Entrepreneurs write business plans for a variety of reasons, whether it is to outline the feasibility of a proposition, all the way through to having a physical plan as to how they envisage the company operating. However, there is one purpose which all of those in business will have to eventually produce a plan for: to secure funding.
Acquiring adequate funding from a lender such as a bank requires a sturdy and realistic business plan, as to illustrate to them that your business is viable and profitable. This specific purpose of seeking to secure a loan means that this particular business plan has to be tailored in such a way that it matches the audience for which it is intended. In this blog, we will explore the best practices for constructing a business plan for this purpose.
Writing for your audience
A business plan should reflect your brand, in addition to forecasting its potential success. In many cases, your brand will be reflected in the language used throughout your plan; for example a business which values the youthfulness of its employees and a more personal approach to working will be conveyed in a more casual tone throughout your plan. This will need to be addressed however if you intend to use the plan to secure funding. Your business plan for funding should always consist of direct, formal business language in third person to ensure that any lender reading the piece will be able to quickly access the information they are looking for.
Laying out financial collateral
The crux of a business plan involves the forecast of profit that your company will earn. It is typical, however, that such forecasts offer a bright and successful outlook for your business. And there is no reason why this cannot be the case. Lenders however are not attached to your business vision and are more grounded in the reality of the business environment; which is tough. As much as your profit margins will have their uses in your business plan for lenders, an arguably more essential part of it will be how you intend to pay back your loan in a worst-case scenario that the business is unsuccessful.
This contingency plan is particularly important for brand new businesses who will not have much by way of financial history, and will therefore reassure the lender that their money can be paid back in full should the idea not come to fruition. Such collateral will come in many forms and will vary from entrepreneur to entrepreneur, but an adequate guarantor is one such solution. Having this plan in place alongside realistic financial forecasts will offer to lenders a more complete picture of how the business will have the ability to pay back the money it is asking for.
What to include
Of course, most plans are very similar in the topics they cover in order to lay out a comprehensive strategy of the business’s potential success. For a plan which is intended to help secure financial support, it is important that it includes detailed and evidenced information which will convince lenders that your business will be successful. Elements you should incorporate include:
- The Gap In The Market – The bank will want to understand the feasibility of your business in respect to the market you hope to exploit. You will need to outline your target market and your direct competition, but most importantly how your business will offer a solution to your customer’s issue that others cannot.
- Cash Flow – Arguably the most important element of your plan, you should detail your company’s finances. This includes evidencing your financial history, forecasts for your business’s growth and especially how much investment is required and what it will be used for.
- Sales & Marketing Strategy – You also need to outline how you will make your customers aware of your brand, how you will build your name for yourself. Details should include: what marketing activities you will run, how you will approach customers/clients and how much it will cost.
- Business Operation – Envisaging that you have successfully got your business off the ground, how will it be run day to day? Lay out where you will operate from, the basic outline of your business hierarchy, the values of your company.
- Metrics Of Success – Here you should establish the measurements that you will monitor which indicate success in your business. Profit may not be the only number you hope to grow, so you should detail what is.
The most important aspect to keep front of mind is to remember your audience; lenders will want succinct, feasible detail. If you would like help with putting together your business plan, get in touch today! Contact us online using the form on the right or call 01604 420 420.