Business description: This section outlines the business concept and how it will be executed.
• Market analysis: This section provides an in-depth look at the target market and how the business will compete in the marketplace.
• Financial plan: This section details the financial projections for the business, including sales forecasts, capital requirements, and a break-even analysis.
• Management and organization: This section describes the management team and the organizational structure of the business.

Are there any free business plan templates?

There are several free templates for business plans for small business owners available online, including Shopify’s own version. Download a copy for your business.

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19 Small Business Ideas For 2024

Updated: Apr 19, 2024, 7:21pm

Table of Contents

1. tutoring, 2. music and voice lessons, 3. bookkeeper, 4. pet care services, 5. subscription box service, 6. dropshipping website, 7. dog grooming, 8. copywriter, 9. copy editor, 10. wedding or events planner, 11. photographer or videographer, 12. home cleaning, 13. personal trainer, 14. sewing and alterations, 15. virtual assistant, 16. college consultant, 17. antique sales, 18. life insurance agent, 19. life coach, frequently asked questions.

Every day, hardworking individuals choose to step away from their employers and start their own companies. Small businesses launched by everyday entrepreneurs have added over 12.9 million jobs to the United States. economy in the last 25 years. If you’re looking to join the fray but aren’t sure which path is best for you, here’s a list of 19 profitable small business ideas.

If you’re a master of a particular subject, you can help students struggling in their classes by becoming a tutor. No certification is required to become a tutor, but you should be an ace in the topic. Usually, a tutor has a college degree in the subject they are tutoring.

You can teach in person or online to expand your target market. You may want to invest in some teaching aid tools, such as Canvas or Blackboard. These will help you interact more effectively with online students. You can market yourself or join a tutoring platform, such as BuffTutor, that brings clients to you.

Tutoring is an excellent way to make some money while enriching the lives of the next generation.

Are you skilled with a musical instrument, or do you have golden pipes? Do you love teaching as well? Sharing those skills with others can help foster a love of the arts. You can either set up a studio at your home or travel to your clients’ homes, depending on what works best for your situation. The flexibility means the possibilities here are endless.

You can market yourself to local schools or community theaters where parents are looking to get their kids music or voice lessons. A good teacher quickly gets word-of-mouth referrals for new business, which helps reduce the amount of marketing that you need to do.

Learn more: Find the right scheduling app to keep your sessions organized.

If you’re someone who is great with numbers and pays attention to the little details, starting a bookkeeping business might be a viable idea. Bookkeepers sell their services to small businesses that need help managing the books, preparing payroll and gathering data for taxes. You would need to be very well-organized and understand the inherent liabilities that can come with handling someone’s finances; make sure you form an LLC if you choose this route.

While you don’t need specific credentials to become a bookkeeper, getting something, such as the QuickBooks Bookkeeping Certification, will not only teach you a lot but will also give potential clients confidence in your ability. However, it might cost you as much as $450 to obtain the certification.

A dog walking business is an excellent opportunity for someone who loves dogs and is good with other people’s dogs. You get out every day and enjoy fresh air with grateful pups. This business requires you to go to people’s homes to let their dogs out to play or go for a walk. You don’t need any special credentials to be a dog walker, and since you’ll be using your clients’ leashes, you don’t need to invest in much. Primarily, you should purchase items, such as dog treats and waste bags, so that you are prepared for any situation.

If you live in a rural area where clients are spread out, you could pursue the option of offering more generalized pet-sitting services for those who are on vacations or business trips. The income for this type of service may be less consistent, but it’s an excellent fit for someone with experience handling different types of animals. Many small critters, such as birds, reptiles and fish, require very detailed care that their owners don’t trust just anyone to handle. If you can build a reputation for taking good care of these pets, winning new clients will come with ease.

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Subscription boxes are a hot trend right now. There are subscriptions for anything and everything, including vitamins and contraception. If you have an idea for a subscription box, you could have the next hot trend.

You’ll want to establish a website where customers buy your box. At the end of the month, you send each customer a curated box of goodies. While you can often purchase these items based on the demand, you may need to carry some inventory of certain products. It will all depend on your subscription box.

A dropshipping website promotes products that it doesn’t keep in stock. Instead, it has a deal with a distributor who will take your orders and mail them to your customers on your behalf. This eliminates the cost of having inventory and expands the number of products that a business owner can market and sell.

To start a dropshipping business , you’ll need to find relationships with dropshippers. There are big companies that have thousands of products, such as Oberlo and Alibaba, that do this. You’ll also need to create a website that features the products. Getting started may cost you $500 to $1,000 if you need help setting up a website.

