Recently, in writing a business plan for an Atlanta-based client, we had some interesting questions come up regarding the business plan funding summary. The question is, when plotting a project and you need to bring in investor capital, is it likely the investor will drop the whole cash raise at once, or will they control the money so that it hits cash flow at different points?
The answer is usually the latter. Most investors, when funding a business plan-based business (one that isn't in business yet), will set guidelines to how much they are willing to invest up front. Most will not give a full check to the partner and let them do as they will. Since they want to see the business succeed before they fully invest, it is more likely that they will like to see a prototype of the business succeed in a smaller fashion first.
This proof-of-concept approach to writing the plan allows the investor to get their feet wet with the entrepreneur before they need to fully fund, and therefore risk all their capital.
The business plan funding summary usually highlights this concept. Let's say you are raising $5 MM to open up 100 stores of Company X and the first store costs someplace in the neighborhood of $125,000. It would make more sense the investor will give $300,000 for the first store, and once successful, invest the remaining monies to roll out nationwide.
The funding summary will show $300,000 from investors and then cash flow should represent new investment received on a monthly basis to level out the incoming money. There is no reason to have $4,700,000 sitting in the company account from the get-go, and therefore this staggered investment approach makes the most sense.
Contact us with questions on properly structuring the allocation of incoming funds.