Noah is currently the COO at Palo Alto Software, makers of the online business plan app LivePlan.
How to Write a Convincing Business Plan for Investors
9 min. read
Updated May 25, 2023
Raising money for your business is a major effort. You need lists of investors to reach out to and you need to be prepared for your investor meetings to increase your chances of getting funded. You need to practice your pitch and be ready to intelligently answer any number of questions about your business.
A key to making this entire process much easier is to invest a little time and write a business plan. It’s true — not all investors will ask to see your business plan. But the process of putting together a business plan will ensure that you’ve thought through every aspect of your business and you’re ready to answer any questions that come up during the fundraising process.
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Why do investors want to see a business plan?
The business plan document itself isn’t what’s important to investors. It’s the knowledge that you’ve generated by going through the process that’s important. Having a business plan shows that you’ve done the homework of thinking through how your business will work and what goals you’re trying to achieve.
When you put together a business plan, you have to spend time thinking about things like your target market, your sales, and marketing strategy, the problem you solve for your customers, and who your key competitors are. A business plan provides the structure for thinking through these things and documents your answers so you’re prepared for the inevitable questions investors will ask about your business.
Even if investors never ask to see your business plan, the work you’ve done to prepare it will ensure that you can intelligently answer the questions you’ll get. And, if an investor does ask for your business plan, then you’re prepared and ready to hand it over. After all, nothing could be worse than arriving at an investor meeting and then getting a request for a business plan and not having one ready.
Beyond understanding your business strategy, investors will also want to understand your financial forecasts. They want to know how your business will function from a financial standpoint — what is typically called your “business model.” They’ll also want to know what it will take for your business to be profitable and where you anticipate spending money to grow the business. A complete financial plan is part of any business plan, so investing a little time here will serve you well.
What do investors want to see in a business plan?
There’s no such thing as a perfect business plan and investors know this. After all, they’ve spent years, and often decades, hearing business pitches, reading business plans, investing in companies, and watching them both succeed and fail. As entrepreneur and investor Steve Blank likes to say, “No business plan survives first contact with a customer.”
If this is true, then why bother writing a business plan at all? What’s the value of planning and why do investors want them if they know the plan will shortly be outdated?
The secret is that it’s the planning process, not the final plan, that’s valuable. Investors want to know that you’ve thought about your idea, documented your assumptions, and are on track to validate those assumptions so that you can remove risk from your business.
So what do investors want to see in your business plan? Beyond the typical sections, here are the most important things that investors want to see in your plan.
A vision for the future
Investors, particularly those investing in early-stage startups, want to understand your vision. Where do you see your company going in the future? Who will your customers be and what problems will you solve for them? Your vision may take years to execute — and it’s likely that the vision will change and evolve over time — but investors want to know that you’re thinking beyond tomorrow and into the future.
Product/market fit and traction
Investors want more than just an idea. They want evidence that you are solving a problem for customers. Your customers have to want what you are selling for you to build a successful business and your business plan needs to describe the evidence that you’ve found that proves that you’ll be able to sell your products and services to customers. If you have “traction” in the form of early sales and customers, that’s even better.
Funding needed and use of funds
When you’re pitching investors, you need to know how much you’re asking for. Your financial forecast should help you figure this out. You’ll want to raise enough money to cover planned expenses and cash flow requirements plus some additional funding as a safety net. In addition, you’ll want to specify exactly how you plan on using your investment. In a business plan, this section is often called “sources and uses of investment.”
A strong management team
A good idea is really only a small part of the equation for a successful business. In fact, lots of people have good business ideas — it’s the people that can execute well that generally succeed. Investors will pay a lot of attention to the section of your plan where you talk about your management team because they want to know that you can transform your idea into a successful business. If you have gaps and still need to hire key employees, that’s OK. Communicating that you understand what your needs are is the most important thing.
