A business plan precisely defines your business, identifies your goals, and serves as your firm's resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others about your operations and goals.
You have an idea for a business, but will it work? And will you be able to convince a bank or other source of finance that it will be successful? Most entrepreneurs will need some outside finance. If you are to raise the necessary money, you will have to give a potential lender a convincing business plan.
Each funding organisation has its own rules for considering a business plan. Prepare one carefully to satisfy their particular regulations. For some types of finance you must present a business proposal in a standard form, which may include an independent accountant's report. Lenders will want to know:
what kind of business you intend to set up
the kind and size of market you expect to trade in
the likely extent of the competition
how you propose to market your product or service
a budget, profit-and-loss and cash-flow forecasts (see below) for at least 12 months, which will demonstrate that the loan can be repaid after all your business expenses have been met
what (if any) relevant qualifications and experience you have whether you have sought expert advice
what resources you have (e.g., redundancy money, savings, stocks and shares and other securities and investments, valuables convertible into cash, the value of your house and car) where the rest of the financing of your enterprise will come from, including other loans such as a loan from a member of the family at low interest
how much you want to borrow, for how long and how you propose to pay it back
whether you are asking for too little money - don't underestimate your requirements.
Banks and other financial institutions usually make a charge for setting up a loan or overdraft facility. This should be allowed for in your planning calculations.
Plan Your Work
The importance of a comprehensive, thoughtful business plan cannot be overemphasized. Much hinges on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, and achievement of your goals and objectives.
"The business plan is a necessity. If the person who wants to start a small business can't put a business plan together, he or she is in trouble," says Robert Krummer, Jr., chairman of First Business Bank in Los Angeles.
Despite the critical importance of a business plan, many entrepreneurs drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don't have enough time. But just as a builder won't begin construction without a blueprint, eager business owners shouldn't rush into new ventures without a business plan.
Before you begin writing your business plan, consider four core questions:
What service or product does your business provide and what needs does it fill?
Who are the potential customers for your product or service and why will they purchase it from you?
How will you reach your potential customers?
Where will you get the financial resources to start your business?
