Here’s a snapshot of the standard components of a business
plan:
·
Executive summary: A brief and compelling overview of your business idea
and your path to success. Don’t write this first. This should be the last
section you tackle, reflecting and summarizing the details in the rest of your
plan.
·
Company description: A high-level review of the different elements of your
business that helps potential investors understand the goal of your business
and its unique proposition.
·
Market analysis: This illustrates your industry and market knowledge,
as well as your business-specific market research findings and conclusions.
·
Organization and
management: Your company’s
organizational structure, details of ownership, profiles of your management
team, and the qualifications of your board of directors.
·
Service or product
line: This describes your services or
products, emphasizing the customer needs you serve and the benefits you provide
to customers.
·
Marketing and sales: A comprehensive look at your market penetration,
growth, distribution and communications strategies, as well as your sales
strategy.
·
Funding request: Your current and future funding requirements, and how
you intend to use the funds.
·
Financial
projections: A package of
documents common to all businesses, including income statement, balance sheet,
cash flow statement and capital expenditure budget.
·
Appendix: Any supporting materials.
The first thing a great business plan
does is open doors to secure small-business financing. One of the more common
forms of acquisition financing can be found through SBA
loan programs. But lenders won’t even consider a conversation with you
until they’ve seen your plan, and it must provide the specific information they
are looking for.
Here are four essential considerations
as you write your plan that create red flags or green lights from a funding
perspective.
1. Financial projections
“A bank is looking primarily at your
financials, and trying to understand whether you actually know and understand
how much cash you need, and whether the business looks financially viable,”
Parsons says.
If your financials don’t pencil out the
way the bank needs them to, your funding is a no go. Two key indicators that
lenders look at are your individual global cash flow (comprising personal cash
flow, personal debt, business cash flow projections and business
debt) and your debt service coverage ratio (DSCR), which indicates that
your business can cover the debt it takes on.
“Get your personal financials in
order,”. “And understand your cash levers so you speak intelligently to the
loan officer about what you need in a loan or credit line.”
2. Your experience
Your experience makes a key difference
to how lenders perceive your credibility and funding worthiness. Have you had
previous profits and losses responsibility? Can you show previous experience in
your target industry? (As an example, lenders may be reluctant to fund a
restaurant venture whose owner has no previous food industry experience.) How
can you demonstrate that you have the ability to manage your particular
business successfully?
One useful and simple exercise during planning
is to create a two-column list. Column A identifies the key factors needed to
operate your business successfully. Column B maps your experience and
accomplishments to those key factors. Make it as easy as possible for a lender
to see that you and your team have what it takes to manage the business
successfully. If you determine that you don’t have credible experience in a key
area of your plan, solve that issue before you ask for money.
3. Marketing strategy
Your lender wants to know that you know
how to attract new customers. Whether yours is a small independent business or
a new franchise location of a national company, the bank wants to see evidence
that there is a target market of people who want what you’re offering, and that
you have innovative ideas about how to reach them -- and how to
differentiate yourself from your competitors.
4. Location consideration
If your business needs to be
visible to attract customers, then location matters to lenders. They’ll
have questions about whether your business is on a corner or off street
and hard to spot, and what the auto and pedestrian traffic counts are on your
street. Does your location make it easier or harder for customers to reach you?
Addressing all the elements necessary
to a business plan can feel overwhelming to entrepreneurs. It’s important to
remember that the goal is to be thorough but concise. Banks know what they are
looking for, and it’s your job to make it as easy as possible for them to find
it. You don’t need a 50-page document. Provide clear, meaningful
information and let it speak for itself.
Make sure you get input at every stage
of your planning from trusted third-party advisors -- your financial
expert and business experts in your field.
Finally, “don’t reinvent the wheel,”
There are plenty of great tools
available online to help you complete a well-focused and professional-looking
business plan. Make sure you read the reviews and only take templates,
assistance or advice from credible sources. And never pay for a sample business
plan.
Your business plan is not an academic
exercise or a hoop to jump through, it’s a living document that shows
investors, advisors and business partners that you are serious about
making your dream reality. And that’s only the beginning of its usefulness.
Successful entrepreneurs know that planning never stops.
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