What to demonstrate in your pitch
Whether you’re approaching a bank for a loan or trying to convince someone to invest in your business, there are some basics to get down.
- Show you have a plan.
- Share detailed financials.
- Convince them you know your stuff.
- Get them excited.
On the one hand, you want to sell the dream. But you also need to demonstrate that you’re sensible and cool-headed. It’s a balancing act. Get advice from other business owners and an accountant or bookkeeper – they frequently prepare finance applications and know what works.
1. Show you have a plan
There are dozens of approaches to writing a business plan (we cover two in our guide on how to start a business). But the most important things to communicate to a financier are:
- the opportunity – explain the need you’re fulfilling and estimate the size of the market
- market analysis – present some research that proves the opportunity is real
- how you’ll resource the business – identify the skills you’ll need versus the skills you already have
- your business model – demonstrate how you’ll turn the opportunity into money
- financial forecasts and budgets – show when you’ll be profitable
It’s also important to talk about the long-term future, and your role in it. Are you staying in the business for the long haul? Or do you want to grow it and sell it on? There’s no right or wrong answer. But investors and lenders will want to know your intentions.
2. Share detailed financials
Show financiers you’ve thought of everything – the good, the bad and the ugly:
- Your budget needs to be thorough and should include allowances for unexpected costs (contingencies) so they can see you’re well prepared.
- Be specific about how you plan to spend the funding.
- Show your workings on high-cost items. Is there a cheaper alternative and, if so, why didn’t you go with it?
- Don’t be too ambitious with your sales forecasts. Include a best and worst-case scenario but base your budget somewhere in the middle.
- If the business has assets (or owes money), create a balance sheet. Lenders and investors want to see what value already exists, and if you’ve put your own money into it.
- Show how and when your business is going to be profitable.
- Give details of how much you intend to take from the business as a salary or wage, and if you’ve got another source of funds in reserve.
Show how they’ll make money with you
You need to show the financiers what’s in it for them:
- Show lenders how repayments fit in your budget (and don’t forget to account for interest).
- Show investors when they can expect dividends (or an increased share price).
Buying a business?
If the funds are for buying a business, then you should also provide:
- two years of the business’s income statements
- sale and purchase agreement
- turnover warranty – a statement of the business’s guaranteed turnover during a defined period
- any restraints of trade which prevent the previous owner setting up in competition or contacting customers for a period of time
Expanding a business?
If the funds are to help you expand a business, then you should also provide:
- two years of income statements
- tax returns for the same period
- an explanation of how the funds will make the business more profitable
3. Convince them you know your stuff
You need to show you understand the industry you’re entering. That goes without saying. But you must also give lenders and investors confidence that you understand the financial side of your proposal. It helps to know some (or all) of these numbers off the top of your head:
- Revenue – the money you’ll generate from sales of your product or service over a specific period (normally a year)
- Costs – direct costs; costs that go up the more sales you make (includes things like inventory) and indirect costs; costs that stay the same no matter how busy you are (includes things like rent and staff).
- Gross profit – the amount of money your business will make from sales after deducting the cost of goods or services sold (and before you pay operating costs, payroll, tax and overheads)
- Net profit – the total amount of profit your business will make after deducting all costs (including direct costs, operating costs, payroll, tax and overheads)
- Margin – the difference between your product or service's selling price and the cost of production
- Value of collateral – the value of the assets you’ll use to secure the lending
- Credit score – an external rating of how good you are at paying your bills and debts
- Repayments or payback on the finance you’re seeking – what repayments you’ll make and when, or what dividends you hope to pay out to investors and how much you’ll grow the value of the company and their shares
4. Get them excited
Don’t forget to show them your product or service! If it’s not created yet, show them a mockup. Make a video, take photos, show screenshots. Lenders and investors want to see something tangible. Don’t leave it all to their imagination.
Show your belief in the idea when you pitch it, but don’t lose sight of reality. While it’s great to be excited about the financial potential of your business, you need to assure your audience that you understand the risks and threats. It’ll be even better if you have strategies for addressing them. And if there’s anything you don’t know, be upfront about that too.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
How to finance your business
Need finance for your business? Learn about the types of finance, approaching lenders and investors and more.
- What is business finance?
Your new business idea is ready to go. Now you need to find the right small business funding. But where do you start?
- How much business funding do you need?
Knowing how much money you need will help you choose the right type of finance. These tips will help you find a number.
- Debt versus equity finance
Most forms of funding fall into one of two camps. Let’s look at the main pros and cons of debt versus equity.
- Main types of finance
It takes money to make money. So what sort of finance options are there? Here are the types that fund most businesses.
- How to get a business loan
Getting a business loan is still one of the most common ways to finance a business. So let’s look at how to get one.
- Peer-to-peer lending
Peer-to-peer lending is an alternative method of getting a business loan. How does it work?
- Friends and family loans
Friends and family loans may be available when other types of finance aren’t, but they do require some precautions.
- Invoice financing
Ever thought your cash flow would be better if everyone just paid what they owed you? Well, you may not have to wait.
- How to find investors
How do you find investors for equity financing? Let’s look at what types there are and where to locate them.
- Angel investors versus venture capitalists
Angel investors and venture capitalists are alternative finance sources. What can they offer your business?
- How crowdfunding works
Crowdfunding can get you money to build a business, and the attention to build a customer base.
- Small business grants
Grants are a great funding option for some businesses. They can be a lot of work to get, but the reward is free money.
- Pitching for business funding
Seeking business funding is a major step but you needn’t be daunted. Here’s how to pitch your business.
- Tools and guides for your business
Now that you’re in business, you want to stay there. Xero’s got resources and solutions to help.
Download the guide to financing your business
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