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Business
Plan: Source and Use of Funds
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Your business plan's
financial section should include a chart showing where you intend to
find the necessary funding to launch the business, the amounts from
each source, and the specific uses of the capital you will raise. You
must account for the use of each dollar of funding within this chart.
To be convincing to funders, the uses must be complete, but not padded
with unnecessary or inflated costs. The sources must also seem
reasonable to readers.
Choosing Sources
The sources of your funding will depend on the type of business, the
size of the investment needed, and the financial return you project.
For small businesses needing only tens of thousands of dollars, venture
capital funding is generally out of the question, but angel investor
funding or bank loans are certainly possible. As the financial return
expected increases, investors and lenders with higher tolerance for
risk will become more interested.
The sources should generally include partner contributions. If you have
no cash to put in, or choose not to, funders will get the idea that you
are not “on the hook� in the same way they are, and may be less
driven to keep the business afloat and protect their investment. They
would like to know that you are in the same boat as them and have made
personal financial sacrifices as well as the usual sacrifices of time
and energy.
Categories of Uses
The uses of funding will fall into different categories depending on
the type of business you are launching. These may include legal and
permitting expenses, leasehold improvements on a rented facility,
equipment purchases, starting inventory purchases (if you cannot buy
inventory on credit at this stage), marketing expenses, cash to cover
the shortfall between your early operating revenues and operating
expenses, and additional cash reserves. Use a cash flow statement to
determine these final two categories, as only by looking at how the
inflows and outflows will work over your first months or year will you
be able to see what cash requirements the business will have to keep a
healthy reserve in the bank to prepare for any contingencies.
Eric Powers is associated with Growthink, a business plan consulting
firm. Since 1999, Growthink's business
plan writers have developed more than 2,000 professional
business plans for entrepreneurs and business owners who have raised
more than $1 billion in growth capital. Call 800-506-5728
today for a free consultation with a business plan
consultant.
Article Source: http://www.articlealley.com/article_1338816_15.html
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