Saturday, February 19, 2011

a Business Plan for Business finance

For any entrepreneur, whether you are starting or growing your business, creating o a business plan is a key process, helping you to outline what will be done with which resources and ideally a justification of the demand, not to forget understanding the competition.

For many business owners, the business plan has the key purpose is to ensure finance for the business. Both business angels, venture capital firms and banks of course will be very keen to see a business plan before they consider whether to get to know you a bit better and if all goes well, start the negotiations regarding he terms of your way forward.

This guide explains what you should include in your business plan and how you should present it to potential investors, shareholders and your bank.

The essential elements of a business plan
Potential investors and lenders will examine your business plan closely to determine whether to risk their money.

There is no standard format but most plans include:
An executive summary highlighting the main points - to catch people's attention.

Details of key personnel with an organisational chart showing individual responsibilities.

Market research - details of competitors and how your product or service fits into the market - eg who your potential customers are and why you think they will buy your product or service.

Your marketing plan - how you are going to get your product or service in front of potential customers, together with any assumptions made when setting your targets.

Financial information - eg key ratios. These can be used to compare your business' performance against industry benchmarks. It's also a good idea to give details of any major expenditure you have made on long-term assets and explain the reasons behind any changes in working capital items, such as stock, debtors and creditors. Remember to include balance sheet and profit and loss account details. Many lenders ask for three years' financial information. If this is not available, supply details about trading to date.

When seeking funding, include:
A cashflow forecast indicating the amount of funding you need and why. For a start-up, include estimates of how much finance you will need for two to three years or until you start to make a profit. Indicate contingency funds that might be needed for rough patches. This is usually between 10 and 20 per cent of the total funding requirement.

Financial forecasts for a three- to five-year period. Try to present this information in the same way as historical financial information, so that straightforward comparisons can be made.

How a loan will be repaid, how investors can get their money back, and when.

Tailor your business plan to the target audience
A business plan serves a number of purposes and you may have to modify information depending on your target audience.

Your bank will be interested in:
how you intend to repay a loan or overdraft
what you are going to do with the money
how the loan will help the business to grow
what other loan or debt commitments you have

Most lenders operate a credit-scoring system. Make sure you give up-to-date and relevant information. A good relationship with your bank manager will not influence the credit score - the manager may have discretion to negotiate terms but not to change the decision itself.

Tell potential investors about:
what you are going to do with the money
when and how you are going to pay it back
the expected return
your other sources of funding
your management's track record
Include a detailed forecast of your profits and cashflow.

Indicate to shareholders:
the prospects for the share price
how they may be able to sell their shares
what dividend they can expect on their shares
your management's track record
what say they might have in the business

Demonstrate how they can exit with positive returns within three to five years.

Many businesses with growth potential fail to raise funds because they lack investment readiness, ie they do not understand the expectations of investors, cannot turn proposals into attractive opportunities or are unaware of financing sources.

Common reasons why business plans and loan applications fail include:
a weak management team
a flawed marketing plan
unrealistic forecasts
incomplete financial history
poor presentation

Demonstrate your commitment to the business
If you want to attract outside funding, you need to show that you are committed to the business. You will also need to either show that you have a good credit history or, if not, explain why not.

Demonstrating your personal financial commitment
To attract funding, you need to invest your own money in your business. If you are not prepared to risk your own capital, a lender or investor is unlikely to want to risk theirs.

Therefore, your business plan needs to show the extent to which you are committing your own resources.

For example, you should mention that you are:
investing your own cash in the business

reinvesting profits from the business rather than taking dividends yourself

using your own assets and guarantees to raise funds, eg by remortgaging your house

finding funds from family, friends and existing investors
It is always helpful to detail the backing you already have from banks and other investors - especially independent investors. Remember that money attracts money. The more backers you have, the easier it is to attract new ones.

Getting the best from your business plan - key considerations
Your business plan is a tool you can use to attract new funds or as a strategy document. Give yourself the best chance of success by following these suggestions.
Doing your research

Before writing your plan ensure that you:
check that the help you are applying for is still available - you may no longer qualify

back up any assumptions you have made with thorough research

find out your own credit rating by applying to Experian or Equifax for your credit file - a small charge is payable

Writing your business plan
Write your plan in a way that demonstrates your commitment to the business. Give it a professional feel by using graphs, pie charts, photos etc, but use only one font type and colour.

Your plan should:
Be realistic - make sure you can justify any assumptions or projections and avoid being overly ambitious.

Highlight any potential financial difficulties - warn your bank or lender if you anticipate that you may not be able to meet a repayment. There is every chance you will be able to come to some arrangement.

Show how you intend to devise and implement effective cashflow arrangements, eg have clear procedures for chasing up any accounts receivable.

Once you have finished writing your plan, get someone to read it to spot spelling and presentation errors, and to ensure it's set out logically.

Getting professional help
Seek the help of your business adviser or accountant in compiling your business plan or loan application form. They will ensure that the financial information is compiled and presented correctly and that key areas stand out.

A specialist broker can help to find potential investors, usually for a fee and a percentage of funds raised.

Revising a business plan
Once you have presented the plan, ensure you review and revise it as your business grows.
If you are refused investment or a loan, take the criticism on board and consider how you might improve the plan for presenting in the future.

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