There is an old adage in the funding community: Investing $1,000,000 to fail is expensive, investing $5,000,000 to succeed is cheap. Investors will respond to funding needs based on real world assumptions. They will be very cautious when assessing a ventures real funding requirements.

Think of investment capital as fertilizer. If a farmer applies too little he harvests a poor crop or worse. Too much fertilizer and the harvest will likewise be disappointing. Experienced, successful farmers know their fields, their climate, crop planting patterns and their equipment. They will apply every pound of fertilizer needed to maximize their harvest. Investors handle their capital in exactly the same way.

I review many business plan submissions each year. It is amazing how many entrepreneurs can not identify, quantify or justify the investment requirements they describe in their business plans. This is an absolute eliminator in terms of creating investor enthusiasm for funding a project. This is one of the largest reasons so many plans never receive a thorough reading.

Often, the entrepreneur woefully understates the obvious funding level a new enterprise will require. The justification, stated or not, is usually that they are attempting to keep the needed investment number very low in order to create interest. They do not understand that there is no too high or too low investment number if the need for capital can be demonstrated, qualified and narrated. Investors want a crystal clear look at the use of funds and how they will earn an appropriate return on their invested funds.

Seeking a number in excess of the amount needed to successfully launch a startup is equally disastrous. Investors are not seeking to build a Taj Mahal before the first dollar of revenue is generated. Here are a few tips for building expense assumptions that will withstand withering investor scrutiny.

Salaries

Investors do not want entrepreneurs to starve. They also do not want to fund the lease on a BMW 745. Salaries should be based on sustenance requirements. Most investors I have worked with want their management teams to make enough salary to pay their bills and not place untoward strain on personal finance and marriages. Comfortable is fine, but they will not fund luxuries. Be very realistic.

Staffing

I often see plans with a list of proposed employees that resembles the list of animals on Noahs Arc. Keep this area very lean. Use outside contractors, consultants, and part-timers to fill every post possible. Employees add high fixed costs to the budget. Salaries, benefits, training and equipment can be too heavy a burden for startup projects to absorb. Another no/no is a squad of vice-presidents. These are red flags that scream excess and will all but eliminate any possibility of receiving funding for a new business opportunity.

Facilities

Plan on renting needed office space on a short-term basis. If growth happens as planned it is always easy to find bigger premises. You do not want to obtain a larger space than initially needed to run the business in the most efficient manner. You will be using too much of your precious capital for an underutilized asset.

This may seem obvious, but you should read the business plans I do. Many entrepreneurs try to replicate the surroundings they enjoyed when they were corporate employees. Recently, I reviewed a cash flow projection that included an office expense for a daily delivery of flowers, and this was not a floral business. Investors are totally put off by expenditures such as this. Unless the office environment will be crucial to closing sales and making deals keep the space as Spartan as possible.

Do not load up the staff with numerous family members unless they perform an absolutely essential function. Just because cousin Myrtle has been laid off for several years, the focus of your startup is not to give her employment, unless you can defend her abilities and unique skills. Your judgement will be questioned unless you can sell Myrtles benefits.

The cash flows you project in your business plan will be in the red (burning cash) for a number of months. Your ability to secure investment money will be largely effected by showing how quickly the burn rate stops and the business starts throwing off cash. This is a point that you must be able to defend aggressively. Investors will be very dubious about your cash flow projections, and thus the level of investment you really need, not what you may think you need. The better job you do of vetting assumptions and supporting them with historical industry specific data, the more likely you are to win investors and their money for commitment to your project.

A business plan that does not show cash burn slowing, then stopping and then turning to cash flow positive during the first 12 months of operations will likely not be funded. Investors want to see quick sales traction. A plan that does not show growth quickly enough will increase capital risk and sour investors.

Whether you require $1,000,000 or $21,000,000 the business plan should be written to justify the needed funding level being sought. Too low, or too high, and seasoned investors will walk away. Think like a farmer fertilizing his fields during spring planting. He has so much land and needs to make every square foot produce the greatest possible crop yield. The farmer does not waste seeds, fertilizer, water, labor or fuel. He makes sure that the crop is tended with all due diligence and given everything needed to reward his efforts. Farming is hard work.

So is finding and securing investment commitments. There are thousands of projects on the street every day seeking investment capital, partners or license. The number of projects greatly exceeds the supply of available resources. Do not injure your opportunity by loading up your offering with excess, fat and dreams. Your pay out comes after you achieve success, and the investor has begun to see a return on their investment.