Dogs’ coats need regular care, and dog grooming is a service that is in high demand. Washing dogs, trimming their nails and clipping their fur must be done as often as every 4-6 weeks for some breeds. While you can do this in a client’s home, most groomers have either a retail location or a mobile pet salon where they have all their supplies and tools.

To have a complete setup, a mobile pet grooming van may cost anywhere from $10,000 to $100,000. If you’d prefer clients bring their pups to you, converting a shed into a grooming salon may be a more convenient option.

Just about every business has an online presence, most with some sort of blog or distributed content. This content needs to be written, and most business owners don’t have the time to do this themselves. They hire a professional writer. If you have a passion for certain topics, an ability to do deep research and are a good writer, this can be a profitable business for you.

There are no startup costs other than having a computer with a good internet connection. Many writers market their services on LinkedIn or in business social media groups. You can also reach out to the marketing director of businesses to offer your services.

With hundreds of blogs and content streams starting every day, there’s a huge demand for reliable editors who can ensure high-quality content goes live. If you have an eye for grammar and punctuation, you might consider becoming an editor who reads and helps improve content. And you don’t have to be limited to blogs or social media; you can edit books and print articles as well.

Make sure that you are a grammar stickler and that you know the differences between AP and Chicago-style writing. You’ll want to invest in these manuals so that you can help your clients meet the right style guides. Other than that, you only need your computer to start this business. You’ll market yourself in online groups and may choose to invest in building a website to help promote your new business.

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If you’d love to help make a special day as memorable as possible, the events business is very rewarding. Those who organize these events should have strong networking skills, pay close attention to details and be highly organized. It helps to have a creative edge that enables you to come up with new and exciting ideas for your clients.

If you want to focus on weddings, be prepared to help with all aspects of the wedding, from the decorations and venue to entertainment and food. While you don’t need any licensing or credentials to do this, you want to have a Rolodex of professionals who can fill certain roles at the event.

Learn more: Use CRM software to keep your vendors and your clients organized.

This is a great business for a creative person with an eye for composition. You can be a generalist or niche down as a wedding videographer or family photo session provider. You don’t need any specialized certifications to start a photography business or start producing videos.

However, you do need a high-quality camera and may also want to invest in lighting accessories. To start a videography business, you’ll need a good digital video camera, lights, microphones and bounce boards to help you get the best quality footage. You should also launch a website that shows potential clients your portfolio of work.

A home cleaning service business is an excellent idea for detail-oriented people who want to be solopreneurs or who want to grow to have a team. As a home cleaner, you go to people’s homes and clean the kitchen, bathrooms and all other rooms. You’ll dust, mop and vacuum rooms and make sure that sinks, toilets and tubs are clean.

You don’t need to be licensed to be a home cleaner, but it’s a good idea to get bonded and insured . This gives clients confidence that you are a professional. As far as investment goes, you will want to have your own cleaning tools and supplies so that you don’t rely on clients to provide them—though some will.

A personal trainer helps people meet their fitness goals. As a trainer, you are part workout expert and part motivational expert. You help develop workout plans to help people either lose weight, build muscle or meet other fitness goals. Certification is required if you plan to work at a gym and will also help you build your credentials to get new clients.

A certification might cost you anywhere from $500 to $1,000. Many fitness trainers also have degrees in kinesiology from a university, but this is not required.

If you’re talented with a needle and thread, you could have a business sewing and making alterations for others who don’t have this skill or the tools to do it. While you may be busy with alterations, the real money is in custom jobs for dresses and costumes. If you live near a thriving Renaissance fair or convention center, you can expect to find plenty of potential customers dressing up for events at these locations.

You don’t need any certification to become a seamstress or a tailor. You will need to invest in a good sewing machine and get materials and supplies that you use when working for clients. Advertising your services on-call or even setting up “emergency” booths at costumed events can bring you new clientele from those in a bind.

More business executives are turning to virtual assistants (VAs) to help them with certain business tasks. This saves the business money because they don’t need another full-time employee with benefits while still getting the work done. As a VA, you will do certain tasks, such as managing social media, coordinating travel and maintaining the calendar.

There is no prerequisite to becoming a VA. You just need to be good with people and have keen organizational skills. You’ll want a computer with a fast internet connection to service your clients.

Parents will do whatever they can to help their children get into the college of their dreams. This includes hiring a college consultant who can help prepare them for standardized tests, review personal statements and navigate the world of financial aid and scholarships.

There is little to no overhead as a college consultant. You simply need a computer and a good internet connection. While there are no required certifications, the College Consultant Certification from Heartland Institute can help give you credibility in a competitive market.

