Dear Financial Voice Reader

Dear Financial Voice Reader,
So Lord Sugar has his business partner in BBC’s the Apprentice. I see a lot of business plans each week from people with various propositions. The one thing that usually let’s them down, and I saw this just this week in an otherwise great fashion based business plan, is that they don’t explain the return the investor will get.
We Indians are great business people, especially Gujaratis, as an article in the Economist this week explained. But a business person looking for money has to be able to explain the investor the return for them.
Now, that was easy when all you wanted was a loan. The return was the interest rate, and the other person took a risk on your and your business’s ability to pay.
Now of course, as with Lord Sugar, it is not about a loan but shares in your business. What is the investors’ return? How will they get the money back? After all if shares are in a private company, then who will buy them? How could they be valued?
You have to be able to answer what the company will be worth in three years, how you came about that value, who will buy it, what experience you have in selling company shares.
For instance, is 100% of the company worth a multiple of its average annual profits for the past three years? Maybe 5 times is the multiple? So that in 3 years my, say, 50% stake, I can start working out what it will be worth.
But how does that get sold? Maybe you can comfort me with another method such as paying me dividends each year – so again I know my returns.
Of course all the while I have to be sure you have the expertise to make the returns you mention. And that’s when it gets complicated – in case it was not already – because I may then say I will give you money, but if your company doesn’t do well, I want that to be a loan, and if it does well I want it to be for 50% of the company.
Without these things, why would anyone buy shares in a private company and give an entrepreneur money? Unless of course you are asking friends and family?
I see a lot of business plans and this is the most common failing – not understanding how to answer what the person you are asking money from, needs to know. You need to put yourself in their position.
Instead people are so much in love with their business they almost feel entitled to money. Whereas to an investor the company is a machine which produces money – hopefully! They don’t love it, nor need to love it, the way you do.