An exit strategy
When investors give you money to start and grow your business, they are looking to eventually make a return on their investment. This could happen by eventually selling your business to a larger company or even by going public. One way or another, investors will want to know your thoughts about an eventual exit strategy for your business.
What documents do investors want to see?
Even if investors never ask for a detailed business plan, your business planning process should produce a few key documents that investors will want to see. Here’s what you need to be prepared to pitch investors:
These days, a lot of fundraising outreach is done over email and you’ll need a concise cover letter that sparks investor interest. Your cover letter needs to be very brief, but describe the problem you’re solving for your target market. Great cover letters are sometimes in a “story” format that hooks readers with a real-world, relatable example of the problems your customers face and how our product or service
The goal of the cover letter isn’t to explain every aspect of your business. It’s just to spark interest and get a meeting with an investor where you’ll have more time to actually pitch your business. Keep your cover letter brief, engaging, and to the point.
If you get an investor meeting, you’ll almost certainly need a pitch deck to present your idea in more detail and showcase your business idea. Your pitch deck will cover the problem you’re solving, your solution, your target market, and key market trends. Read our detailed guide on what to include in your pitch deck here and for inspiration check out our gallery of more than 50 Industry Pitch Deck Examples.
Executive summary and/or one-page plan
You might not get a meeting right away. Your cover letter may generate a request for additional information and this is where a solid executive summary or one-page business plan comes in handy. This document, while still short, is more detailed than your cover letter and explains a bit more about your business in a page or two. Read more about what goes into a great executive summary and how to build a lean business plan.
Investors will inevitably want to see your financial forecasts. You’ll need a sales forecast, expense budget, cash flow forecast, profit and loss, and balance sheet. If you have historical results, you should plan on sharing those too as well as any other key metrics about your business. Investors will always look deep under the hood of your business, so be prepared to share all the details of how your business will work from a financial perspective.
What to include in your investor business plan
When you put together a detailed business plan for investors, you’ll follow a fairly standard format. Of course, feel free to customize your plan to fit your business needs. Remember: your business plan isn’t about the plan document that you create — it’s about the planning process that helps you think through and develop your business strategy. Here’s what most investor business plans will include:
Usually written last, your executive summary is an overview of your business. As I mentioned earlier, you might use the executive summary as a stand-alone document to provide investors more detail about your business in a concise form. Read our guide on executive summaries here.
The opportunity section of your plan covers the problem you are solving, what your solution is, and highlights any data you have to prove that people will spend money on what you’re offering. If you have customer validation in any form, this is where you highlight that information.
Describe what your target market is and key trends that are occurring in this market. Is the market growing? Are buying patterns changing? How is your business positioned to take advantage of these changes? Be sure to spend some time discussing your competition and how your target market solves their problems today and how your solution is superior.
Marketing & Sales Plan
Most businesses need to figure out how to get the word out and attract customers. Your business plan should include a marketing plan that describes how you’re going to reach your target market and any key marketing initiatives that you’re going to undertake. You should also spend time describing your sales plan, especially if your sales process takes time to close customers.
Milestones / Roadmap
Outline key milestones you hope to achieve and when you plan on achieving them. This section should cover key dates for product development, key partnerships you need to create, and any other important goals you plan on achieving.
Company & Management
Here’s where you describe the nuts and bolts of your business. How is your organization structured? Who is on your team and what are their backgrounds? Are there any important positions that you still need to recruit for?
As I mentioned, you’ll need to create a profit and loss, cash flow, and balance sheet forecast. Your financial plan should be optimistic, yet realistic. This is a tough balance and your forecast is certain to be wrong, but you need to document your assumptions and plans for the business.
Finally, you can include an appendix for any key additional information you want to share. Product diagrams, additional details on how you deliver your service, or additional research can all be included.
What comes next?
Writing a business plan for investors is really about preparing you to pitch your business. It’s quite likely that you’ll never get asked for the actual business plan document. But, the process will prepare you better than anything else to answer any questions investors may have.