You might love going to garage sales and auctions. This hobby can become a business where you buy antiques and then resell them after freshening them up with some paint. You may even work on consignment for clients to limit your cash outlay.

This is a business where you can work from your garage or invest some money and open a storefront. The cost will depend on your location and the size of the store.

If you’re passionate about helping families prepare for the worst-case scenario, then you may be highly fulfilled working as an independent life insurance agent. You’ll work with people to help assess their life insurance needs and find the right type of coverage. You’ll become their main point of contact for sales and service.

To become a life insurance agent, you must pass a state licensing class and a standardized test. Once you do that, you’ll need to get appointed with life insurance companies to offer their products.

A life coach helps people navigate through difficult times in their lives. Coaching may come into play for relationships, parenting or other challenging life transitions. A life coach has a lot of experience and can bring that experience to the table to help people successfully navigate through their troubles and blocks.

While you don’t need a certification to become a life coach, it does help to give you credibility in what you do. A certification may cost you anywhere from $500 to $1,000, depending on where you get it from. The International Coach Federation offers a three-day, accredited program that is $995.

Bottom Line

If you’re ready to start a small business , start with what you’re passionate about and what you already have skills in. You may need a certification or to buy some tools and equipment, but many small businesses can be started for under $1,000 .

How do I start a small business with no money?

There are several funding sources for new businesses and most require a business plan to secure it. These include the SBA , private grants, angel investors, crowdfunding and venture capital.

How can you get money to start a business?

While it takes some work to apply and there’s no guarantee of funding, there are many different types of grants for small businesses available. Competition here can be fierce so make sure you send applications to a variety of sources. Usually, each state has its own programs, but there are also national foundations and organizations that offer grants specifically to minorities . If grants don’t work out, you can always pursue business loans or private investors.

What is the best way to get a business loan?

Online lenders tend to be more flexible than traditional banks, so you may consider shopping around for different rates before applying. Pay close attention to eligibility requirements and repayment terms, and carefully read consumer reviews to gauge the lender’s reputation. Check out our list of the best small business loans to see some of the top lenders.

What is the easiest SBA loan to get?

Small Business Administration (SBA) microloans are the easiest to get because they have little in terms of revenue requirements and are designed for new businesses needing a small amount of capital.

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Kimberlee Leonard has 22 years of experience as a freelance writer. Her work has been featured on US News and World Report, Business.com and Fit Small Business. She brings practical experience as a business owner and insurance agent to her role as a small business writer.

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• Business plans

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Why you need a business plan

Use our business plan tool, download a detailed business plan template, tips to help you write your business plan.

Whether you've just started out or have been running your business for years, business planning can be the key to your success. Having a business plan:

• helps you to prioritise – it gives your business direction, defines your objectives, maps out how you'll achieve your goals and helps you to manage possible bumps in the road
• gives you control over your business – the planning process helps you learn about the different things that could affect your success. If you're already in business, it helps you to step back and look at what's working and what you can improve on
• helps you seek finance – if you're seeking finance for your business, you'll need to show banks and investors why they should invest in your business.

It will help you to develop a shorter business plan to:

• evaluate a new business idea
• set some goals for the year ahead
• keep your business on track.

Use this template if you are seeking finance for your business or want to include more detail in your business plan.

Business plan template

1. Determine what your plan is for

Does your business plan have more than one purpose? Will you use it internally, or will you share it externally, for example with potential investors or banks?

Deciding what the purpose is, can help you develop your plan for the right audience. If the plan has been developed for third parties, you will need to determine what they’ll be most interested in.

2. Prepare your finances

Use our detailed business plan template if you are seeking finance.

Lenders and investors will want to know if your finances are in order and your business is in a strong financial position. They'll want to know how much money you currently have, how much money you need and how much you expect to make in the near future. While a bit of extra funding will help you ensure you’re covered for unexpected costs, be realistic and avoid asking for more than you need.

If you're starting out and don't have financial information yet, our template provides resources to help you get your finances ready.

3. Write your summary last

Summarise the main points of your business plan using as few words as possible. You want to get to the point but not overlook important facts. This is your opportunity to sell yourself, but don't overdo it. The summary should include details about your business, market, goals and what makes you different from other businesses.

4. Get help

Don't leave your business plan to the last minute. It takes time, research and careful preparation to develop an effective business plan.

If you aren't confident in completing the plan yourself, consider getting a professional to look over it and provide advice.

There are a number of government services available to help you plan, start or grow your business. These services can provide general advice, workshops, seminars and networking events, and can even match you with a mentor or business coach.

Get expert help from a business adviser in your area .

5. Review your plan regularly

As your business changes, your plan will need to change to ensure your business is still heading in the right direction. Having your plan up-to-date can keep you focused on where you are heading.

