If a business is inside the owner’s head, it is hard to convince lenders, investors and shareholders there is a credible company.
That’s where a business plan comes in. This highly recognized management tool is a written document that describes the entrepreneur, what is planned to achieve, how to overcome risks involved and provide the returns anticipated. Often people think business plans are limited to starting up new companies or applying for business loans. But they are also essential to running a business with a clear, well-documented plan.
Make it thorough but keep it simple.
Many entrepreneurs may see a business plan as a daunting task involving hundreds of pages. In reality, it should be a concise document that gives readers everything they need to assess for a company’s project. There is no guaranteed formula for writing an effective business plan. In general, show commitment to a venture and the skills and self-confidence necessary to make it all happen.
Here’s the core content.
The business proposal includes a description of exactly what is proposed. Who is the customer, what is the business exactly, what does it sell and what are the plans for growth?
Address how goods or services will appeal to customers. How will the company or product or service make a difference in the lives of customers?
Market analysis. Make sure to show a lender the homework is done. Market research helps understand customers’ needs in order to offer a product or service that precisely fits those needs. Provide information such as the target market, customer demographics, competition and distribution methods.
Provide information on competitor weaknesses and strengths and show how to improve on what they are doing.
Use organization charts to clearly spell out the roles of key management people and the proposed size of the organization.
Include information on the plan to recruit and maintain employees or handle outsourced work.
Do an assessment of the company’s needs with regard to premises and capital goods (such as machinery and technological equipment).
Be sure to modify information depending on the target audience. For example, a bank will be interested in how one will repay a loan or overdraft, what the owner intends to do with the money and how it will help the business grow. Potential investors will also want to see the expected return and sources of funding, while shareholders are looking at the prospect of the share price and what dividend they can expect. Generally lenders, shareholders and investors want facts and figures that back up the plan.
Show personal and business net worth (assets minus liabilities) so the lender can judge one’s ability to repay the debt
A banker will also look at past credit history to gauge reliability. Know what credit agencies have on file.
Include assets such as collateral to secure a loan. Bankers invariably ask for some investment as proof of commitment. That may have been raised privately.
The rule of thumb is that money attracts money; the more backers, the easier it is to attract new ones.
Be sure you include a cash flow forecast, the amount of cash needed to run the business.
Present financial projections for at least two years and do an analysis of market size and potential
Show exactly what will make all of that happen. Assign clear responsibilities, set real dates and realistic budgets. Include financial control systems, such as stock planning and managing debtors and creditors.
Address issues such as taxes, liability concerns, information on proprietorships, partnerships, limited or incorporated companies. If buying an existing business, be sure to clarify buy-and-sell agreements. Keep in mind a lawyer should look over all contracts and legal issues.
It helps to write an executive summary last; a page or two of highlights is sufficient. Be sure to clarify if this is a new business venture, an expansion of an existing business, or the purchase of a new business.
Also include:
– the type of business activity;
– a unique selling point;
– the market to be served;
– the main objectives of the company;
– personal management background; and
– project time frames involved.
Avoid:
– being overly ambitious – be able to justify assumptions or projections; and
– masking financial difficulties (inform the lender if sales fluctuate, for example, and consider a flexible payment schedule). A transparent business plan is one of the best assets in gaining the trust of bankers and investors, whether one’s own associates or people outside the company; and
– providing inadequate information on the management team, flawed marketing plans, unrealistic forecasts or incomplete presentations.
Source: the Business Development Bank of Canada.