It's a good idea to keep a record of each version of your business plan.

6. Protect your plan

Having an understanding with third parties when distributing a plan could be enough protection for some businesses. But if you have innovative business practices, products or services, you may want people to sign a confidentiality agreement to protect your innovations.

It may also be a good idea to include some words in your plan asking the reader not to disclose the details of your plan.

Start writing and developing your marketing strategy.

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Internet Company Business Plan Template

Written by Dave Lavinsky

Internet Company Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their internet companies.

If you’re unfamiliar with creating an internet business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great business plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write an internet business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What is an Internet Business Plan?

A business plan provides a snapshot of your internet business as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for an Internet Provider

If you’re looking to start an internet business or grow your existing internet company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your internet business to improve your chances of success. Your internet business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Internet Businesses

With regards to funding, the main sources of funding for an internet business are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for internet companies.

Finish Your Business Plan Today!

How to write a business plan for an internet business.

If you want to start an internet business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your internet business plan.

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of internet business you are running and the status. For example, are you a startup, do you have an internet business that you would like to grow, or are you operating a chain of internet businesses?

Next, provide an overview of each of the subsequent sections of your plan.

• Give a brief overview of the internet industry.
• Discuss the type of internet business you are operating.
• Detail your direct competitors. Give an overview of your target customers.
• Provide a snapshot of your marketing strategy. Identify the key members of your team.
• Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail the type of internet business you are operating.

For example, you might specialize in one of the following types of internet businesses:

• WISP (wireless internet service provider): This type of internet business is often used to provide internet service to meet basic household needs in rural communities.
• Wholesale internet provider: This type of internet business involves buying white label internet lines from large internet service providers (ISPs) such as AT&T or Frontier to then rebrand and resell to end-users.
• Fiber broadband internet provider: This type of internet business specializes in providing service through fiber optic cables. Many customers prefer fiber over other types of internet because it is faster and supports heavy use.
• Digital Subscriber Line (DSL): This type of internet provider connects users to the internet through a phone line. A significant portion of the U.S. population has access to this type of service.
• Satellite internet provider: This type of internet business provides internet service via satellite and, although it is slower and less reliable than other types, it is often the only option for customers in very rural areas.

In addition to explaining the type of internet business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of customers served, the number of geographical locations served, and reaching $X amount in revenue, etc.
• Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the internet industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the internet industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your internet business plan:

• How big is the internet industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential target market for your internet business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your internet business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, schools, families, and corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of internet business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other internet businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of internet service providers and large corporations that provide internet service such as AT&T or T-Mobile. You need to mention such competition as well.

For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

• What types of customers do they serve?
• What type of internet business are they?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you make it easier for customer to acquire your product or service?
• Will you offer products or services that your competition doesn’t?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a internet business plan, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of internet company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you provide cable, satellite, or fiber internet?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your internet company. Document where your company is situated and mention how the site will impact your success. For example, is your internet business located in a busy retail district, a business district, a standalone office, or purely online? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your internet marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

• Advertise in local papers, radio stations and/or magazines
• Reach out to websites
• Distribute flyers
• Engage in email marketing
• Advertise on social media platforms
• Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your internet business, including answering calls, planning marketing and sales campaigns, billing customers and collecting payments, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth customer, or when you hope to reach $X in revenue. It could also be when you expect to expand your internet business to a new city.

Management Team

To demonstrate your internet business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing internet businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing an internet business or successfully running a small WISP.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you use a three-tiered subscription model, and will you offer a free month to new subscribers? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your internet business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a internet business:

• Cost of equipment and office supplies
• Payroll or salaries paid to staff
• Business insurance
• Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your office location lease or testimonials from happy customers.   Summary Writing a business plan for your internet business is a worthwhile endeavor. If you follow the business plan outline above, by the time you are done, you will truly be an expert. You will understand the internet industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful internet business.  

Internet Business Plan FAQs

What is the easiest way to complete my internet business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your internet business plan.

How Do You Start an Internet Business?

Starting an internet business is easy with these 14 steps:

• Choose the Name for Your Internet Business
• Create Your Internet Business Plan
• Choose the Legal Structure for Your Internet Business
• Secure Startup Funding for Your Internet Business (If Needed)
• Secure a Location for Your Business
• Register Your Internet Business with the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Internet Business
• Buy or Lease the Right Internet Business Equipment
• Develop Your Internet Business Marketing Materials
• Purchase and Setup the Software Needed to Run Your Internet Business
• Open for Business

  OR, Let Us Develop Your Plan For You Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.

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